Bitcoin III
TLDR
In this final instalment of the Bitcoin series, we’ll delve deeper into the philosophical principles that underpin Bitcoin and look at its focus on freedom, decentralisation and individual sovereignty. We’ll tackle the environmental concerns associated with Bitcoin mining and revisit Bitcoin’s potential as a world reserve currency and its role in economic stability. We’ll also look at the privacy aspects of Bitcoin and how Bitcoin can provide financial privacy in an increasingly surveilled world. I speculate on the future of Bitcoin and discuss potential challenges and opportunities. In short, this blog is a summary of previous blogs on the subject and highlights the importance of understanding Bitcoin not only as a technology but also as a philosophical movement.
Introduction
This is the final part of a three-part series on Bitcoin. In the previous two blogs, we’ve embarked on a deep exploration of this revolutionary digital asset. We have looked at the technical aspects of Bitcoin, understood the underlying blockchain technology and how it enables a decentralised, secure and transparent financial system. We also looked at Bitcoin’s potential to disrupt traditional financial systems, its role as a hedge against inflation and its potential to become a world reserve currency.
In the first blog, “Bitcoin I”, I focused on the basics of Bitcoin, explaining its origins, how it works, and why it’s unique. I discussed the concept of decentralisation and how Bitcoin’s design embodies this principle, providing a level of security and transparency that’s unprecedented in the financial world.
In the second blog, “Bitcoin II”, I delved deeper into the economic implications of Bitcoin. I explored how Bitcoin’s inherent scarcity mirrors that of gold, making it a potential hedge against inflation. I also discussed the volatility of Bitcoin’s price, the potential for market manipulation, and the impact of these factors on its acceptance as a form of payment.
Now, in “Bitcoin III”, I aim to tie up any loose ends and delve deeper into the philosophical underpinnings of Bitcoin, address environmental concerns, discuss Bitcoin’s role in the global economy, and explore its privacy aspects.
It’s my completely biased and self-serving opinion that the previous two blogs are essential reading for anyone who wants to understand Bitcoin. I truly believe that almost anyone who has learned and read about Bitcoin in the last few years will benefit from spending 20 to 30 minutes reading each of the previous blogs. Although this particular blog can be read on its own, as the saying goes — “it’s not the same thing”. Without further ado, let’s dive in.
The Philosophy of Bitcoin
At the heart of Bitcoin, beyond its complex algorithms and cryptographic security, lies a philosophy. It’s a philosophy that echoes the principles of freedom, decentralisation and individual sovereignty. It’s a philosophy that challenges the status quo and dares to imagine a world where power isn’t in the hands of a few, but distributed among the many.
Bitcoin is more than just a digital currency; it’s an expression of a libertarian ethos that values individual freedom and autonomy above all else. It’s a reaction to the centralisation of power, to the control that banks and governments exert over our financial lives. Bitcoin is a statement, a declaration of financial independence that says: “I am my own bank”.
At its core, Bitcoin is about decentralisation. It’s about removing the middlemen from our financial transactions and putting power back into the hands of the individual. This decentralisation isn’t only technical, but also philosophical. It’s about challenging the idea that we need centralised institutions to manage our financial systems. It’s about questioning the authority and trust we place in these institutions and asking if there isn’t a better way.
Bitcoin also embodies the principle of individual sovereignty. With Bitcoin, you have full control over your money. You can send it to anyone anywhere in the world without needing permission from a bank or government. You can keep it safe without relying on a third party. Your Bitcoin wallet is like a digital fortress to which only you have the keys. This level of control and security is unprecedented in the history of money and is a testament to the power of the Bitcoin philosophy.
But the philosophy of Bitcoin goes even further. It’s not only about freedom and decentralisation, but also about transparency and honesty. The Bitcoin blockchain is a public ledger that records every transaction ever made. This transparency ensures that no one can cheat the system or manipulate the currency. This is a stark contrast to the opaque and often corrupt practices of traditional financial institutions.
