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Bitcoin is the cheapest way to buy the future, because Bitcoin is the only medium guaranteed to not be debased, no matter how much its value rises. (See Figure 21.3)
The Sovereign Individual, James Davidson and William Rees‐Mogg argue that the modern nation‐state, with its restrictive laws, high taxes, and totalitarian impulses, has grown to a level of burdensome repression of its citizens' freedom comparable to that of the Church in the European Middle Ages, and just as ripe for disruption.
New forms of organization will emerge from information technology, destroying the capacity of the state to force citizens to pay more for its services than they wish. The digital revolution will destroy the power of the modern state over its citizens, reduce the significance of the nation‐state as an organizing unit, and give individuals unprecedented power and sovereignty over their own lives.
There was one final piece in the puzzle of digitization that had been missing, and that is the transfer of money and value. Even as information technology could subvert geographic and governmental controls and restrictions, payments continued to be heavily controlled by governments and the state‐enforced banking monopolies.
The historical version of sound money, gold, did not have these advantages. Gold's physicality made it vulnerable to government control.
political philosophy developed by the American economist of the Austrian school, Murray Rothbard.
Bitcoin, being completely voluntary and relentlessly peaceful, offers us the monetary infrastructure for a world built purely on voluntary cooperation.
It was government money in the twentieth century that allowed for the birth of the heavily interventionist managerial state, with totalitarian and authoritarian tendencies. In a society run on hard money, government impositions that are not economically productive are unlikely to survive for long, as there is little incentive to continue financing them.
The invention of Bitcoin has created, from the ground up, a new independent alternative mechanism for international settlement that does not rely on any intermediary and can operate entirely separate from the existing financial infrastructure.
fully peer‐to‐peer cash, it is not a new vision. Hal Finney, the recipient of the first Bitcoin transaction from Nakamoto, wrote this on the Bitcoin forum in 2010: Actually there is a very good reason for Bitcoin‐backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to
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If Bitcoin continues to grow in value and gets utilized by a growing number of financial institutions, it will become a reserve currency for a new form of central bank. These central banks could be primarily based in the digital or physical worlds, but it is becoming worth considering if national central banks should supplement their reserves with Bitcoin.
The point at which central banks start to consider using it is the point at which they are all engaged in a reverse bank run on Bitcoin. The first central bank to buy bitcoin will alert the rest of the central banks to the possibility and make many of them rush toward it. The first central bank purchase is likely to make the value of Bitcoin rise significantly and thus make it progressively more expensive for later central banks to buy it.
They are now up against a digital competitor that most likely cannot be brought under the physical world's laws.
As a store of value, Bitcoin may continue to attract more savings demand, causing it to continue appreciating significantly compared to all other forms of money until it becomes the prime choice for anyone looking to get paid.
Bitcoin can thus be understood as a technology that converts electricity to truthful records through the expenditure of processing power.
In other words, the defense of the Bitcoin network is not just that attacking it has become expensive, but that the attack succeeding renders the attacker's loot worthless. Being an entirely voluntary system, Bitcoin can only operate if it is honest, as users can very easily leave it otherwise.
Bitcoin, on the other hand, contains billions of dollars of value, but continues to operate safely and reliably because it was built, from day one, to operate in a highly adversarial setting, subject to relentless attack.
From the discussion above it should be clear that Bitcoin's advantages lie not in its speed, convenience, or friendly user experience.
Bitcoin is to be taken as it is, accepted on its own terms and used for what it offers. For all practical intents and purposes, Bitcoin is sovereign: it runs by its own rules, and there are no outsiders who can alter these rules. It
With Bitcoin's association in the public's mind with drugs and crime, most analysts predicted the closing of the website would destroy Bitcoin's utility. The price on that day dropped from around the $120 range to the $100 range, but it rebounded quickly and began a very fast rise, reaching $1,200 per bitcoin within a few months. At the time of writing, the price had never again dropped to the level it was at before the closing of the Silk Road website. By surviving the closing of the Silk Road unscathed, Bitcoin demonstrated that it is far more than a currency for crime, and in the process it
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Bitcoin is driven by its use as a digital cash and digital store of value, rather than small digital payments.
several inputs and outputs, and using a technique called CoinJoin, several payments can be grouped together into one transaction, allowing several inputs and outputs for only a fraction of the space that would have been needed otherwise. This
Should Bitcoin's growth continue it is only natural to see the number of off‐chain transactions increase faster than the on‐chain transactions.
Whatever shape this industry takes, the services it provides and how it evolves will shape the contours of a Bitcoin‐based banking system in the future.
cash has come to denote the money used for small consumer transactions today, the original meaning of the term refers to money that is a bearer instrument, whose value can be transferred directly without resort to settlement by, or liability of, third parties.
Bitcoin would be better understood as cash in the old meaning of the term, similar to gold cash reserves, rather than the modern term for cash as paper money for small transactions.
The Bitcoin trail of payments itself has been the reason that many online drug dealers have been identified and caught as they fell for the hype of Bitcoin as completely anonymous.
Had they accepted transactions with one confirmation, it would have been much harder to pull off the attack.
But Bitcoin is a software protocol; it is an internal process that can be carried out on any one of billions of computer machines that are distributed worldwide. Bitcoin has no single point of failure, no single indispensable hardware structure anywhere in the world on which it relies. Any computer that runs Bitcoin's software can connect to the network and carry out operations on it. It is in that sense similar to the Internet, in that it is a protocol that allows computers to connect together; it is not the infrastructure which connects them.
This remains in my opinion the most serious technical threat to Bitcoin in the medium and long term. As it stands, the main constraint on individuals being able to run their own nodes is the Internet connection bandwidth. As blocks remain under 1 megabyte, this should be generally manageable. A hard fork that increases the size of the block would cause a rise in the cost of running a node and lead to a reduction in the number of operational nodes. And just like with the previous threats, while this is certainly technically possible, it remains unlikely to materialize because the economic
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The demand for Bitcoin stems from the need of individuals all over the world to carry out transactions that bypass political controls and to have an inflation‐resistant store of value.
In practice, however, the possibility of a global return to sound money and liberal government is extremely unlikely as these concepts are largely alien to the vast majority of politicians and voters worldwide, who have been reared for generations to understand government control of money and morality as necessary for the functioning of any society.
Bitcoin is the only truly decentralized digital currency which has grown spontaneously as a finely balanced equilibrium between miners, coders, and users, none of whom can control it.
Because Nakamoto and Finney are no longer with us, Bitcoin has not had any central authority figure or leader who could dictate its direction or exercise influence over the course of its development.
Only Bitcoin's rules control Bitcoin, and the possibility of changing these rules in any substantive way has become extremely impractical as the status‐quo bias continues to shape the incentives of everyone involved in the
“Bitcoin is not important, but the underlying blockchain technology is what holds promise” is a mantra that has been repeated ad nauseam between 2014 and 2017 by banking executives, journalists, and politicians, who all share one thing in common: a lack of understanding of how Bitcoin actually works.
Like these islanders, the people touting blockchain technology as a process that could generate economic benefits on its own do not understand the larger process of which it is a part. Bitcoin's mechanism for establishing the authenticity and validity of the ledger is extremely complex and complicated, but it serves an explicit purpose: issuing a currency and moving value online without the need for a trusted third party.
