Welcome to the world of Bitcoin! Through the lessons below, you’ll gain a deeper understanding of what exactly this mysterious, revolutionary new technology is. And by the end of this course, you’ll finally figure out what millions of people around the world are already realizing: Bitcoin is hope.
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Lesson 1: Magic Internet Money
A Brief History
On January 3, 2009, a pseudonymous genius named Satoshi Nakamoto officially invented Bitcoin.
Whoever this mystery person or group is, they managed to create the world's first cryptocurrency that would soon change everything as we know it. Formally defined, Bitcoin (capital “B”) is a global, borderless, decentralized protocol that enables the peer-to-peer exchange of the bitcoin currency (lowercase “b”), which has a fixed maximum supply and a known, decreasing issuance rate.
While Bitcoin may appear as magical, it doesn’t aim to do anything innovative — rather, it offers an improved alternative to the existing inequitable, inaccessible, and inflationary financial system. By open-sourcing finance, we are taking a system so complex and indecipherable that it locks out nearly two billion people worldwide, and turning it into a transparent, permission-less network that anyone can be a part of.
What Does Bitcoin Solve?
Centralization: Bitcoin alleviates the need for a centralized third-party system — like a credit card company or a central bank — to confirm and validate transactions. Rather than requiring the current base-layer financial system to broker our transfers and settlements, Bitcoin works purely peer-to-peer, ridding the need for trust in a centralized government controller.
Verifiability: Bitcoin enables unit-level currency validation that isn't possible with fiat (government-backed money). For instance, there are plenty of fake dollar bills in circulation (the U.S. Treasury estimates that one in every 10,000 bills is counterfeit) that the average person fails to discover. However, nobody can create fake bitcoin because the Bitcoin network is secured cryptographically via a public blockchain that anybody can access and validate any amount of bitcoin as real.
Inflation: Bitcoin's supply is capped at 21 million. There will never be any more bitcoin than that. No one can just "print more bitcoin" like we currently print dollars, inflating the money supply. Unlike fiat currencies, bitcoin doesn't take away your purchasing power over time.
"I don't understand anything you just said"
Don't worry, if concepts like "blockchain" and "decentralization" are confusing to you right now, I'll be explaining everything in detail over the next 21 days. The truth is, we don’t need to dive too deeply into exactly how the technical aspects of Bitcoin function. However, you’re right to be skeptical if I just tell you to trust that it works. After all, bitcoin is all about getting rid of the need for trust.
But...how can it be that I don't need to trust anyone? How do I know that Bitcoin isn't a scam? Will bitcoin make me rich? What is bitcoin's intrinsic value? There must be someone managing Bitcoin, right?
These are all valid questions that will soon be answered in a way that, hopefully, anyone can understand. For this introductory lecture, we’ll briefly cover the skeleton of how bitcoin operates. Over the next three weeks, you’ll learn everything from how to make your first bitcoin transaction to how bitcoin is already bringing global financial freedom to millions around the world.
The Bitcoin Blockchain
Ah, yes. The mystical, almighty blockchain that is supposedly revolutionizing the tech industry right now. While it may seem daunting to try and understand what a blockchain is and how it operates, you basically already know what it is — the name gives it away.
Yes, it is literally a chain of (digital) blocks that holds data as a publicly visible ledger. Its history and validity are verified by Bitcoin full nodes across the globe that each keep a full copy of the blockchain history.
Because transactions are secured by the public blockchain, there is no need for an intermediary source of trust in order to confirm that your coins are real or that your transactions aren’t fraudulent; the publicly verifiable, mathematically programmed, cryptographically sound Bitcoin blockchain is the only proof you need.
Bitcoin is Sound Money
It's no secret that the current financial system is deeply broken. With rampant hyperinflation, global economic inequity, and dependence on the nation-states that hold global power, fiat isn't truly backed by anything sound — it's a product of power and control.
If we want to escape the control of the powers that be, we'll need an alternative system. Bitcoin is a currency with no central authority. No government can control it, so it's not going to suffer from endless rounds of quantitative easing or any other money printing schemes governments employ.
Might this be the money solution we've been looking for?
Lesson 2: Who Is In Charge Of Bitcoin?
So, who is in charge of Bitcoin?
This is one of the first questions bitcoin newbies often ask. Naturally, this question pops up as a concern over trust: Who is at the top of the Bitcoin ladder? Is this a scam?
And here's the simple answer: Bitcoin isn't controlled by any one country, entity, or person. It's decentralized, meaning it can't be corrupted or controlled — and that's a beautiful thing.
Why Do We Need Decentralization?
Perhaps the most important aspect of Bitcoin is its decentralization; this is the principal difference that separates Bitcoin from the central banking system we're currently used to. Inherently, our worldwide banking system is centralized because our money is controlled and distributed by the government. We call this money "fiat" — originating from the latin word meaning: "a determination by authority."
When you have a centralized fiat currency like the US dollar (the current global reserve currency), you are coerced into a financial system that can change the rules at any time. You are subjected to the big banking system that charges you overdraft fees, requires minimum balances, and lends your money out to other people only to pay you less than 1% in annual interest.
And while big banks in the United States have healthy competition and therefore have incentives to offer better, freer services to consumers, many countries around the world don't offer this privilege. In fact, many banks overseas actually charge their consumers to keep their money in the bank.
What is this highway robbery? You might as well keep all your cash under your mattress.
As much as we like to joke about this, the use of physical, insecure piggy banks are a reality for over a billion people around the world who remain unbanked.
Financial services create expensive barriers like fees, minimums, and identification requirements that don't allow people to participate fairly in it. Additionally, not everyone has access to a competently secured and insured central banking system; they must participate in the one handed to them by their government, no matter how unstable or corrupt it is.
What Fixes This?
There's a saying in the Bitcoin community: Bitcoin fixes this.
Because nobody is in charge of Bitcoin, Bitcoin works for everyone. Rather than having someone at the top, the Bitcoin Network is based on the consensus of everyone who participates in it.
It doesn't matter what country you're in or how controlling your government is — your wealth is secured by the bitcoin blockchain all the same, and no one has the authority or power to change this. While it is technically possible for bitcoin to be "hacked" or controlled, I'll go over why this won't ever happen in a later email.
Bitcoin is an opportunity for the unbanked to store and grow their wealth in a secured way, where nobody can be locked out or denied — and it doesn't care about your credit score.
Decentralization Is Privacy
In traditional banking, you are subjected to approvals based on credit scores and government identification. This makes everyone susceptible to fraud; if someone steals your identity, they can open up credit cards, generate debt in your name, and destroy your credit score.
With Bitcoin, your participation is not dependent on your identity. Anyone and everyone can participate anonymously, as names and personal data are not connected to transactions on the Bitcoin blockchain.
Although most cryptocurrency exchanges (places where you can buy bitcoin) require a Know Your Customer (KYC) process that requires you to verify your identity with a selfie and photo ID, once you take your bitcoin off of the exchange and into your own self-custodial wallets, all transactions from that point forward are pseudonymous.
Later on in this series, I'll show you how you can secure your bitcoin by taking it off of exchanges and into your own self-custody solutions.
Ultimately, nobody controls Bitcoin at the top — but Bitcoin allows you to be your own bank and fully control your own wealth without the oversight of anyone else.
Lesson 3: What Is Money?
What is money anyway?
Formally defined, money is something that is widely accepted for purchasing goods and services, or repaying debts and taxes. You might think that this is limited to paper bills and minted coins, but the reality is that anything can be money, so long as it fulfills these fundamental use cases: a unit of account, a medium of exchange, and a store of value.
Looking back in history, the items that our ancient ancestors once traded and bartered with were considered their forms of money. This included everything from shells and animals to silver and gold. In modern times, we see a reflection of this in places where government money is of little value, such as in prisons, where cigarettes and instant ramen are well-known units of account.
From the 14th century all the way to the 20th century, cowrie shells were used as currency to barter and trade across Africa and Asia. Durable, divisible, identifiable, and scarce, cowries were the perfect pre-coin era natural currency. Other items like glass beads, stones, and salt were used throughout different cultures as well. Imagine: you might be skipping rocks on the ocean today that were once regarded like the dollars in your bank account. Those ancient currencies are all worthless today because they eventually fell victim to the killer of value: hyperinflation.
Learning from the Rai Stones on Yap Island
One of the most interesting ancient monetary systems was the use of Rai stones on the Island of Yap (part of Micronesia).
The Yapese people used large, heavy stones — up to 12 feet in diameter — with a hole in the center as their currency because of their rarity and difficulty to procure from the neighboring islands. To ship the Rai stones to Yap via rafts and canoes, often hundreds of people were needed, meaning it was nearly impossible for anyone to quickly inflate the supply.
For centuries, the Rai stones were used as sound money. Placed in a central location where everyone had access, the Rai stones were only exchanged in recognition of ownership rather than possession (since they were impossible to carry around).
