Bitcoin: A Primer for Your Mother

Wrapping our minds around what bitcoin is, what is special about it, and what it aims to achieve is just plain hard, and it takes time. Whether you want to love it or hate it, understanding it is the first step you'll need to take. Most often, I find people don't even know what to ask or where to start.

This post is basically a set of starting points to explore what bitcoin is and what makes the project important. I hope that taken together they build a foundation for understanding bitcoin and its value proposition. They are neither exhaustive nor meant to be used for in-depth learning, or worse, as gospel. Rather, they are meant as places to sink your teeth into, grapple with the concepts foundational to bitcoin, and maybe start asking your nearest bitcoin enthusiast some questions.

Get Started

Some basics to get you going.


1. Bitcoin is permissionless

You don't need any permission to develop on bitcoin, or to use bitcoin. This is a cornerstone of the project. You don't need an ID to send a payment, to recieve a payment, or to write another programming language library and integrate bitcoin into your website or business. Connect to the network, and you can use it.


2. Bitcoin is open

Bitcoin is open for everyone to participate. This include its governance process, its implementation, and its code. Everything is out in the open. There is no "insider information", no secret meetings where decisions are made for other people. The code is open source, and the process through which the many bitcoin implementations change and upgrade is for all to see, comment, debate, and participate in. Come and join us.


3. Bitcoin is neutral

Bitcoin doesn't care about who you are (we often speak of it as being a flat, or neutral, network). Structure your transaction and your bytes correctly, and the network will propagate your payment. Own the keys to your coins, and the protocol will recognize the legitimacy of your claim to those coins.

This bears similiarities to how the web operates. Anyone with a connection and a browser can go to www.wikipedia.com and get access to the world's knowledge. No need to be anyone special; both wikipedia and bitcoin will treat you the same whether you're the richest person on earth or the poorest.


4. Bitcoin is opt-in

Bitcoin is opt-in. No one is forcing you to use it. This is a remarkable departure from the way we use the US dollar, for example, or any other government prescribed fiat currency.

Money is half of every transaction we ever make. We tend to be very fond of our freedom to choose which cellphone to buy or which house to live in. The choice of which money to use, however, is not allowed anywhere in the developed world; it is prescribed and severely enforced by governments.


5. Bitcoin is free

By free here we don't mean that it's free as in "free beer", but rather that it is free as in "freedom". The GNU project maintains a full definition of free software here.

“Free software” means software that respects users' freedom and community. Roughly, it means that the users have the freedom to run, copy, distribute, study, change and improve the software. Thus, “free software” is a matter of liberty, not price.

Bitcoin is a piece of free software that respects the four essential freedoms:

  1. The freedom to run the program as you wish, for any purpose (freedom 0).
  2. The freedom to study how the program works, and change it so it does your computing as you wish (freedom 1). Access to the source code is a precondition for this.
  3. The freedom to redistribute copies so you can help others (freedom 2).
  4. The freedom to distribute copies of your modified versions to others (freedom 3). By doing this you can give the whole community a chance to benefit from your changes. Access to the source code is a precondition for this.

6. Bitcoin is apolitical

When you acquire bitcoin, you know that no government can come in and debase it, censor it, or change it as will. Bitcoin is not controlled by any one jursidiction; it is not subject to the wims of politicians. Very few currencies can say the same today.


Bitcoin is software

Software is eating the world.


7. Software is built in layers

Software is built in layers. Examples: the internet and TCP/IP, or SMTP, the protocol for email. We start with small building blocks that are very flexible and non-presriptive, and those are then used to build on top of. Bitcoin is the same. Certain properties are fundamental for the base layer to create a foundation for everything else to work on top of.


8. You don't need to understand bitcoin to benefit from its properties

There is a myth that says you need to understand bitcoin to benefit from its properties. But do you really understand email at the bytes level, or even the SMTP level? In fact, if we ask ourselves if we really understand our money in the first place, we usually find that indeed we don't. Central banks? Overnight lending rates? Fractional Reserve Banking? Quantitative Easing? Rest assured that people don't understand the current financial system more than they understand bitcoin. And contrary to the legacy financial system, everything about bitcoin is in the open. Source code, governance system, and upgrades. There is no insider information; you can learn it all for free.

You might need 4 years of an undergraduate degree to learn the current financial system and it's rules and loopholes. On the other hand, try explaining the rules of bitcoin to a 12 year old; 10 minutes will suffice (indeed for a great example on how to do just that, check out the book Bitcoin Money, A Tale of Bitville Discovering Good Money [1].


