Bitcoinist Book Club: “The Bitcoin Standard” (Chapter 8, Part 1: Digital Money)

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Finally, digital cash. We obtained to the half when Saifedean Ammous talks about Bitcoin.  So far, “The Bitcoin Standard” has given us historical past, economic system, and philosophy classes. It’s time for know-how. For Bitcoin specialists, this chapter could be somewhat too fundamental. For newcomers to the area, the next materials will probably be essential of their understanding. The writer explains every of the transferring components that comprise the Bitcoin community in a language that’s straightforward to know. 

However, earlier than we get into it… 

About The Coolest Book Club On Earth

The Bitcoinist Book Club has two completely different use instances: 

1.- For the superstar-executive-investor on the run, we’ll summarize the must-read books for cryptocurrency fans. One by one. Chapter by chapter. We learn them so that you don’t need to, and provide you with simply the meaty bits. 

2.- For the meditative bookworm who’s right here for the analysis, we’ll present liner notes to accompany your studying. After our e book membership finishes with the e book, you’ll be able to all the time come again to refresh the ideas and discover essential quotes. 

Everybody wins.

So far, we’ve coated:

  • Prologue and Chapter 1
  • Primitive Moneys (Chapter 2)
  • Why Gold? (Chapter 3, Part 1) 
  • History (Chapter 3, Part 2) 
  • Gold Standard (Chapter 4, Part 1) 
  • Government Money (Chapter 4, Part 2) 
  • Money and Hyperinflation (Chapter 4, Part 3)
  • Time Preference (Chapter 5, Part 1) 
  • Capital Accumulation (Chapter 5, Part 2)
  • Price (Chapter 6, Part 1)
  • Unsound Money (Chapter 6, Part 2)
  • Economic Thought (Chapter 7, Part 1)
  • Inflation (Chapter 7, Part 2)

And now, let’s return to, The Bitcoin Standard: “Chapter 8: Digital Money”

Put merely, Bitcoin is the primary profitable type of digital cash. It solves all the issues that cash as an idea presents. And, in entrance of Bitcoin, all of our earlier types of cash “appear quaint anachronisms in our modern world—abacuses next to our modern computers.” Nowadays, we’re greater than twelve years into Bitcoin. When Saifedean Ammous wrote the e book, nonetheless, he mentioned:

“Bitcoin has operated with practically no failure for the past 9 years, and if it continues to operate like this for the next 90, it will be a compelling solution to the problem of money, offering individuals sovereignty over money that is resistant to unexpected inflation while also being highly salable across space, scale, and time.”

Historically, technological improvements “shaped the monetary standards that people employed.” Bitcoin is the most recent incarnation of that and the primary one born out of the digital age. It makes use of “several technological innovations that were developed over the past few decades and building on many attempts at producing digital money to deliver something which was almost unimaginable before it was invented.”

Digital Money Takes Shape

The first downside Satoshi Nakamoto solved was digital shortage. “The nature of digital objects, since the inception of computers, is that they are not scarce. They can be reproduced endlessly, and as such it was impossible to make a currency out of them, because sending them will only duplicate them.”

The second difficulty Nakamoto tackled was the double-spending downside. With money, if you happen to pay somebody by means of a invoice, there’s no manner you’ll be able to spend that invoice once more. The different individual has it and also you don’t. With digital cash, however, “there was no way of guaranteeing that the payer was being honest with his funds, and not using them more than once, unless there was a trusted third party overseeing the account and able to verify the integrity of the payments carried out.” A 3rd occasion was out of the query, therefore the issue. 

“Third parties are by their very nature an added security weakness. Involving an extra party in your transaction inherently introduces risk, because it opens up new possibilities for theft or technical failure. Further, payment through intermediaries leaves the parties vulnerable to surveillance and bans by political authorities.”

There will solely be 21 million Bitcoin. That makes it “the first digital object that is verifiably scarce.” Plus, Bitcoin doesn’t want a 3rd occasion to confirm transactions. An ever-increasing variety of miners unfold around the globe, concerned in a race to resolve a mathematical puzzle, try this. More on that later. The system provides Bitcoin house owners whole management over their cash. “Sovereign money contains within it all the permission needed to spend it; the desire for others to hold it exceeds the ability of others to impose controls on it.”

BTC worth chart for 11/26/2021 on OkCoin | Source: BTC/USD on TradingView.com

Moving Away From Gold

The writer praised gold all all through the e book. Gold is cash that nobody can print. As humanity moved away from it, central financial institution management “left them helpless in the face of the slow erosion of the value of their money as central banks inflated the money supply to fund government operation.” Satoshi Nakamoto created Bitcoin to avoid wasting us from that.

“Nakamoto removed the need for trust in a third party by building Bitcoin on a foundation of very thorough and ironclad proof and verification. It is fair to say that the central operational feature of Bitcoin is verification, and only because of that can Bitcoin remove the need for trust completely. Every transaction has to be recorded by every member of the network so that they all share one common ledger of balances and transactions.”

Remember the mathematical issues the miners resolve each ten minutes? Well, their predominant attribute is that they’re “hard to solve but whose correct solution is easy to verify. This is the proof-of-work (PoW) system, and only with a correct solution can a block be committed and verified by all network members.” The PoW system is essential as a result of it makes “verifying nodes to expend processing power which would be wasted if they included fraudulent transactions.”

“Crucially, the node that commits a valid block of transactions to the network receives a block reward consisting of brand new bitcoins added to the supply along with all the transaction fees paid by the people who are transacting.”

Tick Tock, Next Block

Regardless of what number of miners assist the community at any given time, Bitcoin produces a brand new block “roughly every ten minutes, and for each block to contain a reward of 50 coins in the first four years of Bitcoin’s operation, to be halved afterwards to 25 coins, and further halved every four years.” The identify of that mechanism is “the halving” and it units in movement a deflationary course of. One of the numerous causes that make Bitcoin’s worth improve.

“The quantity of bitcoins created is preprogrammed and cannot be altered no matter how much effort and energy is expended on proof-of-work. This is achieved through a process called difficulty adjustment, which is perhaps the most ingenious aspect of Bitcoin’s design. As more people choose to hold Bitcoin, this drives up the market value of Bitcoin and makes mining new coins more profitable, which drives more miners to expend more resources on solving proof-of-work problems.”

The cause for the issue adjustment is to “ensure blocks will continue to take around ten minutes to be produced.” Unlike gold, “more effort to produce bitcoins does not lead to the production of more bitcoins. Instead, it just leads to an increase in the processing power necessary to commit valid transactions to the Bitcoin network, which only serves to make the network more secure and difficult to compromise.”

As you’ll be able to see, the system is simply too stunning to place into phrases. And we’re simply starting. Join us subsequent time, as we proceed to discover its intricacies.

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