In essence, Bitcoin is a radical reinterpretation of what money can be. It’s a vision of a financial system that is free, decentralised and transparent. A system that values the individual, that respects our freedom and autonomy. And it’s the best opportunity we have to challenge the status quo and dare to dream of a better world.
Next, I’ll discuss some of the criticisms and concerns surrounding Bitcoin’s impact on the environment. It’s important to be aware that most, if not all critics, completely ignore or dismiss the benefits of Bitcoin. Not only those mentioned above, but also many others, some of which I’ll cover in this blog or have covered in the previous blogs.
Bitcoin and the Environment
One of the most common concerns about Bitcoin is its environmental impact, particularly in terms of the energy consumed in Bitcoin mining. I’ll pretend that I agree with the premise that energy consumption is bad.
Lest you be mistaken, I absolutely and one hundred percent disagree with that assumption. In fact, in my opinion, the opposite is true. One only has to look at the incredible and exponential improvement in quality of life and standard of living around the world since we began to efficiently extract and use fossil fuels to understand the benefits we all enjoy directly from our energy consumption. In a very short time, we have gone from about 90% of humanity living in precarious conditions, below any acceptable poverty line, to less than 10% of people still living in these conditions.
There’s still much to be done, and we’re far from behaving as a society in such a way as to eradicate poverty, at least within an acceptable time. But if there’s one universal truth that cannot be escaped, it’s that in everything we do to lift people out of poverty, the one thing we cannot avoid is energy consumption. The more energy we consume, the faster we’ll lift the remaining part of humanity out of poverty.
Let’s be clear about this: I’m not saying that human existence, with all its energy consumption, has no impact on the environment. Like everything else, actions have consequences. We just need to be aware of these consequences, both negative and positive.
Repercussions
The positive consequences are obvious, from our quality of life — I bet you a finger that no one in the industrialised world would accept a complete stop to fossil fuel energy production — to the quality of natural life: C02 leads to a greener world. The higher the C02 concentration, the greener that part of the world can be.
The negative effects, on the other hand, aren’t so clear and are the subject of much scientific debate. Although it’s clear that human activities, especially energy consumption, lead to an increase of CO2 in the atmosphere, there is no convincing data that clearly proves that this phenomenon is harmful to the environment. I know, you can read thousands of scientific papers trying to prove exactly the opposite, that it’s harmful to the environment. These papers are all fake science. I’m not going to refer you to any papers on the subject, because as I said, this is my opinion, and only my opinion, so it’s not worth much. Unless you give my opinion a lot of weight. In which case I appreciate it, but I hope you have backed up your opinion with your own research.
With that said, let me entertain the thought of energy consumption being bad for the environment. I do enjoy playing devil’s advocate.
Environment good, Bitcoin bad
This is a valid concern that deserves careful consideration — energy consumption is a burden on the environment. Bitcoin mining, the process by which new Bitcoins are created and transactions verified, involves solving complex mathematical problems, a task that requires a lot of computing power and consequently energy.
Critics argue that the energy consumption of bitcoin mining, much of which comes from non-renewable sources, contributes to environmental degradation and accelerates climate change. Some even go so far as to compare the energy consumption of Bitcoin mining to that of entire countries. While these comparisons are startling, it’s important to put them in the right context.
Context is everything
First, it’s worth noting that the traditional banking system and gold mining also consume significant amounts of energy, often more than bitcoin mining. Yet these systems are rarely scrutinised as closely. This isn’t to dismiss the environmental concerns surrounding Bitcoin, but rather to point out the need for a balanced and fair comparison.
Another example is clothes dryers — bitcoin mining uses less energy globally than clothes dryers, it’s not even close. Why is there no outcry against tumble dryers and their impact on the environment? Do we really need clothes dryers? Don’t claim that we need them, because we have lived 99.9999999% of our existence without them and I dare say the vast majority of people still live without them.
Should I even go on to the subject of Christmas lights?
This is just to show that the critics of bitcoin energy use aren’t concerned about the impact on the environment, but about the impact on our society. It’s not that they don’t see the benefits, it’s that those benefits run counter to their goals and agenda.
