Bitcoin¶
Bitcoin is the world's first successful digital currency, created by the pseudonymous Satoshi Nakamoto in 2008-2009. Bitcoin represents the first form of money in history with all five properties of good money in digital form—portable, divisible, durable, scarce, and increasingly accepted. Most significantly, Bitcoin's fixed supply of 21 million coins makes it mathematically immune to the currency debasement that has destroyed every previous monetary system.
Electronic Cash Realized¶
"Bitcoin was the first digital currency to solve two challenges associated with digital money—controlling its creation and avoiding its duplication—at once." The concept of digital cash traced back decades, from David Chaum's 1977 paper "Blind Signatures for Untraceable Payments" to DigiCash in the 1990s. Earlier 2000s projects like Liberty Reserve and WebMoney either "became associated with illegal activity" and were seized, or "simply failed to gain widespread acceptance."
Satoshi's breakthrough was eliminating the need for trusted third parties. "Bitcoin replaces conventional trust enforcement systems with algorithms, cryptography, and distribution."
The Blockchain Solution¶
Bitcoin solves the double-spending problem—digital counterfeiting—through blockchain, "a duplicated, distributed public ledger secured by cryptographic proof of work." All transactions are transparent and immutable. "Attempting to spend the same Bitcoin twice would require overpowering the majority of the network's computing power, an endeavor that is highly impractical and expensive—too expensive for an attacker to financially benefit."
The encryption technology (RSA and SHA-256) is so strong that "even with modern computers and high computational power, it would currently take an extremely long time, likely beyond the age of the universe, to crack a single SHA-256 hash through a brute-force attack."
Fixed Supply: The Revolutionary Feature¶
Bitcoin's most radical innovation is its hard monetary cap. Two limitations prevent inflation: first, "a limitation on the rate at which new Bitcoin are created. This rate is fixed at a set amount every ten minutes (approximately)." The algorithm adjusts difficulty to maintain this schedule. Second, "a limit on the maximum number of total Bitcoin created, frequently cited as 21 million. That limit will be reached in over 100 years."
This represents unprecedented monetary architecture. "Since the maximum number of Bitcoin is fixed, over time Bitcoin should become more valuable relative to other currencies as the supply of government-backed fiat currencies continues to increase. Its certain limited supply is a unique feature that stands in opposition to nearly every other traditional currency."
All Five Properties¶
On launch day in 2009, "the Bitcoin blockchain had all of Aristotle's characteristics of good money: portable, durable, divisible, scarce, and fungible. The only thing it lacked was acceptance."
Portable: As digital money, Bitcoin is "portable by nature." Value can be transmitted anywhere instantly through electronic cash transactions.
Divisible: "1 Bitcoin = 100,000,000 satoshis," providing extraordinary granularity for transactions of any size.
Durable: "The encrypted distributed ledger is perhaps the most secure technology on earth. It is not subject to decay over time, wear from use, or erosion from the environment."
Scarce: "Bitcoin is economically infeasible to counterfeit, so participants must give up something of value to acquire it." There are only three ways to obtain Bitcoin: purchase on the open market, sell goods or services in exchange, or earn block rewards through mining.
Acceptance: This final requirement developed through network effects, which the book extensively documents.
Digital Gold¶
Bitcoin is "often referred to as digital gold due to its similarities to the precious metal in terms of store of value characteristics." Like gold, Bitcoin resists inflationary pressures. "While central banks can increase the money supply and devalue fiat currencies, Bitcoin's protocol limits the issuance of new coins, by design. This makes Bitcoin deflationary, meaning its purchasing power tends to increase over time."
Yet unlike gold, Bitcoin is spendable. "In that regard, Bitcoin is more like a gold coin than a gold bar." "Fundamentally, Bitcoin operates no differently than the modern SWIFT network: coordinated ledger entries through secure messaging. If bitcoin isn't 'real money,' then neither is the global banking system."
Gresham's Law and HODLing¶
Bitcoin's relationship to Gresham's Law explains why holders tend to save rather than spend it. "Thier's Law is why people save, rather than spend, Bitcoin." When given free choice between currencies, people will hoard what they believe to be superior money and spend inferior money. This dynamic—often called "HODLing" in Bitcoin culture—reflects rational behavior predicted by economic theory.