9. Bitcoin is too pricy at... *insert whatever price here*

Arguing bitcoin is pricy at $8000 is like saying a quarter ton of gold is too expensive because it's a few million dollars. We are talking about a fungible good that is almost infinitely divisible. You can hold as small an amount as you want. It doesn't matter; you're still claiming a bit of real estate on bitcoin island [0].


10. Bitcoin and blockchain

Blockchains perform similar duties as databases. They have, however, major drawbacks. They are slow, costly, and energy intensive. Not many things are worth the price paid to etch a piece of data in a blockchain. To be willing to pay that price you need to have very specific needs. For example, being able to resist government control, censorship, or other powerful actors. Sharing kittens or game items might not fit that criteria.


11. Austrian School view on monetary competition

Austrians believe that money is not imposed but chosen freely. They believe we should let monies compete in order to discover the best medium used as money; that the best money is defined by being the medium of exchange choosen freely by the market.


12. Money as batch vs flow

We are used to thinking of money used for batch transactions (I give you 10 dollars, you give me a sandwich). But software is enabling us to think in terms of money as a flow, like the bytes flow to your browser when you stream a youtube video. See Antonopoulos here for examples on this (he gives interesting examples, like paying for insurance by the second for your Uber drive, from the moment you get in the car to the moment you get out). Where economists think of payments and money as stepwise functions, software will start enabling more granular payments, and eventually continuous payments. This is not to say batch payments will stop existing; we will simply open up new forms of payments, and with it new forms of interactions.


13. Bitcoin is a protocol. What does that mean?

Shipping containers are the same across the world. They are a protocol. The English language is a protocol. Protocol is just an agreed upon way of doing things. Bitcoin is a protocol. It is programming language agnostic, computer architecture agnostic, and doesn't care if it is transmitted over the internet, short wave radio, or satellite dishes.


14. Aren't we going to run out of coins?

Bitcoin has an ultimate cap on its supply; there will only ever be 21 million bitcoins. You can, however, always add decimal places in order to use smaller units of the currency. It's like how 1.0 = 1.00 = 1.000000. As you add decimal places, the total number (21 million) itself doesn't change, but the units that can be used become smaller. The exact number has very little importance; the fact that it has a hard cap is the real difference between bitcoin and other monies.


15. One of these is not the same

Think of how easy/hard it is to accomplish these 3 tasks:

  1. Send an email across the world
  2. Send a hundredth of a penny across the world
  3. Send a million dollars across the world

One of these is currently much easier than the others. Note that if the right to send messages effortlessly across the world was taken from you through KYC processes and IDs and international restrictions you might feel (rightfully) outraged. Note also that messages sent across the world using software rather than physical objects (for example by using WhatsApp or email rather than handwritten letters) open up the range of messages one can send, from entire gigabytes (movies for examples) to single letters ("k"), to single bytes if the user so wishes. These smaller messages were not economically feasible in the times of paper letters and stamps; today we use them hundreds of times a day. Software broadens the range of possibilities.


16. Understand the value and power of open source projects

The combined effort of people who come together to work on a project for free can be astonishing. Linux, Wikipedia, PostgreSQL. The speed of iteration is unmatched. These are monuments of human achivements and of what can be done together in a non coercive way. Linux is fully opt-in, yet runs probably more than 80% of computers and servers on this planet. PostgreSQL, Python, NodeJS, name them. Check out this Ted video from Michael Nielsen (@michael_nielsen) about the Polymath Project, where a mathematician tentatively decided to open source his approach to an unresolved mathematical problem, only to have it solved by the world's community in 37 days, and then actually building a proof for an even harder mathematical problem.


17. What Is a Bitcoin node and why are they important?

It is important to understand that bitcoin does not have a central point of entry, connection, or relay. There is no "main server" you connect to when wanting to use Bitcoin. The Bitcoin network is peer-to-peer, meaning that computers connect directly to each other in a mesh-like network. A bitcoin node runs a particular version of the software, and its purpose is to listen for new blocks of transactions coming from peers and validate them before relaying them to other nodes. Blocks propagate through the network this way, and only valid blocks get relayed to other nodes. To change what bitcoin is and how it operates, we need the nodes that relay blocks to update their software, a choice made individually by thousands of node operators across the world. This is why Bitcoin is so hard to change, and why only the most worthy updates make it through; you can't force updates on people. Note that it is completely free to download any version of the software you wish, and to turn on your own node to participate in the validating and relaying of blocks on the network.


References

[0]: This is not a direct quote, but I first heard the idea put this way by Tuur Demeester ( @TuurDemeester) on the The Investor's Podcast (TIP244).

[1]: Bitcoin Money, A Tale of Bitville Discovering Good Money is a book written by Rabbi Michael Caras, aka The Bitcoin Rabbi (@thebitcoinrabbi). You can find the book here.


31 Oct, 2019
bitcoin