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🎯 The Book in 3 Sentences
💡 Key Takeaways
- Bitcoin was the first digital cash, combining the advantages of physical cash with the convenience of digital transactions.
- Its limited supply of 21 million coins ensures scarcity and value preservation.
- It enables borderless value transfer without reliance on a specific country’s economy.
- Its blockchain removes the need for trust in third-party intermediaries for secure transactions.
- Blockchain technology has applications in digital payments, contracts, and tamper-proof record management.
- Drawbacks of blockchain include redundancy, scaling challenges, regulatory compliance, irreversibility, and security reliance on processing power.
✏ Top Quotes
The only limited resource, and in fact the only thing to which the term resource actually applies, is human time.
Bitcoin is not anonymous; it is rather pseudonymous.
📝 Summary + Notes
Money before Bitcoin
- Rai stones of the Yap island in Micronesia.
- Aggry beads in West Africa.
- Shell money on the east coasts of North America.
- Livestock, salt, metals.
- The Byzantine Empire currency, Solidus, was the longer laster currency in human history (17 centuries).
- The gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.
- Gold is “healthy money” as it is indestructible, cannot be created, and the newly mined gold (which is very hard to mine) is much less than the already available.
- Governments have control over money and modern economies suffer the consequences.
Digital Money
- Bitcoin was the first engineering solution that allowed for digital payments without having to rely on a trusted third-party intermediary.
- By being the first digital object that is verifiably scarce, Bitcoin is the first example of digital cash.
- Bitcoin combines the advantages of physical cash, such as direct transactions and transaction finality, with the convenience of digital transactions.
- It features a robust and unalterable monetary policy, preventing unexpected inflation and manipulation by external entities.
- Bitcoin offers a secure and transparent financial system, empowering holders with control over their funds without the need for intermediaries.
- The central operational feature of Bitcoin is verification, and only because of that can Bitcoin remove the need for trust completely.
- Bitcoin mining involves nodes solving complex mathematical problems through proof-of-work to commit transaction blocks to the ledger and receive new bitcoins as a reward.
- Bitcoin’s preprogrammed quantity of coins, combined with the difficulty adjustment mechanism, ensures that increased mining efforts only enhance network security and do not lead to an increase in supply, making it a unique and secure form of money.
- Bitcoin’s supply is made up of a maximum of 21,000,000 coins.
- The first 20 million coins will be mined by around the year 2025, leaving 1 million coins to be mined over one more century.
- The Bitcoin network began operating in January 2009.
- The current size of Bitcoin blocks is limited to 1 megabyte.
- 500,000 transactions per day are close to the upper limit that can be carried out by the Bitcoin network and recorded by all peers on the network.
What is Bitcoin good for?
- Strictly limited supply. No matter how many people use the network, how much its value rises, and how advanced the equipment used to produce it, there can only ever be 21 million bitcoins in existence.
- Bitcoin allows humans to transport value digitally without any dependence on the physical world.
- Bitcoin holders can send large amounts of value across the planet without having to ask for permission from anyone.
- Being separated from any particular country’s economy, its value will not be affected by the volume of trade denominated in it, averting all the exchange rate problems that have plagued the twentieth century.
Bitcoin Questions
- Any individual coder, miner, or node operator is dispensable to the network. If they stray away from consensus rules, the most likely outcome is that they will individually waste resources.
- New Bitcoin forks are very hard to succeed, as most of the old Bitcoin users should sell their coins and buy coins from the new fork.
- Bitcoin mass use for merchant payments is not even very feasible given that it takes anywhere from 1 to 12 minutes for a transaction to receive its first confirmation.
- By its very nature, Bitcoin’s blockchain structure is not ideal for privacy.
- The SHA-256 hashing function is an integral part of the operation of the Bitcoin system. With the increasing processing power, it will be possible to reverse-calculate it in the future. In this case, a new Bitcoin fork should be created with a stronger encryption and all users of the old fork should agree to mitigate to the new.
- All other cryptocurrencies (altcoins) are more like a start-up with a nice team behind them, rather than a monetary system.
- Applications of Blockchain Technology:
- Digital payments. Bitcoin has a blockchain not because it allows for faster and cheaper transactions, but because it removes the need to trust in third-party intermediation.
- Contracts. Currently, contracts are drafted by lawyers, judged by courts, and enforced by the police. Smart contract cryptographic systems such as Ethereum encode contracts into a blockchain to make them self-executing, with no possibility for appeal or reversal and beyond the reach of courts and police.
- Database and record management. Blockchain is a reliable and tamper-proof database and asset register, but only for the blockchain’s native currency and only if the currency is valuable enough for the network to have strong enough processing power to resist attack.
- Economic drawbacks of Blockchain Technology:
- Redundancy. Having every transaction recorded with every member of the network is a very costly redundancy whose only purpose is to remove intermediation.
- Scaling. A distributed network where all nodes record all transactions will have its common transaction ledger grow exponentially faster than the number of network members.
- Regulatory compliance. There is virtually nothing that any government authority can do to affect or alter Blockchain operation.
- Irreversibility. Mistake transactions cannot be reversed.
- Security. The security of a blockchain database is entirely reliant on the expenditure of processing power on the verification of transactions and proof-of-work.