The Currency of Crisis¶
Throughout history, monetary crises follow a pattern: governments debase currency to fund wars or spending, inflation accelerates, economic crisis results, and citizens seek refuge in sound money. Copernicus's warning that currency debasement "destroys republics not in one sudden attack, but gradually."
Bitcoin emerged from the 2008 financial crisis, with Satoshi launching the network on January 3, 2009, embedding in the first block: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." This timestamp established Bitcoin as a response to fiat currency failure and bank bailouts.
Network Effects and Metcalfe's Law¶
Bitcoin's value derives fundamentally from network acceptance. Metcalfe's Law states that a network's value is proportional to the square of its users (V ∝ n²). Economist Hal Varian's question—"why are the dollar bills in people's pockets worth anything?"—applies equally to Bitcoin. The answer: network effects.
"For over a decade, Bitcoin's price, as well as the viability and merit of the Bitcoin network itself, has been derided by classical economists as fiction." Yet as the Federal Reserve Bank of St. Louis acknowledged, Bitcoin's "fundamental demand derives from the fact that there are at least some people who value these features. This fundamental demand provides a non-zero lower bound on the price of Bitcoin."
"Bitcoin adoption in the 2010s has followed roughly the same path as internet adoption in the 1990s-2000s."
From Infamy to Legitimacy¶
Ironically, Bitcoin first gained widespread attention through ransomware attacks demanding payment in Bitcoin, leading people to ask, "What is a Bitcoin?" The 2017 WannaCry attack "infected over 300,000 computers in more than 150 countries within just a few days," with "estimated economic impact in the billions of dollars."
While this notoriety initially associated Bitcoin with illegal activity, it also demonstrated Bitcoin's utility as uncensorable electronic cash. As tracing tools improved, "the vast majority of Bitcoin transactions are now legitimate and conducted for lawful purposes such as investments, online purchases, remittances, and fundraising for various projects."
Debunking Misconceptions¶
Common criticisms:
"Bitcoin is Anonymous": False. Bitcoin transactions are pseudonymous, associated with addresses rather than names, but "the blockchain is a public ledger, and with careful analysis, it is possible to trace transactions back to individuals."
"Bitcoin is a Ponzi Scheme": "Detractors that claim Bitcoin is a Ponzi scheme understand neither the money creation process nor network economics." "If Bitcoin is a ponzi, then the SWIFT interbank transfer system must also be a ponzi since they work the same way."
"Bitcoin is a Bubble": While volatile, Bitcoin's "long-term trend has shown resilience and growth." Volatility reflects manipulation in early unregulated exchanges, supply inelasticity (fixed supply meeting variable demand), and normal price discovery in a nascent market.
"Bitcoin is Bad for the Environment": "Traditional banking systems consume 60 times more energy than Bitcoin through data centers, branches, and ATMs!" Moreover, Bitcoin mining increasingly uses renewable energy sources where electricity is cheapest.
Historical Parallel¶
Explicit comparisons: "Before there was Satoshi Nakamoto and Bitcoin, there was Frederick the Great and the thaler." Both created forms of money that succeeded through inherent quality rather than government mandate. Both demonstrated that good money can emerge organically when it meets genuine needs.
The Beginning of an Era¶
Bitcoin represents a new chapter in monetary history. For thousands of years, a cycle has repeated: money emerges (shells, gold, coins), governments gain control of money issuance, governments debase currency for short-term gain, economic crisis follows, the monetary system collapses, and the cycle repeats.
Bitcoin breaks this pattern. Its mathematical scarcity makes debasement impossible. Its distributed nature prevents centralized control. Its transparency makes manipulation visible. Whether Bitcoin ultimately succeeds in displacing fiat currencies or serves as a parallel monetary system, it has proven that money can exist without government control—and without the inevitable debasement that control enables.
Throughout monetary history from ancient Mesopotamia to modern central banking, the temptation to debase currency has proven irresistible to every government that has controlled money creation. Bitcoin offers an alternative: money that cannot be debased, regardless of political pressure or fiscal necessity.