Not Green Enough
Second, the Bitcoin community is acutely aware of these environmental concerns and there is a concerted effort to address them. Many bitcoin miners are actively seeking renewable energy sources to power their operations. There are some numbers circulating about the percentage of bitcoin mining that is powered by renewable energy, but the truth is that due to the decentralised nature of bitcoin mining, it’s almost impossible to get accurate data. When you look at bitcoin mining pools, you might think that it looks pretty centralised as there are only about a dozen or so pools, but when you understand that a pool is actually made up of thousands of anonymous miners spread all over the world, you come to the conclusion that it’s almost impossible to get accurate numbers. However, since most of the largest bitcoin mining companies use renewable energy, we can assume that a large enough percentage of mining is actually done with these renewable energy sources. If Bitcoin can provide an incentive to switch to renewable energy, this could have a positive impact on the environment.
Did you know?
Lastly, an often overlooked aspect of bitcoin mining is its potential impact on the stability of the power grid. To fully understand these implications, it’s important to have a basic understanding of how the power grid works. I’ll provide a brief explanation of an area of the operations that can facilitate understanding of this point.
In general, energy producers cannot immediately increase their production from, say, 30GW one day to 60GW the next, even if demand increases significantly. Energy producers typically have an established peak capacity, say 60GW. This peak capacity is defined by demand and not by their supplying ability. Therefore, they need to generate enough energy to meet this peak demand. The challenge is that peak demand is sporadic, while demand is lower during other periods.
For example, let’s say we consume 30GW during periods of low demand and 60GW during periods of peak demand. Energy producers need to generate a constant supply of energy, say 50GW, in order to be prepared to ramp up to 60GW when demand is high. This is because they cannot increase their production efficiently from a lower level of 30GW to the required 60GW.
It’s important to note that the figures used here are for illustrative purposes only and that the constraints of managing a grid may vary in reality.
In short, to ensure grid stability, electricity suppliers try to balance supply and demand. They have to generate enough energy to cover demand peaks, even if they occur infrequently. To do this, they must maintain a continuous supply of energy close to peak capacity, even during periods of low demand, so that they can react quickly to a sudden increase in demand.
Our Saviour
This is where bitcoin mining plays a crucial role. Bitcoin miners, due to the nature of their operation, have the unique ability to quickly start and stop their energy consumption without disrupting any essential services. This flexibility makes them ideal ‘grid stabilisers’.
During times of low energy demand, when the power grid is supplying excess energy, bitcoin miners can ramp up their operations to absorb that excess energy. Conversely, during times of high energy demand, miners can quickly ramp down their operations or stop them altogether to free up energy for other uses. This demand-based energy consumption helps balance the network, ensuring that energy isn’t wasted during periods of low demand and that sufficient energy is available during periods of high demand. This can lead to cheaper energy prices since energy producers do not need to recover costs of energy wasted.
This role of bitcoin miners as ‘grid stabilisers’ isn’t just theoretical, but is already practised in many different regions of the world, including the US. Think about it for a moment. The electricity provider has a customer who agrees to buy all of its wasted energy up front, and when it asks the customer to stop using its energy because it needs it to meet increasing demand in its market, that customer immediately stops using it. Name me a single energy producer who won’t do business with this bitcoin miner. There isn’t. The only reason it doesn’t exist all over the world is because governments are doing everything they can to prevent it in the name of “climate change”.
The energy consumption of bitcoin mining is undoubtedly significant, but it’s important to consider the wider context. Bitcoin mining not only provides a valuable service in securing the Bitcoin network, which brings countless benefits to society, but it can also contribute to the stability of our power grids. This dual role underscores the complexity of Bitcoin’s environmental impact and highlights the need for a nuanced discussion on this topic.
In summary, this is a complex issue with many nuances, whether you believe that energy consumption has an impact on the environment or not. The Bitcoin community is actively working towards more sustainable practices. It’s important to continue this discussion and look for solutions that align with Bitcoin’s philosophy of a better and fairer world. Next, we’ll explore Bitcoin’s impact on privacy, especially financial privacy.
