Bitcoin: Threat Of Owning A Fraction Of The Number Line
By chris on ALTCOIN MAGAZINE
From presidents to economists to bankers to investment gurus, all have taken notice of Bitcoin. We are told it is not money, has no intrinsic value, indeed, it is rat poison squared.
What is Bitcoin that makes so many in the governments and the establishment feel threatened?
The answer is scarcity. Bitcoin creates a new form of scarcity, digital scarcity, and, most importantly, it uses a decentralized consensus mechanism to enforce the maintenance of this scarcity.
Bitcoins are not actually coins; owning an amount of Bitcoin is like owning a fraction of the number line that is 21 million units long (Bitcoin), or, more accurately, 2,100 trillion units long (satoshi). See my article “Simply Explaining Bitcoin” where I explain Bitcoin through a simple model of owning a fraction of the number line.
What governments from the USA to India to China, what economists from Nouriel Roubini to Paul Krugman to Joseph Stiglitz, what investors from Warren Buffet to Peter Schiff are scared of is a new form of scarcity, decentralized digital scarcity, that they can’t control or that they do not understand or, maybe, do not want to understand because they have succeeded in the old world of scarce asset schemes prior to the invention of Bitcoin.
Decentralized digital scarcity is here to stay, it cannot be un-invented. It challenges power, it challenges rent-seeking, and so it should come as no surprise that it will draw criticism.
Bitcoin is nothing more than the ability to own and exchange with anyone in the world a fraction of the number line, yet the power of this simple ideas strikes fear into the powerful.
Bitcoin Has No Use-By Date
It is often argued that while Bitcoin is a revolutionary technology, that it is like the Ford Model T, however, in time a coin with superior technology will replace Bitcoin.
This argument is based on the false assumption that immutability of the scarcity (there will only ever be 21 million bitcoin) implies immutability of the underlying technology. In its 10 year existence, Bitcoin technology has changed and will continue to change, and those that run validation nodes determine what changes are adopted.
Bitcoin is hard to change by design. Security and decentralization have priority over scalability. The Bitcoin community is pursuing scalability by creating a technology stack the above Bitcoin layer.
A number of projects are looking at scalability and privacy for on-chain transactions without compromising security and decentralization. An example is Segwit (short for Segregated Witness), a protocol upgrade implemented in mid-2017. Other exciting proposed changes are Taproot and Schnorr, which when implemented will further increase flexibility, security, and availability.
Out Of The System
As we have discussed, Bitcoin is a system of technologies based on number theory, thermodynamics, cybernetics, and game theory to realize anti-fragile, decentralized, digital scarcity.
Within that system digital scarcity is strictly enforced, however, this bitcoin system is embedded within a wider system, the global community, that can cause the bitcoin system integrity to be challenged. This wider system is in general not benign but hostile and adversarial. Examples of attacks are 51% mining pool attacks or hard-forking (taking copying) the code and splitting the chain and the consensus community (a recent example being the creation of Bitcoin Cash).
This vulnerability to splits is one of the stronger critiques of Bitcoin compared against physical assets, like Gold (see Drop Gold and The Myths We’re Told, by Roy Sebag).
The efficacy of the game-theoretic mechanism that endows Bitcoin with anti-fragility are complex to understand. Bitcoin has had an incredible uptime over its 10 years live (99.9839762923 % as of the time of writing), it has withstood many and varied attacks and been declared dead many 100s of times by the media and commentators.
Bitcoin continues to prove itself day-by-day, year-by-year as a decentralized, scarce digital asset, however, strictly, it is never guaranteed beyond a shadow of a doubt: the next meteor can change everything we have taken for granted.
Summary
Bitcoin is a way to own and exchange a fraction of the number line. That abstract but simple idea will change everything.