This monetary system worked well for centuries. But in 1871, an Irish American by the name of David O'Keefe washed ashore and saw a huge business opportunity in producing coconut oil procured by the island's abundant coconuts. He realized that the Yapese people had no interest in foreign money, so he set sail to the nearby island Palau where he used modern tools and explosives to procure several large Rai stones to take back to Yap.
However, the value in the Rai stones was calculated based on a complex formula of size, history, quality, and the number of lives lost due to the labor of procuring these stones. Simply put, they had value because they were difficult to obtain; O'Keefe's Rai stones were obtained easily, negligent of tradition, so many villagers were not keen on accepting the stones as valid. An ancient remnant of counterfeit currency, if you will.
Unfortunately, other Yapese did not understand the concepts of scarcity and sound money, so they gladly accepted these false stones, which eventually led to the demise of the Rai as the sound currency it once was.
Taking a look at modern examples of exorbitant money printing in countries like Venezuela and Zimbabwe, we see a similar modern hyper-inflationary story playing out. If we are to learn from history, we must realize workable solutions to the vulnerabilities that previous currencies have fallen victim to. But rather than worrying so much about things we can't change in fiat, we can look towards real solutions.
Before, we could only dream of such impossible things. Now, we have Bitcoin.
Bitcoin is a new form of money that solves the issues surrounding scarcity and currency debasement. Tomorrow, I'll go over bitcoin's fixed supply cap and the case for why bitcoin will never lose its purchasing power the way every other money before it has.
Lesson 4: The Magic Number — 21 Million
Imagine central banking as this guy:
The Monopoly Man represents the central bank.
On the first few passes around the Monopoly board, you have the opportunity to buy real estate and other commodities. The market is open, prices are affordable, and competition is low. Sometimes, you get unlucky and have to pay a surprise fine or a hefty tax. But, such is life.
He allows you to collect $200 when you pass GO, just because he's a nice guy. Perhaps you've now replenished some of your savings, so you return back to the board and take another pass around.
After a few rounds of properties purchased, rents paid out to owners, and collecting free money at GO, a certain dreadful doom starts to set in — you pray you don't land on someone's duplex, or even worse, their hotel. With each pass around the board, you're still collecting your $200. Not to rain on your parade, but $200 doesn't mean much when your savings is wiped out and rent seems to double each turn you take.
While this is an exaggerated version of the game of life, the basic principles remain: Those who have invested in assets (like real estate or stocks) see their net worth appreciate; those who owe debts and have little to no assets continue to see their savings wiped out. Their purchasing power weakens, commodities and assets become more expensive, and no amount of government handouts can save them.
In fact, the "free money" comes back to bite them even harder the next round. While the rich see their assets inflate in price because more money is introduced into the game, the poor see their savings debased because the necessities they could once afford (like rent) become unbearably expensive.
This is a result of inflation: where the government prints money on a whim to fuel the economy. But in the end, the rich only get richer and the price of goods become more expensive, thus trapping people in a cycle of poverty — even though they may collect $200 at GO.
The government is allowed to inflate the monetary supply whenever they want. They want you to think everything's under control — and it is, literally. Therein lies the issue: They'll stab you in the back while shaking your hand.
With Bitcoin, however, nobody is in control. Bitcoin's supply is capped at 21 million, whereas fiat dollars can be boundlessly printed.
The result of bitcoin's supply cap is scarcity. As demand for bitcoin rises, so will its price, and thus, its purchasing power as well.
The Magic Number
Nobody knows where the 21 million bitcoin cap comes from; this is likely just an arbitrarily chosen number. However, what's important is that this number can't be changed — ever. It’s baked into the code, and in order to change the software to increase this supply cap, everyone would have to agree. However, people don’t want the value of their bitcoin to decrease, so there’s no way we would reach the consensus required to increase this number.
Obviously, there are more than 21 million people in the world; this means that not everyone can own a whole bitcoin. In fact, there are twice as many current millionaires as there are bitcoin in the world; this should give you a sense of the future value of bitcoin as adoption continues to grow.
Even though bitcoin supply is capped, each bitcoin can be split into "satoshis," kind of like how dollars can be split into cents. Each bitcoin contains 100 million satoshis, and so there are 2.1 quadrillion satoshis in total.
Supply and Demand
Currently, not all 21 million bitcoin are up for grabs yet — I'll go over this later when I talk about how new bitcoin is mined. But as we slowly increase the supply until no more new bitcoin is available, demand and adoption will determine the price of bitcoin.
In your basic high school economics class, you probably learned about a microeconomic concept called the supply and demand curve. Although no economic model is perfectly representative of a real-world scenario, bitcoin's curve is a little bit special.
Let's take a look at this supply and demand chart comparing salmon and bitcoin:
While the supply of salmon is not necessarily fixed because we can farm fish and source fish from different areas of the world, the supply of bitcoin is capped strictly to 21 million — this is what we call a perfectly inelastic supply.
As a result, this means that only shifts in demand affect price; as demand continues to increase with institutional adoption and countries like El Salvador declaring bitcoin legal tender, there's only one place bitcoin price is headed: the moon. Short term though, demand can dip and the price will fall with it.
Although we're still far from using bitcoin in the way that we use dollars to purchase goods, what we can do is hold our wealth in bitcoin. As the purchasing power of the dollar weakens due to ever-inflating supply, bitcoin supply remains immutable, and so the purchasing power of bitcoin should continue to rise over time — forever.
Lesson 5: PoW — Proof Of Work Explained
You might have heard this term thrown around in the bitcoin space: PoW.
PoW reminds me of this old superhero comic:
And it's a good symbol, too. Proof of Work really is like a superhero since it allows Bitcoin to work without a centralized controller such as the government. It's the key that unlocks the self-sovereign solution we've been looking for — a computer algorithm that just might fix our financial system.
Here's what it means.
Working Selfishly for the Greater Good
Proof of Work is a consensus algorithm that requires its participants — the Bitcoin miners — to expend energy and computational power in order to lock-in batches of new transactions. In exchange, they are rewarded with bitcoin if they are the first to successfully calculate a difficult 64-character hexadecimal serial number (a hash) that identifies the past transaction history, the new transactions, and their own ID as the winning miner.
In other words, miners want this bitcoin reward for themselves, so they will work tirelessly to try and create a winning solution. The winner then sends their solution and the list of transactions it includes to the blockchain, thus securing those transactions publicly, forever. About every ten minutes, this process repeats itself to help decentralize, secure, and confirm all transactions on the blockchain while rewarding miners for their proof of work.
If very little of that made any sense to you, here's an analogy to help you better understand.
Looking for Diamonds
Diamonds, like bitcoin, are rare. They can't be faked, they're hard to find, and everybody wants one. For the sake of this analogy, we'll just pretend that lab-grown diamonds don't exist.
Imagine that a client wants a diamond of at least a certain size. If you find a diamond that fits the requirement, then you get paid. The bigger the diamonds are, the harder they are to find. Now, because diamonds are so rare, you need to spend time gathering stones and spend effort breaking into them. It's a luck of the draw — some stones you just throw out, while others can make a diamond ring.
Occasionally, you get lucky and the first ore you break into meets the size requirement. Other times, it takes you much longer to find just a small diamond. But even if you do find several small diamonds, it doesn't matter to the client if none of them are the right size. This is an important point to make for bitcoin mining — that work doesn't accumulate. Results are largely based on luck. But, the harder you work, the luckier you may get.
Some miners realize that all this work might be better done as a group effort, so they collaborate and form groups. They decide that if someone in the group finds a diamond big enough for the client, then the entire group gets paid out depending on how much work they've done. They measure the work done by individually weighing the little diamonds that people were able to find against the total.
In Bitcoin, miners come together to form mining pools in a similar way. Bitcoin rewards are distributed within a mining pool depending on how much work the miners have done.
Adjusting for Difficulty
As more people realize that there is money to be made looking for diamonds, the overall number of participants increases, which thereby increases the likelihood of someone finding a diamond of the right size quickly.
Well, let's say that every two weeks, the client takes note of how long it took to find a diamond of a certain size. If there are more people working and it takes less time on average to find the diamonds, then the size requirements for the diamonds get bigger for the next two weeks. Because larger diamonds are rarer, it becomes much harder for someone to find a diamond if the size requirements get bigger, and vice versa.
The Bitcoin protocol has a built-in difficulty adjustment. Every 2,016 blocks (about two weeks), the difficulty to mine bitcoin adjusts as more miners either come online or go offline. If there is more computational power working to solve the hash, then it becomes more difficult to find a winning solution. If miners come offline for some reason (like after China banned miners), then it becomes easier for miners who are still online to mine bitcoin.
The goal is to ultimately find equilibrium and issue new bitcoin at a steady rate — an average of ten minutes per new block. You can track how difficulty adjusts here: https://btc.com/stats/diff
Lesson 6: The Halving — Bitcoin’s Mining Schedule
Yesterday, we went over how Proof of Work functions in confirming transactions and creating new bitcoin. Today, I'll paint a more general picture of what mining looks like and how new bitcoin is distributed over time.
What Does Mining Look Like?
Mining in the industrial age vs mining in the digital age:
Bitcoin mining is unlike any other kind of mining. It's simple to set up, runs 24/7, and violates no human rights or labor laws.