Bitcoin and Privacy
In an age where our every digital move is tracked, analysed and often monetised, privacy has become a scarce commodity. This is especially true in the financial sphere, where banks and other financial institutions have access to detailed information about our transactions, spending habits and financial history. In this context, Bitcoin is proving to be a powerful tool for protecting financial privacy.
One might be tempted to think that things have always been the way they’re now and that we have never had financial privacy, but that’s simply not the case. Only recently, with the introduction of debit and credit cards, have our financial transactions become more and more controlled by financial institutions. This is because we used to use cash, and as you can understand, no one knows where you spend your cash. That is one reason why we’re experiencing a war on cash. In Europe it’s quite clear, and we’re seeing the limits on cash purchases being lowered more and more, to the point where you become a criminal if you buy a used car with cash. In some European countries, there are more and more places where cash is no longer accepted, and some governments are campaigning to take cash out of circulation altogether.
At its core, Bitcoin is a pseudonymous system. While all transactions are transparent and can be tracked on the blockchain, they aren’t directly linked to the identities of the people involved. Instead, transactions are linked to alphanumeric addresses. This provides a certain degree of privacy as long as these addresses cannot be linked to real world identities.
It’s important to note, however, that Bitcoin isn’t inherently anonymous. If an address can be linked to an individual — for example, through a transaction with a regulated exchange that uses KYC ( Know Your Customer) procedures — then all transactions involving that address can potentially be traced back to that individual. Therefore, while Bitcoin can offer privacy, it doesn’t guarantee anonymity. If you want to use Bitcoin completely anonymously, it’s possible, but you must be willing to go through the learning curve.
Still, Bitcoin offers more privacy than traditional financial systems. In a world where financial surveillance is increasingly ubiquitous, this is no small feat. Bitcoin allows individuals to shop and transfer value on a network that is open to anyone without needing permission from any authority. This can be particularly valuable for people living under oppressive regimes or for those who simply value their financial privacy.
There are also ongoing efforts within the Bitcoin community to improve the network’s privacy features. Technologies such as CoinJoin, Lightning Network, Taproot and Schnorr signatures are being used to increase the privacy and fungibility of Bitcoin transactions. Although these technologies aren’t sufficient to actually trade anonymously, they’re essential and very effective when used in conjunction with other tools and best practices.
In conclusion, while Bitcoin doesn’t offer perfect privacy for everyone out of the box, it’s a vast improvement over the status quo and can be used completely anonymously if you learn how to do it right. In an increasingly surveilled and interconnected world, the ability to conduct private transactions is an important feature that is likely to become even more valuable in the future. For businesses, this is not an option, if my business cannot transact privately with bitcoin, then my business cannot transact with bitcoin, full stop.
Bitcoin’s Role in the Global Economy
I discussed this topic in the last blog. Bitcoin’s unique properties make it a potential candidate for a world reserve currency. However, it’s worth elaborating on how this digital asset can serve as a stabilising force in the global economy, especially in times of economic instability and hyperinflation.
In countries experiencing hyperinflation, such as Venezuela and Zimbabwe, Bitcoin has already proven to be a lifeline for many. As the value of their national currencies plummets, Bitcoin offers people a way to preserve their wealth and transact without relying on an unstable and unreliable local currency. Bitcoin is a digital safe haven that can be accessed by anyone with an internet connection, regardless of their location or their country’s economic situation.
I know it’s tempting to think that it won’t happen here; if you’re anywhere in the Western world; but you only have to look at the balance sheet of any central bank from any country or economic area in this part of the world to understand that it’s not an outrageous thought.
Bitcoin’s decentralised nature means that it’s not subject to the whims of a single government or central bank. This makes it a particularly attractive asset in countries where people have lost confidence in their government’s ability to manage the economy. In such situations, Bitcoin can serve as a form of ‘economic freedom’ that allows individuals to take control of their own wealth and financial future.
But Bitcoin’s potential role in the global economy goes beyond crisis situations. As we move towards an increasingly digital and interconnected world, Bitcoin could serve as a universal medium of exchange that transcends national borders. This could facilitate international trade and investment, lower transaction costs and promote economic efficiency.
