A New Intro to Bitcoin: The 9 Minute Read That Could Change Your Life

By now you’ve probably heard of Bitcoin. You may have heard that it’s made some people rich. You may also have heard that it’s a new form of digital money, and that it’s the future of commerce; or that it’s a criminal enterprise, and that it’s bad for the planet.

The messaging is confused and confusing — which is partly because no one person controls it. Just like Bitcoin, which belongs to… well, all of us.

In this short essay I want to help the Bitcoin-curious understand a few facts about the world’s top cryptocurrency. It’s not technical, and it’s not hard to follow. It’s not comprehensive, either, which is why this article is peppered with links so you can find out more.

I’m not advocating for Bitcoin as an investment, although I do think it’s worth owning a little. I’m just trying to set the record straight on a few misconceptions, and to help newcomers to the Bitcoin community get up to speed quickly with a few key concepts. Hopefully if you’re reading this with an open mind, you’ll realize quickly that there’s much more to Bitcoin that its price.

There are babies in the bathwater

Let’s start by getting a few things out of the way: cryptocurrency is a dangerous and often ugly place. There are countless scams, hacks and exploits. It appeals to degenerate gamblers and criminals and fools. Motivated reasoning and sunk cost fallacy prop up bad ideas long after they should have collapsed. Con artists thrive in the open and ordinary people often lose their money. The crypto space is 95% bullshit by volume, so it’s understandable that some people conclude it must be entirely bullshit.

But mostly bullshit is not the same thing as entirely bullshit. Dismissing crypto because it is full of scams is like dismissing Twitter because the average Tweet is terrible. The problem is not that Twitter (or crypto) have nothing to offer. The problem is that it takes time and energy to learn how to dig through the bullshit and find the genuinely interesting ideas.

Rejecting cryptocurrency entirely is much easier and seems to offer a lot of moral clarity — but it leaves behind a nagging question: if cryptocurrency is so obviously awful, why doesn’t it just die?

Bitcoin is not going away

An interesting thing about Bitcoin is that almost no one believes in it right away. Bitcoin’s design is so ugly and counterintuitive that almost everyone rejects it at first as impossible. It was around three years between when I first heard about Bitcoin, and when I finally started to seriously investigate it. I studied game theory and mechanism design in grad school, so I knew exactly why Bitcoin couldn’t work. I just couldn’t figure out why it was still around.

In theory I was confident that Bitcoin could not exist… but in practice it did and when theory conflicts with observed reality, it is theory that must change. I became skeptical of my skepticism. I read the whitepaper. I changed my mind.

More than anything I can write or say the most compelling evidence that Bitcoin works as advertised is the history of its operation so far. The longer Bitcoin continues to exist, the more seriously you should take it.

The academic term for this is the Lindy effect, the idea that the longer something has survived the longer you should expect it to continue. We could all collectively decide tomorrow that gold is no longer valuable and we could decide to keep listening to today’s hit singles forever. But we probably won’t.

Gold has been valuable for a long time, so it will probably still be valuable a long time from now. Today’s top songs are mostly new, which suggests tomorrow’s top songs will probably mostly be new as well. The continued existence of something is evidence it will continue existing. That’s the Lindy effect.

That’s why governments around the world have stopped ignoring Bitcoin and started to develop formal policies to outlaw, regulate or adopt it. A policy of ignoring Bitcoin and assuming it will go away on its own is no longer realistic. If Bitcoin was going to go away on its own, it already would have.

Bitcoin has value because it is useful

A common objection to Bitcoin is that since they aren’t backed by anything they must not be worth anything. Since they don’t have any intrinsic utility they must be a greater fools’ game, where the only goal is to sell your worthless bags at a higher price to an even greater fool than you. It is true that the only use for Bitcoin is to transfer your bitcoin to someone else — but that doesn’t mean Bitcoin is useless. Transferring value is a valuable service. That’s why banking is so lucrative.

“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: – boring grey in colour – not a good conductor of electricity – not particularly strong, but not ductile or easily malleable either – not useful for any practical or ornamental purpose and one special, magical property: – can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.” — Satoshi Nakamoto

Money is a technology for transporting value through space and time. Bitcoin is a vehicle for value that eliminates physical distance and cannot be diluted, seized or censored. It is the value of that service that “backs” the value of Bitcoin.

"I think there's no capacity to kill bitcoin" says @PatrickMcHenry #btc pic.twitter.com/DY70tx2TvV

— Squawk Box (@SquawkCNBC) July 17, 2019

Bitcoin will not be stopped

Bitcoin does not have a central point of control so the only way to “stop” Bitcoin is to stop every person on the Bitcoin network individually. Even shutting down the entire internet wouldn’t work because you can connect with the Bitcoin network over radio or by satellite. By any realistic measure the network itself cannot be stopped.

Governments can of course outlaw cryptocurrency (several have) but making Bitcoin transactions illegal is like making drug use illegal — it doesn’t eliminate it so much as drive it underground. China is a powerful, authoritarian state that has repeatedly banned Bitcoin, but you can’t actually ban Bitcoin from China because Bitcoin has no concept of China. China can only choose to isolate themselves from the network.

But what if governments go farther and actually attack the network? They could secretly acquire or seize mining rigs and set them to mining empty blocks, slowing down the network and reducing revenue for honest miners. They could market sell the rewards they earn mining and open short positions to drive down the price of Bitcoin further damaging miner revenue and market confidence. As miners quit defending the network attackers will control more of it, causing a feedback loop / death spiral.

Attacks like this are easiest to picture with an abstract, monolithic world government. It is less clear how they would work in the context of actual world governments today. The two most obvious governments in practice that might launch such an attack are the US and China. China has been systematically working to expel all the mining rigs from its borders — so they aren’t exactly gearing up to launch a mining based attack on the network.

China's $1 Trillion mistake, #Bitcoin miners being shipped away. pic.twitter.com/wxoO9BMDUy

— Documenting Bitcoin