Here's how it works. Basically, a bunch of specialized computers (ASICs: application-specific integrated circuits) are set up to mine bitcoin somewhere where electricity is cheap (since miners require a lot of computing power). As stated yesterday, miners can work together in pools to split profits and increase their odds of winning a new block.
With each new Bitcoin block that is mined, batches of transactions are recorded and confirmed to the blockchain. By confirming transactions and computing a winning hash, miners are rewarded with newly minted bitcoin. However, this block reward won't last forever, since the supply of bitcoin is capped.
The Incoming Supply of New Bitcoin
Bitcoin is limited to a total supply of 21 million. But that doesn't mean that all 21 million are currently up for grabs.
Miners will continue to receive new bitcoin until the final bitcoin is mined — this is estimated to be in the year 2140. When all 21 million bitcoin are exhausted, miners will need to be incentivized to continue investing the time, energy, and expenses necessary to help confirm transactions.
As the network grows, it's expected that the fees users pay them in exchange for their continued proof of work will rise significantly enough to keep mining profitable. Later on, I'll go over the concerns that revolve around high user transaction fees.
As of 2021, around 18.5 million bitcoin have already been mined. Over the next century, as the last of the remaining bitcoin are mined, the bitcoin block rewards will slowly be reduced at a set schedule. This is called "the halving."
The Halving: a Four Year Cycle
At the Bitcoin network's genesis, 50 bitcoin were mined in each block.
For every 210,000 blocks — approximately every four years — the number of new bitcoin mined per block is cut in half. As of 2021, only 6.25 new bitcoin are mined in each block. Some time in 2024, the block reward will be cut to 3.125 bitcoin.
This is the Bitcoin halving schedule:
When the supply of new bitcoin introduced is cut in half, its rate of inflation is effectively cut in half as well. This brings us back to our basic concepts of supply and demand.
Over time, as more people are introduced to the Bitcoin network and start participating in it, demand rises. At the same time, supply growth shrinks because of the halvings. As a result, the price of bitcoin is pushed higher and higher over every four-year cycle.
Another reason for miners to receive fewer bitcoin rewards each halving cycle is with the anticipation of the network growth. As more users enter the Bitcoin network, more transactions take place. Each block can only hold so many transactions, so users must essentially "bid" on a spot for their transaction to be confirmed.
For miners, this means that they receive high fees from users as incentives to include their transaction in the next block.
For users, this means increasingly higher fees or slower transaction times.
This is an issue that has been thought about long and hard, and new developments are still in their early stages. But, there are viable solutions, such as the Lightning Network. As you continue to learn about Bitcoin over the next few weeks, I'll go more deeply into solutions for scaling transactions and how we can continue to develop the network.
Lesson 7: Bitcoin Full Nodes — “Verify, Don’t Trust”
There are three types of nodes: mining nodes, full nodes, and light nodes. We just went over mining nodes (aka miners), which confirm pending transactions to the blockchain and mine new bitcoin. Full nodes and light nodes are what validate the new blocks and transactions submitted by the miners.
Bitcoin full nodes have three main jobs: to keep a copy of the entire Bitcoin blockchain, to validate transactions, and to enforce the rules of the network. Bitcoin light nodes do the same thing that full nodes do, but they don’t keep a copy of the entire blockchain history. We’ll mainly focus on full nodes.
The Purpose of Nodes in a Network
The more nodes that are distributed across a global network, the more decentralized a system is. Since the Bitcoin network has the most nodes (including miners) of any cryptocurrency, it's the most secure blockchain. While many other cryptocurrencies are prone to hacks and blockchain attacks, Bitcoin is virtually immune — and I'll explain exactly why tomorrow.
The role of a node is to communicate with the other nodes in the network directly, verifying that their history of transactions is aligned with the next node. As they verify new transactions, they check to see that the bitcoin being transacted has not been double-spent and that no bitcoin is being created out of thin air. If a node does see malicious transaction attempts, it along with the other nodes in the network will reject the transactions.
Bitcoin transactions are verified across nodes in a similar way that rumors are spread: Terrible and cruel, a rumor echoes through the network of gossip until everyone in the third grade knows about the crush you have on Joshua. But unlike rumors, full nodes only pass on transactions that they have verified themselves, according to the rules that they enforce and the blockchain history that they reference.
Since nodes run the Bitcoin core software that lists out all the rules of the network (such as the 21 million hard-cap), all full nodes help protect the network by only verifying proper transactions to a pending block, along with verifying completed blocks broadcasted by the miners. If by chance, a node accepts a malicious transaction onto a block, the other nodes in the network will reject the block altogether.
Running Your Own Full Node!
Did you know that you can run your own node? It's very easy with user-friendly, open source node installers like Umbrel! You can follow their guide for detailed instructions. It's inexpensive, fairly straightforward, and helps contribute to the security of the Bitcoin network.
Although Bitcoin is fairly secure and many claim that running an extra node will not do much for enhancing the network, it helps to have an excess number of nodes worldwide in the case of rare Black Swan events, such as nodes under certain government jurisdictions being shut down all at once.
Running your own node also helps you eliminate the trust needed for other nodes to remain honest. Though most of them remain true, by running transactions through your own full node, you are essentially becoming your own bank. That's a pretty cool feature that isn't really possible with fiat, gold, or anything else that can be used as money.
Lesson 8: Can Bitcoin Be Hacked?
You might have heard the alarming stories of DeFi and cryptocurrency exchange hacks.
Need a reminder? Bitcoin exchange Mt. Gox was famously hacked in 2014 and $460 million worth of bitcoin — equivalent to $38 billion today — was stolen. Ouch.
Just recently, a hacker stole $600 million worth of various cryptocurrency assets from DeFi project Poly Network. Most of the funds have since been returned, but I can't imagine putting your trust and securities into an exchange, just to have a shadowy super coder make away with all of your investments.
With the cryptocurrency industry being hacked left and right, it's important to proceed with caution. However, there are ways to protect yourself from these hacks: Take your bitcoin off exchanges, and don't play with altcoins.
In a few days, I'll walk you through buying, transacting, and self-custodying bitcoin, step by step. But today, I want to discuss cryptocurrency network hacks. Specifically, why bitcoin is specially "unhackable" compared to the other cryptocurrency networks (DeFi/altcoin projects). While it's technically possible for the Bitcoin network to be hacked and funds to be stolen directly off of the blockchain, it will never happen with bitcoin (though, it can and does happen to other cryptos).
The 51% Attack
The reason why the Bitcoin network is so strongly decentralized is because of how many participants there are in it. With each additional miner and node that comes online, the overall security of the network is strengthened, and it becomes increasingly harder for some malicious entity or group to try and take over the network.
But if a blockchain network is not strong, then it is prone to something called a 51% attack, where if miners are able to gain a hold of over 50% of the network, they can effectively take over and "double spend" their existing crypto. Similar to counterfeit bills, hackers would be able to use "fake copies" of an existing cryptocurrency, thus inflating the supply and devaluing the currency.
A 51% attack on proof of work protocols like bitcoin are able to take place successfully since the network will always default to the longest chain with the highest mining power as the chain of truth.
But ultimately, this won’t happen on the Bitcoin network because Bitcoin's proof of work algorithm requires a lot of power for a 51% attack to occur (as much power as a small country consumes along with more than $23 billion worth of hardware alone); it wouldn't make much sense for a hacker to spend this much money in an attempt to make risky money.
Additionally, hackers cannot "steal" bitcoin from others — they can only "double-spend" their own bitcoin, just as counterfeiters make fake dollar bills instead of robbing a bank. Once again, this would be foolish to do because the value of bitcoin would quickly drop as the network recognizes that bitcoin has been double-spent and people start to lose confidence in bitcoin.
Quantum Computing Concerns
Many skeptics also bring up the concern for quantum computing rendering the Bitcoin network’s security useless, since quantum computing would be able to break the network’s encryption algorithms and reveal users’ private keys.
Another concern is that quantum computing could allow for “super miners” that can mine bitcoin at an extremely high speed, thus centralizing mining and allowing them to take control over the chain.
While these situations may appear daunting, they are far off into the future of quantum computing. In any case, the Bitcoin network has much time to “upgrade” to prepare for such dire circumstances and will inevitably be able to protect itself from any sort of attack we see coming. To do this, Bitcoin would "hard fork" to a protocol that accommodates quantum-secure features (tomorrow I'll go over what it means for a cryptocurrency to "fork").
What Can You Do to Protect Your Bitcoin?
For now, just continue to execute your best internet security practices, such as using password generators and turning on two-factor authentication for your crypto exchange accounts. Later on, I’ll teach you how to transfer your bitcoin off of exchanges and into your own self-custody solutions to prevent your bitcoin from potential hacker theft.
However, a word of warning: self-custody isn’t an inherently simple task yet for most people. It’s imperative for the industry to continue to develop and optimize user-experience for bitcoin wallets, but also to hold exchanges accountable for safeguarding people’s funds who aren’t ready for self-custody storage solutions yet. Ultimately, self-sovereignty is the end-goal for securing your bitcoin — but remember to take the time to learn first.
