Introduction

When people ask questions about Bitcoin, they usually ask ‘what is it?’ or ‘how does it work?’

Jack Dorsey, the founder and former CEO of Twitter, described the Bitcoin white paper as one of the most seminal works in computer science over the last twenty or thirty years. He even went further and described it as ‘poetry’ – and he’s not wrong. The Bitcoin network is a principled system based on math and computer code whose laws are unalterable and by design based on consensus. Over time, it has taken on an almost organic nature, which is why some observers have applied scientific or mathematical laws to project its growth. Whether these projections are right or wrong remains to be seen, but the code that Satoshi wrote and gave to the world has gone on to grow into something that nobody could have expected.

One of the most fundamental aspects of the Bitcoin network is the matter of its capped supply of bitcoins at 21 million – a unique property that no other commodity or asset has ever had before. This alone writes Satoshi Nakamoto into the history books as the person or group that invented – or discovered – total digital scarcity. What this is going to do to the price and value of Bitcoin is hard to tell. Humanities propensity to value scarcity via fundamental economic truths such as supply and demand means that the value of Bitcoin is potentially without limit. It is not hyperbole to say that we have never before had a commodity, asset, currency or money like it in the history of mankind.

And as Max Keiser might say:

‘Bitcoin has no top because fiat has no bottom.’

On the surface Bitcoin seems fairly straightforward. It’s a computer network with its own currency that allows for individuals to exchange P2P (peer-to-peer) without the need for a trusted third party. That’s how Satoshi explained it. But in order to truly understand what Bitcoin is, you have to dive a little deeper. You must scratch the surface and spend more than 5 minutes asking the simple questions, because not only is there the aspect of its fixed supply at 21 million coins, but there is also the matter of its issuance via the block reward which miners compete for every 10 minutes. Further to that, there is also the halving, whereby this 10-minute block reward is cut in half on average every 4 years, or every 210,000 blocks. In simpler terms, this guarantees that Bitcoin’s inflation rate is halved every 4 years, and will continue to do so until around 2140 when the last portion of bitcoin is mined, which at that stage won’t even be 1 whole bitcoin. It will be a portion of a bitcoin, around 21 satoshis or less (there are 100 million satoshis in a bitcoin, much like there are 100 pennies in a pound.) This fact alone means that in 120 years, a vast amount of energy and infrastructure is going to be employed by bitcoin miners into competing for the last block reward of only 21 satoshis or less.

So you can see by this relatively simple introduction to Bitcoin here alone how it may seem straightforward, but that when you begin to dive into the nature of the network and how it works, you find that you walk away with more questions than answers and that any price prediction simply falls short of the imagination. That’s what it’s like to study Bitcoin.

That’s why the community refers to it as taking ‘the orange pill’.

So with that in mind, here at Sovereign Digital we will be posting a series of articles on some of the fundamentals of Bitcoin in the hopes that we can help shine some light on a few of the key concepts of Bitcoin. Along the way, we are inevitably going to take tangents down rabbit holes and broader ideas that cannot be ignored when considering Bitcoin. Topics like the origins of money, Austrian economics, politics, macroeconomics, sociology, history, psychology, the lot!

Because understanding Bitcoin takes more than knowledge of the code or network.

It requires a curiosity for the world.

Welcome to Sovereign Digital!