### Quick Background Bitcoin was first conceptualized in 2008 when its inventor Satoshi Nakamoto released the [[Bitcoin Whitepaper.pdf|Bitcoin Whitepaper]] to the world. Mysteriously, no one knows who Nakamoto is to this day. Perhaps, it is true that some secrets are better left unknown, and yet, the legacy and legend of Nakamoto lives on. Meanwhile, many continue to misunderstand or mischaracterize Bitcoin. So, what is it? Bitcoin is both a digital asset and a monetary network, but to truly appreciate its elegance, one has to first understand the fundamentals. Before diving in, it's worth mentioning that many explanations of Bitcoin are mired in its ideological underpinnings, and while vital to the culture and community of Bitcoin, they do not speak practically to the problems it solves: 1. Automating provable and immutable agreements across distributed computer systems. 2. Creating a digital system of fixed-supply, disinflationary money that is accessible by all. ### Bitcoin the Monetary Network >it is the most the adept system at creating global consensus that has ever been created. Since the first distributed computer network, and then the advent of the World Wide Web, communication networks have grown orders of magnitude, and so has the prevalence of SPAM messaging, communication errors, and malicious bot networks. Knowing that senders cannot be trusted to act honestly, how can systems disincentivize bad actors? This problem may seem benign to everyday Internet users, but in the context of monetary systems where fraud is clearly rampant, more transparent and incorruptible systems are needed. *Enter Bitcoin*. Here, Bitcoin the Monetary Network is a transparent, public ledger that includes a chain of transaction blocks, hence blockchain. To verify transactions on the chain, the Bitcoin consensus mechanism incentivizes global agreement, effectively solving the Byzantine Generals Problem (a long-standing question in distributed computing). In a figurative sense, this allows generals to verify battle plans transmitted by potentially dishonest messengers. Practically, the mechanism eliminates any such disagreement by incentivizing cooperation; Bitcoin is rewarded to spent computing resources for verifying and validating cryptographic messages. This is all done by a process colloquially referred to as [[Mining|mining]] using the [[Proof of Work]] consensus algorithm. > ...attacking the network is as computationally expensive as mining for profit. Here lies one of the most elegant design decisions of Bitcoin: the Nakamoto-style [[Proof of Work]] [[Consensus Mechanism|consensus mechanism]]. It provides a _probabilistic_ solution to the [[Byzantine Generals Problem|Byzantine Generals Problems]] by creating a system of mutually assured destruction. That is, Bitcoin's consensus mechanism disincentivizes malicious network actors because attacking the network is as computationally expensive as mining for profit. Similarly, such an attack would render the network insecure, negating the very principle that makes it attractive to users in the first place. As the network grows, so does the [[Difficulty|difficulty]] of [[Mining|mining]] Bitcoin, which in turn creates competition, increasing the security of the network. Blocks are mined are roughly every ten minutes, which allows for transactions to be confirmed in a block, blocks to be added to the chain, and miners to then be rewarded. What further differentiates this system from every other financial system in human history is its [[Finality|transactional finality]], leading to a key value proposition of blockchain --> [[Immutability|immutability]]. Once written into the blockchain, all transactions included in a block can never be erased or modified with one major exception: an attacker with a majority of the network [[Hashpower|hashpower]] can perform a [[51% Attack|51% attack]]. Such an attack splits the blockchain into two competing chains, and it becomes a race of hashpower towards the winning chain. ### Bitcoin the Digital Asset Despite its security, many doubt the network's sustainability because it is often used by speculators. Still - let us set aside the proof of concept, and thus proof of utility, in Bitcoin's network growth for a second. Perhaps the least appreciated, or most unknown, principle of the Bitcoin system is the [[Bitcoin Halving]]. Every four years, the rewards paid to Bitcoin miners are cut in half, hence the "halving". In economics, this implies a _shift of the supply curve_. Effectively, this sends supply shockwaves throughout the monetary network, and these ripple effects can be felt for some time. To compound these effects, the scarcity in the [[Supply|supply]] further drives demand and, at least in theory, serves as a hedge against inflation. Bitcoin is still being mined but at a predictably lower rate over time. The product is a disinflationary digital asset with a finite supply. Still, there is some disagreement around Bitcoin's monetary utility with two prominent, yet somewhat contradictory use cases: 1. Digital store-of-value 2. Digital medium of exchange Perhaps due to the title of the [[Bitcoin Whitepaper.pdf|Bitcoin Whitepaper]], Bitcoin is often thought to be a simple "cryptocurrency". However, this use case has been obfuscated by a store-of-value narrative - ascribing it the label of "digital gold". This store-of-value property is bolstered by Bitcoin's scarcity and disinflation as designed by the [[Bitcoin Halving]] and [[supply]]. As the OG blockchain weighs security above scalability, with transaction times less important than [[finality]], the idea of Bitcoin as a currency is less prominent today. Whether Bitcoin prevails as digital gold or becomes a hybrid transactional value store will be decided by Layer 2 implementations (e.g., the Lightning Network; _please check back for more on this later_).