Lesson 9: The Great Fork Wars Of 2017
A fork in the road.
2017: Civil War
We're starting today off with a small history lesson. While it seems like eons ago already, a fairly recent civil war emerged between two sides of the bitcoin community in 2017 — changing everything.
By now, you're familiar with bitcoin, or what we know as BTC (alternatively, XBT on some exchanges). In 2017, Bitcoin Cash (BCH) emerged as the result of a "hard fork" that transpired. Hard forks are pretty intuitively explained by the graphic above, but in essence, when some people want to change the rules of a blockchain network (without full consensus approval), they break off into a separate blockchain completely to change their network's rules. Kind of like a divorce, if you will.
This is exactly what happened with BTC and BCH. On August 1, 2017, everyone who held bitcoin now held an equal amount of bitcoin cash. The community soon decided that BTC would be the winner (as proven by the price difference and hash-rate today). But why the contention in the first place?
The Scaling Problem
If you ask many bitcoiners today what they think about bitcoin's scaling issues, they will chuckle and tell you that bitcoin doesn't have a scaling problem. However arguably problematic the scaling issue is, the underlying truth is still the same: bitcoin cannot scale on its own. It needs solutions if the world is to adopt it.
Tomorrow I'll go over layered solutions for scaling bitcoin for use as a peer-to-peer cash, but today we'll be covering how bitcoin cash attempts to natively scale bitcoin — on the blockchain.
The Block Size Debate
Early adopters of bitcoin debated over how to scale bitcoin. While some argued that scaling should be solved with patiently developed off-chain solutions, others pushed for increasing bitcoin's 1MB block-size, so as to not drive away new adopters when blocks became increasingly congested with transactions.
At first glance, it seems like a good idea to increase block size capacity and lower transaction fees for users. But going down this route would require more expensive and sophisticated hardware, making it less accessible for individual users (as opposed to massive corporations) to be able to verify blocks with their own nodes. As block size increases, it becomes more difficult for full nodes to efficiently validate blocks, thus increasing the barrier to entry for running nodes and making bitcoin less decentralized.
Bitcoin must scale, but it needs to do so without compromising security and decentralization.
Because of this contention in the bitcoin community, those who pushed for a larger block-size launched bitcoin cash by creating a bitcoin hard fork that would increase the block-size from 1MB to 32MB capacity.
Unfortunately for the bitcoin cash community, the last few years have phased it out of relevance. While there are still many proponents of bitcoin cash today, the general community has dictated bitcoin the winner, as proven by its market dominance and the mining power dedicated to the Bitcoin network.
Other Types of Forks
Many more hard forks have come out of different cryptocurrencies over the years. One of the most popular forks of bitcoin is Litecoin (LTC), and a prominent fork of bitcoin cash is Bitcoin SV (BSV).
Typically, hard forks result from those who are unsatisfied with an existing protocol's rules, such as block size or the amount of time required to mine a new block. Although hard forks continue to emerge, it is highly unlikely that any of these cryptocurrencies become anything but a "pump and dump" scheme. If they do survive as a top cryptocurrency, such as litecoin has, their goals to replace bitcoin as an "improvement" are quite impossible; this is due to bitcoin's existing network dominance.
Lesson 10: How Can We Scale Bitcoin?
Previously, we talked about the bitcoin vs. bitcoin cash debate, where proponents of bitcoin cash argued that bitcoin isn't scalable enough. Many people like to criticize Bitcoin's limited network bandwidth by referencing payment processors like Visa and MasterCard, which process over 5000 transactions per second; in comparison, the Bitcoin network processes about five transactions per second.
There's a valid concern here — how can bitcoin replace this existing payment network if it can't even scale?
But the mistake people make is assuming that credit card processors act as payment settlement base layers. This is certainly not the case, and actual transaction settlements often take several days to resolve — instant credit card transactions are merely sitting on top.
So, why are people treating Bitcoin like a secondary payment layer when it’s really a base settlement layer?
Numerous proposed solutions have been brought up over the years as the network continues to grow larger and larger. One such proposal is a conjunction system between the existing financial system and the Bitcoin network.
For a few brief decades from the late 1800s to the early 1900s, under the gold standard, banks held reserves in gold and handed out paper “certificates” or “bills” that represented an IOU to their gold reserves. To put it simply, people needed a way to pay in small denominations in a way that was easy to carry and store — they certainly weren’t going to run around cutting off little pieces of gold bars to exchange for groceries.
Under a similar hypothetical "bitcoin standard" we could hold bitcoin under custody and execute layered transactions as custodians batch them onto the blockchain. For instance, you can send bitcoin back and forth on CashApp for free, but you are not really "sending" bitcoin. Rather, you are receiving an IOU anytime someone pays you, and only when you transfer your bitcoin to your own wallet is when the transaction is confirmed on the blockchain.
There are other options like scaling via sidechains such as Blockstream's Liquid, but the most popular in-use remedy at the moment is this layer 2 solution: the Lightning Network.
The Lightning Network
The Lightning Network was created in 2015, designed as a second layer protocol that would help scale bitcoin transactions in order to lower user fees and allow for instantaneous transactions.
When you transact with someone via Lightning, you only perform bitcoin base-layer transactions when opening and closing the channel. While the channel is open, you can send thousands of micro-transactions instantly with negligibly low fees (often less than a penny).
Additionally, you can send funds to those you aren't directly connected to.
Imagine that you are back in primary school playing a game of telephone with your friends. In order for the person at the end of the line to receive the message, you need to whisper the message to the person next to you, who then passes it on to the person next to them, and on and on.
Since you're not connected to the person on the end, you can't just whisper the message to them — you need to pass it to someone else first. Lightning channels work similarly in that they can "pass on" transactions through shared channels, in a trust-less way. When you want to send a Lightning payment to a merchant, for instance, you don't need to open a direct channel with them. Rather, the network finds the fastest route to channel your payment through, making the transaction process seamless and easy.
The Future of Scaling Payments
When bitcoin is realistically scaled, people won't really need to know exactly how these payments are routed — just like how you probably don't exactly know how your credit cards and wire transfer payments are settled. But, if Lightning is something that sparks a technical interest, you can read more on how it works here.
While Lightning is still a fairly new system, it's developing at a fast pace. Already, it is being used practically en-masse for people to send tips or pay for consumer goods (like in El Salvador) instantaneously in bitcoin.
With solutions like Lightning, other altcoins such as litecoin or bitcoin cash that claim to solve the scaling problem are rendered inconsequential.
Bitcoin is a full on rainstorm, while fiat is a house of cards ready to collapse at any moment. As the world keeps their eye on Lightning and how it helps scale bitcoin in an entire small country, I only hope this will captivate the attention of other nation states to follow suit in adopting this sound, decentralized currency.
Lesson 11: Does Bitcoin Have Any “Intrinsic Value”?
Bitcoin is a novel invention that is hard for most people to wrap their heads around.
We can easily understand why gold and other precious metals have value. We understand that fiat money has value as assigned by our government. We understand that investing in a company is investing in its people and in their innovations.
But investing in bitcoin is just investing in...nothing that we can see, feel, or immediately understand. And this begs the question that comes to everyone's mind when they first hear about bitcoin: what is its "intrinsic value?"
Bitcoin vs Gold
You might have heard the phrase, "bitcoin is digital gold." Now, in the sense that it's a store of value (and a better one than gold at that), this is true. However, at face value, gold is a tangible thing that can be seen, held, and used in jewelry and electronics. Bitcoin achieves...none of this. Yet, it is still a better store of value. Because while gold has the benefits of being seen and used as a physically tangible asset, these are the same things that make it a poorer store of value than bitcoin.
Let's compare gold to bitcoin:
Shaving off pieces of your gold bar to pay for pumpkin spice lattes was never a viable option. Enter: fiat backed by gold, then eventually fiat backed by nothing but the government's word.
What is the "Intrinsic Value" of the US Dollar?
That's right, the dollar bills printed and distributed by the government aren't backed by anything. Fiat money is just...paper with security tags on it? The only reason it has value is because the government says so, and this isn't a good thing. Eventually, the cards will fall, and the housed trust that the government once held might someday render the dollar worthless.
This isn't an unreasonable scare tactic, either. We've seen this play out in countries like Venezuela, where government corruption has rendered their national currency, the bolivar, effectively useless after suffering an inflation rate of nearly 54 million percent just a few years ago.
With bitcoin, nobody alone gets to dictate that there is value to it. Rather, the entirety of the Bitcoin network agrees to assign a certain monetary value to bitcoin, depending on its demand(which continues to rise over time). Not to mention, it does this without the threat of violence and power that all fiat currencies are upheld by. The value of the Bitcoin network and all the transactions that take place within it are secured by the blockchain, automatically managed without a middleman.
We Don't Need "Intrinsic Value"
Unlike gold, bitcoin cannot be smelted to make jewelry or leafed to cover your gourmet soft serve. But bitcoin's purpose isn't to serve you in any physical way. It's merely a medium of exchange, a store of wealth, and a peer-peer electronic cash that you can store access to in your memory.