Moreover, Bitcoin’s fixed supply makes it a much more stable asset once the monetisation process is complete. I know that saying Bitcoin is a more stable asset than any fiat currency sounds asinine at this stage of the game, but you have to look forward and extrapolate what’s happening right now into the future.
To conclude, Bitcoin’s potential role in the global economy is multifaceted. It can serve as a lifeline in times of economic crisis, a tool for economic freedom, a facilitator of international trade and a hedge against inflation. These factors, combined with technological innovation and growing acceptance, make a compelling case for Bitcoin’s permanent place in the global economic landscape.
The Future of Bitcoin
As we gaze into the crystal ball of the Bitcoin future, we find a landscape full of challenges and opportunities. The road to the future isn’t without obstacles, but the potential benefits are immense.
One of the most important developments to watch is the continued evolution of the Bitcoin protocol itself. The Bitcoin community is continuously working on improvements to enhance the scalability, privacy and overall functionality of the network. Innovations like the Lightning Network and Taproot are just the tip of the iceberg. As these and other innovations mature, they’re likely to open up new use cases and drive further adoption.
However, the road ahead isn’t without its bumps. Regulatory uncertainty remains a major challenge. Governments around the world are wrestling with how to regulate digital assets, and their decisions could have profound implications for Bitcoin’s future. While some countries have already accepted Bitcoin and blockchain technology, others are more resistant. Navigating this complex regulatory landscape will be a critical task for the Bitcoin community in the coming years. Incumbents won’t give up without a mighty fight.
Another challenge lies in the realm of public perception. Despite its growing popularity, Bitcoin is still often misunderstood or viewed with scepticism by the general public. Overcoming these misconceptions and educating people about the benefits of Bitcoin will be crucial to its long-term success. On the one hand, we have the internet, which can help educate the masses through its decentralised nature; on the other hand, we have the influence of the incumbents on the main “education channels“”, and by this I mean the mainstream media and the main social media platforms, all of which are in the pockets of governments, whether through political influence or even force.
On the other hand, the possibilities for Bitcoin are enormous. As a decentralised, borderless and censorship-resistant form of money, Bitcoin has the potential to empower individuals and disrupt traditional financial systems. Bitcoin will play a central role in providing financial services to unbanked people, combating hyperinflation and preserving wealth in times of economic instability. Many Bitcoin users will do this not out of technological curiosity or because of their libertarian views and beliefs, but because they have no other option.
In conclusion, while the future of Bitcoin isn’t without challenges, the opportunities are immense. As we continue to navigate this uncharted territory, one thing is clear: Bitcoin is here to stay, and its impact on the world is only just beginning.
How can I Get some Bitcoin
If you’ve made it this far and are intrigued by Bitcoin’s potential, you may be wondering how you can get involved. Here’s a practical guide to help you get started in the world of Bitcoin.
Educate Yourself
If you’ve read this Bitcoin series by yours truly, you now know the principles, workings and risks of bitcoin. There are many other resources on the internet, including forums, blogs and podcasts, some of which I’ve introduced you to in the previous blogs. The more you know, the better prepared you’ll be.
Buy Bitcoin
If you’re ready to take the plunge, the next step is to buy some Bitcoin. You don’t need to buy a lot of it. You can start with 20$ and play around with it. Put 10$ in cold storage. Send 5$ to a Lightning Wallet. Buy something with 5$.
There are many exchanges where you can buy Bitcoin in your local currency. Some of the most popular are Coinbase, Binance and Kraken. It’s important that you choose a reputable exchange with strong security measures. My preferred exchange is Kraken, unless I want to buy without KYC. In that case, I use either LocalCoinSwap or Bisq, but there are also other exchanges like Hodl Hodl.
In the past I’ve used Coinbase and I opened an account with Binance when it opened in 2017. I’m sure I’m one of their first customers. I still have my Binance account and use it when what I want to buy isn’t offered on Kraken. But I don’t use Binance to buy bitcoin.