And honestly, that's a benefit over gold. Its value isn't dependent on physical use cases — just purely predictable scarcity.
In a few emails, I'll go over self-custody and what exactly that entails. But long story short, if you want to ensure security and ease of access, you can carry your bitcoin in a device no larger than a USB stick and keep a backup of it in your mind (pure magic). Or, you can buy heavy gold bars that are expensive to store and pray that we don't start mining gold from asteroids and flooding the supply; if that were to actually happen, you wouldn't be able to sell your gold fast enough.
Lesson 12: Bitcoin Is Apolitical
In its core doctrine, bitcoin is about privacy, freedom, and self-sovereignty. Politically, many bitcoiners tend to be libertarian, with ideologies ranging across the conservative-liberal scale. No matter how they disagree on certain socio-economic stances, there is one unwavering, common belief: the government has no business dealing in your money.
A separation of state and money — this is what the bitcoin ethos is built on.
Let's Talk About Politics
Ah, one of the two dreadful topics you never dare to bring up at the dinner table. It seems like everything is made political these days, from voting eligibility to how we deal with the COVID-19 pandemic. One thing is clear, from a bipartisan stance: these are topics that should not host a partisan divide, yet they manifest now more drastically than ever.
Bitcoin is dangerously close to becoming politicized — and many would argue that it already is.
With Elizabeth Warren, a highly influential Democratic senator in the United States publicly denouncing bitcoin, and Ted Cruz, a highly influential Republican senator publicly endorsing bitcoin, it seems like we've once again manifested a crooked path in a straight line down.
Contention is expected in the debate of bettering the world. But to paint things in black and white is certainly not how we progress forward, and it's a misrepresentation of what bitcoin symbolizes for all of us.
Bitcoin Works for You No Matter What You Believe In
Do you strongly believe in your freedoms and accesses (to guns, abortion, or whatever else) as laid out by your constitutional rights? Are you passionate about protecting the planet at all costs? Do you think you’re paying too many taxes for no good reason? Are you wearing a hoodie that says “Eat the Rich” on it?
If you answered yes, no, or I don't care to any of the questions above, then bitcoin is for you!
In our modern political climate, those who are part of democratic nation-states hold a privilege of liberty and autonomy as allowed by the law — as long as we are not infringing on the individual rights of others. However, even in nations like the United States (known as the "land of the free"), many of us feel an injustice in the legal dictation of what is increasingly allowed or disallowed.
This all ties back to money: policy is fueled by lobbying funding, elections by marketing budgets. Well, at least in countries like the United States.
Other nation-states are not so lucky. They deal with dictatorial control, exacerbated power imbalances, and extreme poverty and war as a result of corrupted and poorly structured leadership. Many of us could argue that, on a smaller scale, this is even happening in our own backyards.
Bitcoin Gives Us Back Our Independence
One of the most prominent arguments politicians make against bitcoin is that bitcoin fuels crime and corruption due to its pseudonymous transactional nature. But take a look at this from a different stance — global governing policies are not always ethically (or common sensibly) created.
There are states and countries out there where basic rights like access to education or personal banking services are denied to certain groups. It may be a crime to curb these policies with bitcoin, but most of us would probably argue that the real crimes are the existing laws themselves. To fight for justice, we need private and self-sovereign methods of storing our wealth. Really, it's no different than hoarding cash. The difference though, is that with cash, we have potential issues with transporting wealth, counterfeiting, confiscation, accidental loss or theft, and robbery. Bitcoin solves all of this.
Seeing Bitcoin as a Solution
Whatever issues you're concerned about, try and see how bitcoin can be a solution rather than another layer to our pile of problems. Over the next few days, I'll dive into how bitcoin can help solve global wealth inequity, incentivize clean energy production, and protect the vulnerable from corrupt government regimes worldwide.
If bitcoin is pushed away by certain political parties, I'll only hope we can go back and remember what we were fighting for — freedom, liberty, and justice. Bitcoin brings us closer to that commonwealth goal, no matter your party preference.
So the next time you're at the dinner table surrounded by family members scattered across the political spectrum, I encourage you to talk about bitcoin. Bitcoin is apolitical, and everyone should be a part of the conversation.
Lesson 13: Investing In Bitcoin
You have spent the last two weeks learning about how bitcoin works and why it works. For this final week, we'll be discussing what bitcoin can do for you, but more importantly, what bitcoin can do for the world.
Perhaps you're a seasoned bitcoin expert and you've got bitcoin wallets hidden all over the world, like this family that went all in on bitcoin when it was just $900.
Or, perhaps you've only just discovered what bitcoin is.
In any case, bitcoin is something that is for everyone, accessible to all — no matter your social or financial standing.
Many big banks and brokers are telling people that only their wealthiest, "accredited," elite customers have access to this relatively new asset class. This is a ridiculous ploy by the legacy financial system that continues to unfairly deny equal participation in financial services that should be accessible to all. Fortunately, bitcoin requires no permission to participate.
What Are You Investing in Exactly?
At the moment, bitcoin is still viewed by some as a risky and volatile asset class that one invests in, hoping to make significant returns on. While there exists a culture within bitcoin that tells you to "buy and hold," there are many people out there actively trading, holding short-term, or using bitcoin as a diversification asset tool as well.
While you should continue to do your own research and make the financial decisions that best suit you, if you're ready to buy, sell, or transact bitcoin, I'll break down how to do all of that step by step.
How to Buy Bitcoin
The easiest way to buy bitcoin is off of an exchange. You can use any exchange you'd like (I personally use Okcoin or River, and CashApp is great for beginners), but there are plenty of options to choose from. Keep in mind, however, when choosing an exchange, to make sure you choose one that allows you to transfer your bitcoin off of the exchange. This means you should not buy any bitcoin off of Robinhood or similar exchanges, since you would have to sell your bitcoin to take your money off of the exchange.
When you buy from an exchange, you are required to go through a process called KYC (Know Your Customer). This process requires your social security number, photos of your ID, and photos of your face to prove that you are you. Many bitcoiners are concerned with greater privacy and security than these exchanges can accommodate, so they choose to purchase “non-KYC” bitcoin from peers off of websites like Bisq — at a premium.
After you purchase bitcoin, you should send your bitcoin to a self-custody solution, which we’ll go over tomorrow. This is to protect your bitcoin just in case an exchange is hacked — while it’s more and more unlikely to happen now, this tragedy has unfolded multiple times before.
Why Should You Buy Bitcoin?
Okay, aside from being philosophically and economically sound, why should someone buy bitcoin? Buying bitcoin means storing wealth for yourself or your family — it's not for anyone else's benefit.
As inflation burns through working-class American stories and hyperinflation paints entire countries blue, it's important to protect your future before it gets printed away. Creating generational wealth may have been easier for our parents and grandparents, but those who are growing up today see astronomically high tuition, real estate, and costs of living that aren't adjacent to wage growth. By buying bitcoin, you're shielding yourself and your family from the battle against currency debasement.
I'm Still Skeptical...
However, a big reason why many people continue to shy away from their first bitcoin investment is because bitcoiners are so deeply passionate about onboarding them (since they want to see you protect yourself), in the same way that your old high school classmate suddenly wants to be your best friend as they try to get you to sign up for their MLM.
While bitcoiners are purely intentioned, it often comes off as them shilling a Ponzi scheme. And although that’s the case with many altcoin cryptocurrencies (otherwise known as scams), nobody individually stands to benefit from an additional bitcoin user. Rather, the network expands and strengthens, and users are rewarded for their long-term investment holdings. So, negating any of this as financial advice, if you want to buy bitcoin, you should assess your own portfolio risk management and consider an allocation.
And although previous price performance doesn't predict the future of how an asset or stock will perform, it might satisfy you to look over bitcoin's performance in the last decade.
The soundest recommendation for those who buy bitcoin (and most other investment assets) is simply to just hold it long-term. Timing the market and trying to trade doesn't usually fare well, and you're better off just setting and forgetting it. Remember this: play stupid games, win stupid prizes.
Disclaimer: none of this is financial advice. I personally own bitcoin and I believe in its long-term success. However, with any investment, it's important to do your own due diligence and understand exactly what you're buying. With that said, many financial advisors today would tell you it's considerably a good idea to allocate at least a small non-zero percentage of your investments into bitcoin. This way, you're leveraging a low risk with a potential of high future returns.
Lesson 14: Bitcoin Self Custody — Not Your Keys, Not Your Cheese
Today is the day you learn about self-custody. This is a challenging process that takes time to learn and is a daunting next-step to take. However, continue to ask questions (tweet them with #21DaysofBitcoin for help!) and do the necessary research, because self-custody is the entire purpose of owning bitcoin.
Why Self Custody?
Yesterday, we went over buying bitcoin from exchanges. However, the bitcoin you’re currently keeping on Coinbase isn’t technically “yours” yet. If someone hacks your Coinbase account (or Coinbase itself), there would be no way to recover your funds or trace who did the crime.
Even if you’re not worried about hackers, it is in the bitcoin ethos to strive for self-sovereignty; after all, if the government can access and seize your bitcoin because it’s on a centralized exchange, doesn’t that defeat the purpose of this decentralized asset?
What Does it Mean to “Own” Your Bitcoin?
In order to truly own and protect your bitcoin, you will need to have your own set of “private keys” that only you have access to, unlike the publicly shared invoice address that you use to receive bitcoin with.
Private Keys Explained
Private keys are essentially very complex, randomly-generated passwords that allow us to access our bitcoin and to verify or “sign" our transactions. These keys are then represented in a 12 or 24-word “seed phrase,” which allows us to more easily record, memorize, and backup our private keys.
On an exchange like Coinbase, your bitcoin is stored in a “hot wallet,” where Coinbase owns your private keys. Because they own your keys, if they get hacked, so does everyone who keeps their bitcoin on there — yikes.
Only when you have control of your private keys will you have secure control over your bitcoin transactions.
Keep in mind though, that self-custody means you’re responsible for keeping these seed phrases offline and in a safe place where you won’t lose access to them. While there are methods of backing up your seeds onto physical, stainless steel cards, it’s not as easy as storing it in an online password manager.
Many of us have heard the woes of those who lost access to or forgot their seed phrases, thus losing access to millions of dollars worth of bitcoin. Let this be a lesson to us all: keep your seeds safe, secure, and accessible.
Easy Self-Custody Methods
In this lesson, I’ll introduce two easy forms of bitcoin storage methods so that you can begin your self-custody journey:
- Software wallets
There are a few open source mobile options out there that are great starting points for beginners, such as Blue Wallet and Muun Wallet. Desktop versions like Electrum are also an option.
Although these wallets are connected to the internet, they generate a new private key that only you can control, which is a big step up from exchange-hosted wallets.
The great thing about having mobile/desktop wallets is that you can easily access your bitcoin anytime. The downside is that if you don’t take the right security measures, someone who has access to your phone or computer could also have access to your online bitcoin wallet.
While mobile wallets are good for on-the-go use, they’re not the most secure. If you are just starting out with minimal funds, software wallets are a great, free option.
Fortunately, there are also more advanced options to utilize your software wallets as “watch only” wallets, where they merely act as a user interface for your cold storage but do not hold your private keys. This would allow you to generate invoice addresses for receiving bitcoin, but would prevent a hacker from transferring anything out.
2. Hardware wallets
Hardware wallets are the most straightforward and popular form of offline cold storage. These wallets securely contain your private keys and typically come in the form of a flash drive-like device (popular ones include the Ledger Nano S or the Coldcard). The devices themselves are protected with a PIN so that your private key will still be somewhat safe even if your hardware wallet is stolen.
Because your hardware is not connected to the internet, it is considered “cold” and a much safer method of private key storage than online “hot” wallets. These physical devices allow you to access your bitcoin securely by storing your private keys offline.
It’s a common misconception to think that your hardware wallets “hold” your bitcoin — your bitcoin lives on the blockchain; the hardware wallet is merely a means of storing and using your private key to authorize transactions that move funds. Although a hacker could guess your pin to access your hardware wallet, it is extremely unlikely as most wallets will wipe themselves out after a few wrong guesses.
If this physical device is lost or stolen, you can still recover your funds with a new hardware or software wallet, as long as you have access to your seed phrase.
Additional Security Measures
With great power comes great responsibility, and the ability to self-custody your bitcoin is a great power indeed. Aside from removing your bitcoin off of exchanges, making sure your seed phrases are kept private and secure is of utmost importance — this is your only backup.
Many people like to take on additional security measures by storing backups of their seed phrases in vaults, or setting up more advanced multi-signature wallets that require additional private keys to authorize transactions.
On another note, be aware of phishing scams like fake hardware wallets being sold by scammers on Amazon or Ebay; always purchase directly from the manufacturer to ensure that your hardware wallet is the real deal.
It’s time to take your first step in bitcoin self-custody.
Lesson 15: Going Green — How Bitcoin Incentivizes Clean Energy Production
The number one complaint I hear about bitcoin is that it's "bad for the environment." This has caused a lot of FUD (fear, uncertainty, and doubt) about how positive bitcoin really is.
Now, while it's easy to get caught up in the many biased Bitcoin articles arguing for or against this statement — typically with cherry picked statistics — here's the reality: Most of us aren't environmental experts, but I'll bet that most of us care about the environment. Let's look at this logically and put things into perspective.
Yes, Bitcoin requires a lot of energy to operate. Yes, some of our energy sources are unclean and bad for the environment. And yes, the Bitcoin network is a "waste" of energy — just like everything that requires energy is a "waste" of energy, depending on your perspective.
To many environmentalists, your modern appliances and big-city living habits are unspeakably hedonistic carbon footprint culprits. To others, energy usage for modern necessities isn't so distressing. The same goes for Bitcoin: If you think it’s a useless fake internet money with no inherent value, then you’d question why we spend any energy on it at all.
As the numbers continue to change and all energy production leans towards clean, renewable sources, I’ll help paint a general picture for why we shouldn't be too cynical. Bitcoin should not be scapegoated with "destroying the environment," and here's why.
Bitcoin Mining Incentivizes Clean Energy Production
To start, let's consider this concept: Bitcoin works because every participant in the Bitcoin network is acting selfishly. The network is set up so that as long as we continue to act selfishly, we are also supporting the security and structure of the network as a whole (this was covered previously when we talked about how bitcoin is "unhackable").
For miners, this means finding the cheapest long-term electricity in order to confirm transactions and receive new bitcoin rewards. It just so happens that clean, renewable energy is the cheapest, most sustainable source of power, while environmentally damaging fossil fuels are the most unsustainable. After all, the sun keeps shining and the winds keep blowing, but coal doesn't burn unless we throw it in the furnace.
As such, bitcoin mining incentivizes a transition toward a 100% renewable, clean energy future.
Unfortunately, we currently don't have the technology to store or transport clean power very well. This makes it so that tons of clean energy is curtailed and gone to waste, simply because we don't have the ability to use it efficiently.
Here's how bitcoin mining efficiently uses this wasted power.
Excess Regional Power
Take a look at the hydropower situation in Sichuan, China. When bitcoin mining was banned in China in early 2021, Sichuan was a lagging enforcer, allowing miners until September to withdraw from the province. This is due to the fact that in the summer, Sichuan has ample natural hydropower, but no means to utilize or store the excess energy produced. As much as three times the amount of normal power is produced during the summer, but power usage from ACs only increases by 30%. Thus, bitcoin mining uniquely allows Sichuan to not waste excess energy.
While unfortunate that mining has been banned in China now, similar circumstances play out worldwide where excess clean power is produced.
How Bitcoin Uses Energy
Contrary to popular belief, bitcoin transactions are not directly proportional to energy usage. In fact, it's flawed to claim that bitcoin has a "per-transaction energy usage" at all. Transactions are batched into blocks at limited quantities due to the block size, and more transactions per block doesn't mean more energy usage.
Lyn Alden proposes a great analogy: Imagine bitcoin block confirmations like running your dishwasher. No matter if your dishwasher is half full or completely full, it takes the same amount of water and energy to run every night. The same goes for bitcoin.
Your single transaction doesn't marginally affect bitcoin's energy usage, so you shouldn't be guilted into not making a transaction just because a misinformed journalist told you your single bitcoin transaction could have powered 24 days of your household electricity.
Rather, a bulk of bitcoin's energy usage comes from miners using proof of work to earn block rewards. Though it may seem like a "waste of energy" that so many miners spend so much energy just for only one miner to "win" a block, it ensures the security of the Bitcoin network, and I'd say that warrants bitcoin's energy usage a place in this world — well, at least as much as your Christmas lights do.
Lesson 16: Bitcoin Is Freedom
Bitcoin is freedom.
From Britney Spears' conservatorship to entire countries of people in poverty, bitcoin shines a new light of hope on those who are economically trapped or excluded from the existing financial system.
Many of you reading through this right now likely don't see the necessity for something like bitcoin in our personal lives; some of you might be occasionally tight on cash, others are living in a first-world opulence.
You might think that in order to solve the world's issues surrounding inequity and inequality, we should be redistributing our wealth in a way that levels the playing field — and thus far, that seems to be what we're doing as a society.
But to foster a system where we create dependency on others such as state actors to help us out is to push for a continual power imbalance — where ultimately, symptoms are (poorly) fixed and issues aren't tackled at their core.
Bitcoin presents a true solution. If you fix the money, you'll fix the world.
How Does Bitcoin Solve Our Global Problems?
The reason you might not see the value in bitcoin is because people don't recognize the benefits of privacy and decentralization as forms of resilience against corrupt state actors, until they themselves experience an event that demonstrates the value behind such resilience. But, perhaps by listening to some stories of those whose lives have or can be improved because of bitcoin, you'll start to see it in a new light.