Please note that you should never, leave your crypto in the exchange. As soon as you buy it, you should send it to your personal wallet. If there’s an asset that you’re interested in but have no way to transfer it to a personal wallet, or there is a way but you’re not willing to learn and go through the process of creating a personal wallet in that blockchain, do not buy that asset.
Personally, my funds don’t stay on exchanges for more than a few minutes to an hour. The funds only stay on the exchange for as long as it takes me to complete my transaction to buy or sell. This also applies to Kraken, even though I trust Kraken more than any other exchange, after doing my due diligence on several exchanges.
Store Your Bitcoin Safely
After you buy bitcoin, you need a place to store it. This is where a Bitcoin wallet comes into play. There are different types of wallets, each with their own advantages and disadvantages. These include hardware wallets, desktop wallets, mobile wallets, etc…
Hardware wallets such as Coldcard, Ledger or Trezor are considered the most secure option as they keep your private keys offline and safe from potential hackers. You should use this type of wallet for the bitcoin you want to keep for a longer period of time.
Mobile wallets like the Green Wallet or Lightning Wallets such as Muun or Blue Wallet are more suitable if you transact regularly.
Transact with Bitcoin
As mentioned earlier, once you have some bitcoin and a secure wallet, you should start using it so you understand it better. You can send Bitcoin to others, receive it or even use it to buy goods and services from businesses that accept Bitcoin. Remember that bitcoin transactions are irreversible, so always check the details before you press send.
If you feel slightly uncomfortable with your first transactions, don’t sweat it, it happens to everyone. Even today, I still feel slightly uncomfortable with some transactions if for some reason it takes a little longer to complete a transaction for example. Knowing that you can inspect the ledger puts your mind at ease, and there’s nothing like experience and a good understanding of how the technology works to keep you calm. Still, sometimes I can’t shake that uneasy feeling.
Stay Informed
The world of Bitcoin is constantly evolving. Stay informed about the latest developments and trends. Join Bitcoin communities, follow influential figures in the Bitcoin world on social media, and keep learning.
Consider Privacy
Bitcoin transactions are transparent and traceable on the blockchain. If privacy is a concern for you, consider learning about privacy-enhancing tools and techniques like Thor Browser, VPN, Bitcoin Full Node, Lightning Network, CoinJoin, etc…
Remember that Bitcoin is in its monetisation phase and one of its characteristics in this phase is its price volatility. Volatility messes with your emotions, no matter how proficient you are at trading. But if you think of Bitcoin as an investment, i.e. if you don’t look at the price several times a day every day, you’re protected from the effects on your emotions. Investing still involves risk, so never invest more than you can afford to lose. And if you’re investing with a 5-year time horizon, try not to check how it’s doing before the 5 years are up. That’s the best tip I can give you.
Conclusion
In this final part of the Bitcoin trilogy, we have delved deeper into the philosophical underpinnings of Bitcoin, addressed environmental concerns, reaffirmed its potential role in the global economy and explored its privacy aspects. I speculated on the future of Bitcoin and gave you a practical guide on how to join the Bitcoin revolution and acquire bitcoin.
In these three blogs, we have journeyed from the technical foundations of Bitcoin to its philosophical roots. We have explored Bitcoin’s potential to disrupt traditional financial systems and its promise to preserve individual sovereignty in an increasingly centralised world.
As I wrap it up, I’d like to reiterate that Bitcoin is more than just a technology or an investment. It’s a philosophical movement that challenges our conventional notions of money and value. A tool for financial freedom and a bulwark against inflation and financial manipulation. And a testament to the power of decentralised networks and the resilience of open source communities.
Whether you’re an experienced Bitcoiner or a curious newbie, I hope these blogs have given you a deeper understanding of what Bitcoin is and why it matters. As we look to an uncertain future, one thing is clear: Bitcoin is here to stay and its impact on our world has only just begun.
If you think I’ve left out something important, please let me know. I’d love to hear your opinion to improve this blog series. If you have any questions about any of the topics I’ve covered, don’t hesitate to ask. I’ll be delighted to clarify, elaborate or discuss other points of view.