Bitcoin isn't just another investment asset to some. For many people around the world, bitcoin is just the thing they need in order to live a free and fulfilling life.
Currently, 4.2 billion people are living under authoritarian rule, and 1.2 billion are experiencing double or triple digit inflation. Most of us reading this right now aren’t familiar with these experiences, but the truth is, this issue is more prevalent than you think.
Venezuela as a Case Study
At the Bitcoin Conference in 2021, there was a dumpster filled with Venezuelan bolivars, all virtually worthless. Though the story is much more complicated, long story short, the bolivar had its value essentially printed away. Imagine you're paying $5 for a cup of coffee one day and a year later you're seeing hundreds and thousands of dollar bills inside a dumpster because they have no use anymore.
This may seem like a dystopian, far-fetched reality, but from 2016 to 2019, inflation of the bolivar had reached nearly 54,000,000%, rendering origami crafts made from the bills more valuable than the bills themselves. To realistically buy a loaf of bread or a gallon of milk with cash, you would need to roll wheelbarrows full of stacked bills to your local store. Not only that, but under a hyper-inflationary economy, these prices would shift daily — or even hourly.
Adopting Sound Money
While many claim that "this will never happen to the US dollar," to that I say, never say never. In relation to other fiat currencies, the U.S. dollar is very sound. But in comparison to bitcoin, it's just a ticking time bomb with a longer countdown. While we may be the last to fall, it proves how fiat stability is rooted in power and corruption. Through war, sanctions, market dominance, and corruption, we've made everyone else in the world dependent on the stability of our dollar and central government.
But slowly, countries are realizing they need to default to a sounder form of money.
On September 7, 2021, El Salvador became the first country to officially adopt bitcoin as legal tender.
While many are skeptical to see how this will play out (as bitcoin is still in its very early stages of adoption and stability), many more are hopeful. If the government of El Salvador becomes corrupted, its citizens will be able to hold their wealth without their savings being debased. This is something that so many people in Turkey, Lebanon, Afghanistan, and other unstable countries can only pray for.
I only hope as many of these people as possible can discover bitcoin and realize that there is a solution. Rather than trying to carry jewels and gold across borders, one now only needs a simple seed phrase stored inside their memory to access and transport their wealth.
We've come a long way in our fights for justice, but it's time to open the blinds and see how bitcoin can help us gain back our freedoms once and for all. You wouldn't be the first renegade, but unlike those in the past, you now have full, self-sovereign control over your own wealth.
Lesson 17: What If Bitcoin Gets Banned?
Can Bitcoin be banned by the government?
Short answer— no.
Long answer— technically. But ultimately, any ban is highly unlikely (and would not be in the interest of nation states). If a ban on Bitcoin were enacted somewhere, however, there would be no way to enforce said ban. In fact, many countries have already tried banning Bitcoin one way or another — Bolivia, Ecuador, Russia, India, China, etc. — just to name a few. But because of how Bitcoin is built — as a permissionless, pseudonymous medium of exchange — it's about as effective as the government trying to ban free thought.
They might be able to ban it legally, but the only way they can stop free thought is by trying to manipulate public sentiment. We are no stranger to this phenomenon; you can probably think of a few scenarios where people appear to be tragically misinformed and brainwashed.
While I'm not of the cynical camp that everything is a psychological operation these days, the reality is that everything comes down to sales and marketing — especially for schools of thought.
Why Would the Government Want to Ban Bitcoin?
Bitcoin works in parallel: Governments trying to hold onto central banking power are working on framing Bitcoin as an evil that works against the betterment of society.
To quote Senator Elizabeth Warren,
"[cryptocurrencies] undermine the government's ability to maintain robust economic growth over time...Online theft, drug trafficking, ransom attacks and other illegal activity have all been made easier with crypto. Experts estimate that last year more than $412 million was paid to criminals in ransom through cryptocurrencies."
And yet, she and other politicians alike fail to mention that between $800 billion and $2 trillion of fiat money is globally laundered each year, according to estimates from the United Nations —about 400 times more than in cryptocurrencies. In 2020, the criminal share of all cryptocurrency activity was just 0.34%.
What it seems to all come down to is control: The government currently regulates the economy by manipulating fiscal and monetary policy to foster economic growth. But to put our trust in the government is to put our trust in people who lack integrity, make decisions based on lobbying, and happily bail out big banks when they mess up without any care for what happens to the people (if you want an example, look up the Financial Crisis of 2008).
In China, Bitcoin has been "banned" countless times, one way or another. In general, China's stance has been very anti-Bitcoin, since they want to create a digital yuan (a CBDC: central bank digital currency) that can be controlled and surveilled on. Bitcoin scares those with centralized control: What if the people choose something that we can no longer manipulate? It must be stopped.
If the government tries to ban Bitcoin or cryptocurrencies, what will most likely result is a large pushback from the cryptocurrency community that attracts worldwide media attention — causing people who previously had never been interested in Bitcoin to now start looking into it.
The Concern for Mass Adoption
Okay, so what if the government can't stop Bitcoin? They can at least stop people from adopting it, right?
The government may think they can slow down Bitcoin adoption, but their endeavors may not work out so well for them.
Allow me to introduce you to the law of unintended consequences. Some of my favorite examples include the Cobra effect and the Streisand effect (these stories are worth a quick search) — both are examples of situations where the exact opposite of what was intended ended up happening.
If Bitcoin does get "banned," it will only end up being the biggest free marketing campaign that Bitcoin has ever had.
Can you see it now? The walls that they put up to hold us back will fall down. It's a revolution against the existing, corrupt financial system that has harmed too many for far too long, and change is coming whether or not our leaders want to embrace it.
Lesson 18: How Does Bitcoin Advance The Human Race?
One small step for Bitcoin, one giant leap for mankind.
For Bitcoin, global adoption is just a few more nodes. But for humans, it means finally reaching a point where we share a common currency — the bitcoin standard. One day in our future, we may just adopt a global bitcoin standard, where country currencies are either backed by bitcoin or we simply default to some scalable Bitcoin system (such as the Lightning Network).
The Kardashev scale
Let's get into some interesting alien science for a second.
The Kardashev scale was created by astrophysicist Nikolai Kardashev, who proposed a system for classifying extraterrestrial societies and their advancements based on how they were able to utilize energy in a solar system. There are three main types (properly named type I, II, and III), though succeeding scientists have expanded the scale. Here's what it looks like:
Now, guess where the human race stands? That's right, if you chose "none of the above," then you'd be correct! The human race currently sits at about a 0.7 on the Kardashev scale; in order for us to reach type I, we would need to harness all the energy we can from the sun—that means fusion power on a large scale, which is still in its developmental infancy.
However, as stated previously, Bitcoin mining really encourages the development of cheap, renewable electricity. As a type I civilization, we would eliminate the need for any fossil fuels while making power cheap and abundant, doing good for the planet and society at the same time.
But, this is way off into the future, so instead I'll present to you the monetary case for advancement: that we, as a human race, will progress toward a type I civilization under commonalities in language, communication methods, monetary systems, and more.
Our common language looks like it might be English. Our common means of communication are web-based. Our monetary system is...currently a mess that can be fixed under a bitcoin standard. With a common currency that relies on no centralized power (and no war), bitcoin could become our global uniting currency that knows no borders or permissions, taking us another step closer towards reaching type I civilization status.
The Euro as a Case Study
The EU has united most of Europe under a commonly governed currency. This makes it much easier for countries in the European Union to economically grow in a stable and efficient manner. The common currency allows for a capturing of a larger market that can easily trade and share business operations across borders while maintaining stability and cooperation between countries.
There's just one big flaw: It's centralized. The European Central Bank (ECB), like any other central bank, has the authority to adapt its monetary policy strategy by dictating target inflationary practices and inflating the monetary supply as they see fit. This means that trust in the ECB requires, well, trust.
A country like the United States would likely never join in on a union currency that requires giving trust to other countries — it wants to be a powerful stronghold, and it currently is. This is why a common centralized global currency would never work, since countries are constantly fighting over power.
Unfortunately, many other countries rely on the US dollar as a reserve currency, since comparatively, their native currencies are not as sound as the USD. This creates an imbalance and dependence on a nation state that others have no control over. All fiat currencies are sinking ships — the USD just happens to be on more inviting waters.
Bitcoin so graciously solves this problem for us by not requiring nor permitting a centralized authority in order to function properly — allowing free market economies to organically fall into place like dominoes.
Bitcoin eliminates this need for the fragile system of trust that is constantly hanging over our heads in the balance of powers.
The Future of Bitcoin
Bitcoin just might be the thing that unites the world in a way that has never been done before. But it doesn't just enforce a potential common global monetary policy; things can actually be built on top of the Bitcoin network, allowing us to create an internet that holds the same security and transparency as the Bitcoin blockchain.
Tomorrow, we'll go over the developments and future potential of the Bitcoin network. Bitcoin is not just hailed as a currency for our advancing global society; it lays the foundation for an entirely new, revolutionary decentralized internet ecosystem.
Lesson 19: Why Bitcoin Over Any Other Cryptocurrency?
Bitcoin is the original cryptocurrency. Since its genesis in 2009, countless DeFi projects and altcoins have popped up; from Dogecoin to ETH, there's undoubtedly a huge market for alternatives to bitcoin.
People love how applications of different altcoins have use cases beyond just bitcoin's main selling point as a store of value. Several new altcoin projects built on Ethereum or forked off of existing cryptocurrencies have improved privacy, increased scalability, enabled smart contract capabilities, and much more. Arguably, there's a case for choosing other cryptocurrencies over Bitcoin; Bitcoin's technology is far from perfect, and new developments are slow to implement.
Yet, it's this "hard to change" feature that makes bitcoin so special — and that's due to the vast size of the Bitcoin network.
Network effects are a special phenomenon because with each additional user, there isn't just a linear growth in network dominance — there's an exponential one. Think about it this way: If Nick and Alex are part of the network, then they make one connection with each other. If Jeremy comes into the picture, the three of them can now make three connections in total. Now add Nicole, and we have six connections. Here's what the numbers look like if we keep adding people to the network:
This is how Facebook, Amazon, and Bitcoin have each dominated their respective industries. Facebook, one of the biggest companies and social networking sites alive today, was once just a competitor in a rapidly growing space. Before Facebook's dominance, MySpace had held the title for #1 social networking site. As Facebook grew and honed in on its mobile app development, it became a far better product than MySpace — arguably, a 10x better product — leading to its status as social media king. This is due to a concept known as the "10x Rule," where a new competitor must be magnitudes better than the incumbent in order to take over the incumbent network.
In the world of cryptocurrency, no altcoin will come close to being 10x better than bitcoin. That's because Bitcoin's security and network dominance strengthen exponentially: As more nodes join the network, Bitcoin becomes more secure, and it becomes increasingly more impossible for a new crypto to dominate.
Bitcoin Needs No Campaign
The craziest thing is that bitcoin needs no marketing — it has achieved market dominance all on its own. Many altcoins require that sales push for even a minimal market cap. Take a look at the number of celebrities promoting altcoins such as Tron, and you'll realize how desperate these very centralized cryptocurrencies are.
The concept of the dominating network effect was what ultimately convinced me of Bitcoin's success over all other cryptocurrencies. While we can deeply study technical intricacies and debate tokenomics all day long, it ultimately doesn't matter — Bitcoin has already won because it has network dominance that continues to grow.
ETH, Doge, and any other cryptocurrency will never be able to surpass bitcoin (despite what many people might try to tell you) — no matter how "improved" their technologies claim to be. Simply put, if these altcoins can't even match up to Bitcoin's entrenched strength in decentralization and security, how can they ever contend to dominate the network?
Lesson 20: DeFi On Bitcoin
If you've dabbled in the cryptocurrency world, you might know of bitcoin as a "store of value," and ether (the Ethereum Network token) as the "smart contract thing."
Yes, you can build cool stuff on Ethereum. You can write "smart" and programmable contracts. You can mint NFTs. You can create entirely new decentralized finance (DeFi) ecosystems on Ethereum and come out with your own tokens if you wanted to.
But ultimately, none of that cool technology that's sitting on top of the Ethereum blockchain or any other blockchain project matters in the long-run. Why? Because the next generation of the internet should and will be built on Bitcoin instead.
Creating a Decentralized Web
Bitcoin doesn't need to operate the way that Ethereum does. It works all on its own as a decentralized digital currency, and many people think that's enough; bitcoin has a simple investment thesis and there's no need to innovate beyond that when it comes to treating bitcoin as a store of value and high growth asset.
However, problems remain regarding the centralization of the infrastructure built around bitcoin — this includes exchanges and lending platforms that are centrally hosted and remain under the threat of jurisdiction. This creates barriers to entry (unequal distribution based on borders) that could be fixed with a new, decentralized internet infrastructure.
As we went over last week, Bitcoin is the ultimate blockchain protocol to build the next generation internet on, due to its incumbent status as the most secure and decentralized network of any cryptocurrency. Therefore, it only makes sense to innovate DeFi on Bitcoin.
How Will This Happen?
There is an entirely separate technical deep dive required for one to begin understanding the DeFi universe, but the simple reason for why Bitcoin-native DeFi is so far behind is due to its initial design. Other cryptocurrency networks like Ethereum and Solana were built with the intent to create DeFi and Web3.0, but Bitcoin remains simply as a sound monetary network.
While it is difficult to "upgrade" Bitcoin natively, developers can create BIPs (Bitcoin Improvement Proposals) to formally suggest improvements to the core software. However, due to this decentralized process (that makes bitcoin so secure in the first place), it is a difficult and lengthy journey to implement new features such as user-friendly complex smart contract capabilities (which are currently being worked on, such as via BIP-119!).
So instead, many companies and developers are creating layered solutions to help advance Bitcoin's features, while continuing to secure these projects on the native Bitcoin blockchain. The Lightning Network is one such layer 2 example, and there are other solutions such as Blockstream's Liquid side-chain or the Stacks ecosystem. All these projects and many more are worth a deeper look into.
Why a Decentralized Internet Needs to be Built on Bitcoin
As we progress into the next generation of the internet, it's important that we do it securely—and that means building on Bitcoin. Building decentralized projects on centralized, proof-of-stake ecosystems (like Ethereum 2.0) means tolerating the existing financial infrastructures and re-packaging them into "blockchain technologies," that gleam and glisten on the surface, while centralized stake-holders and those at the top dictate network changes. Additionally, those using the current Ethereum ecosystem must deal with astronomically high fees that often don't warrant the lower-scale transactions being made.
If we are to make proper decentralized improvements to our existing digital and financial systems, we should do it properly, from the beginning. Use your best colors to paint the portraits of progress on Bitcoin's canvas. In the end, these are the works of art that will stand the test of time.
Lesson 21: Hyperbitcoinization — Life Under The Bitcoin Standard
There's one important question left to be answered.
When we talk about how fiat currencies are "unstable," this simply means that there is room for instability within the structural design of fiat currencies — that governments can be corrupted and make poor fiscal decisions such as printing exorbitant amounts of money. But there remains a concern for instability in bitcoin, in that the price of bitcoin fluctuates too much for it to be used as a day-to-day currency.
There is a difference between the instabilities here — Bitcoin is secure, fiat is insecure; bitcoin is volatile, fiat is relatively stable in price(at least in powerful nation-states). In order to actually use bitcoin the way we currently use fiat one day, it needs to be stable. So, the question remains: How can we ever enforce a bitcoin standard if the price in terms of fiat dollars fluctuates so much?
Will Bitcoin Replace Fiat?
There are a few hypothetical scenarios that could play out. Some people think fiat will never disappear, while others think that bitcoin will completely overturn the existing financial system. Whatever happens, one thing remains true: Bitcoin is here to stay and will continue to play an increasingly prevalent role in our global financial system.
Realistically, bitcoin will not do a complete overhaul of fiat. However, anything is possible, and it's a scenario that hasn't played out before which is why it's so hard to imagine. If bitcoin were to replace fiat, it would likely require the good-will of worldwide governments to concede to a decentralized currency. Knowing anything about any of our governments, it's a highly unlikely scenario.
Instead, the path to global adoption will look more like individuals choosing self-sovereign stores of wealth. Keep in mind that because Bitcoin is permissionless, taking the right privacy measures means you can use and hold bitcoin even where outlawed.
Most likely, we will continue treating bitcoin as a store of wealth — an asset like real estate or stocks — that we can utilize in conjunction with the legacy lending system. By storing a portion of bitcoin as collateral, people can borrow fiat money to pay for day-to-day living expenses. There are a few lenders in some countries who have released this capability already.
CBDCs: Central Bank Digital Currencies
Many politicians have called for the implementation of CBDCs — a centralized digital currency — that would allow governments to retain their central authorities over monetary policies. This, if implemented, may come with less privacy than the cash system we still use today.
They foolishly think that this will kill the cryptocurrency industry as a whole. However, because so many people are afraid of CBDCs like the digital yuan potentially exercising privacy and personal security violations, this may well push bitcoin adoption forward as people seek the only truly self-sovereign money solution out there.
The Bitcoin Standard
When we think about the volatility of bitcoin, we think about it in terms of dollars, or whichever other fiat currency is native to us. But if we were to truly adopt a bitcoin standard — without fiat in the picture — then...what exactly are we comparing bitcoin's price to? Is one bitcoin today not still one bitcoin tomorrow? Are 50 sats not still 50 sats?
As technology advances, our consumer goods naturally become cheaper — deflationary, if you will. As central governments strive to manipulate markets and prevent deflation at all costs, I implore you to think about the true alternative that bitcoin allows. If our current system is so broken, why are we still trying to break it? For more reading on this topic, I encourage you to read "The Price of Tomorrow," by Jeff Booth.
Over the last three weeks, we've taken down our fiat walls and opened the door to true sound money. This is just the beginning of your Bitcoin journey, and you have so much left to learn.
Bitcoin is our newfound grace — and all we know since our fiat days is, everything has changed.