Bitcoin Is Neutral
THE BITCOIN ESSAYS
Originally Published January 2023
5 Minute Read
One of the most profound realizations in Bitcoin is that there is in fact one, global economy. Of course we all know this intuitively due to the fact that we live on a colonized sphere, but in practice we tend to think of our economies as independent, self-determinate systems. As a child of the early 90s, I have vivid memory of time before global, low cost, high-bandwidth internet and its derivative social applications. It was straightforward to think of your national economy as the nest, rather than as nested in a much grander, hierarchical system. Yet the reality is, Earth is a spaceship, and our national economies are but small parts of a larger whole. Herein lies one of the great paradoxes of Bitcoin in that it is so obvious, yet still so difficult to accept because our minds are deeply conditioned to think of “the economy” in the bounded, rather than global sense. Forthcoming generations will likely perceive this in a fundamentally different way as their psyche will not require such foundational deconstruction to accept a decentralized money that so perfectly proxies global economic action. For now, this essay will seek to explore the properties which establish the incorruptible universal neutrality of Bitcoin, and further, the implications for the nation state and its citizens.
By assessment, the Bitcoin protocol is procedural, mechanical, objective, impartial, and entirely agnostic to the subjective evaluations of its users. Bitcoin is an archetypal Vulcan in its calculating and emotionless nature. For many, these properties make Bitcoin entirely uninteresting, yet it is these fundamental neutralities that distinguish Bitcoin from all man-made market monies on offer. Consider for a moment, categorically, that monies can largely be put into the classifications of natural commodity money, and man-made currency. Obviously natural commodity monies like precious metals are neutral by default as they operate on natural law protocol, whereas man-made currency is subjective to corruptible human power and political control. By implication, the protocols governing man-made currency lack continuity through time and provide endless arbitrage opportunities for those keen on swaying the rules to their own advantage.
Whether through malicious or naive intent, as time approaches the limit, these imperfect man-made money protocols can and will be exploited. But what of Bitcoin, it too is man-made, so what makes this money protocol incorruptible and neutral?
As a primer for answering this question, consider the insight of famed value investor, Charlie Munger, who observed that “the incentive… will show you the behavior.” This principle is not only helpful in evaluating the structures of disparate organizations like businesses, schools, churches, and sports teams.. but is fundamental to first principles design of decentralized digital money. To paraphrase, if something is incentivized to happen, it will happen. So, again, how are the incentives structured in Bitcoin such that the protocol remains incorruptible and neutral?
Consider the two primary agents involved in propagating the Bitcoin network, “Nodes” and “Miners”. At a high level, the Nodes maintain the consensus rules of the protocol, known as Bitcoin Core, and the Miners are responsible for executing the rules as written. By illustration, Nodes are akin to legislators dictating the rules, and Miners are akin to law enforcement, implementing the rules. A common, but incomplete, understanding is that “Miners secure the network.” In reality both primary agents are vital to network security and defend it in different domains. In short, I would submit that Miners defend the network from capture, whereas Nodes defend the network from corruption. That considered, let’s focus on each agent independently to examine how their incentives undergird Bitcoin’s incorruptible neutrality.
In no particular order, let’s begin with Nodes. These agents are where Bitcoin lives. Each Node is an independent Bitcoin cell, carrying its identical genetic code from one hard drive to the next. These instructions, originally conceived and codified ex nihilo by Satoshi in the infamous January 2009 genesis block, live on to the present day largely in original form with several minor modifications and addendums. In common with biological life forms – one Node became two, and four and hundreds, and thousands, and at present there are tens of thousands of Bitcoin Nodes distributed throughout the globe all running consensus rules that trace their origins straight back to patient zero, Satoshi Nakamoto, and their genesis block. At present writing, only half a terabyte is required to successfully download an entire full Node and audit the blockchain from soup to nuts. This makes Bitcoin the most transparent and trusted distributed ledger mankind has ever seen and can be understood as the worlds first universal ruleset for money, with no rulers.
Having considered the Nodes in depth, we now turn attention to the Miners. If Nodes carry the genetic material embedded in the nucleus, Miners are the mitochondria, or powerhouse. It is here where the protocol metaphorically puts boots on the ground to execute the work of erecting an invisible, encrypted, cyber energy wall. This cyber wall grows with each and every new Miner plugging in their ASICS to contribute their exa-hash to the perpetual Bitcoin mining competition. Herein, the incentives of Bitcoin Miners are predominantly guided by the laws of physics which lead Miners to seek out low-cost stranded energy. This energy is then monetized via conversion to proof-of-work hashing. The work of the Miners, too, is neutral as these agents are merely following the incentives where they lead, resulting in ever-evolving methodologies and economies of scale for performing this cryptographic work. All the while, the network grows ever more impenetrable as the attack surface for a +51% attack narrows.
Having discussed both Nodes and Miners in greater depth, we now understand in greater detail their roles and incentives. It becomes more clear that Nodes are incentivized to continue propagating their genetic material with fidelity such that the consensus rules are not degenerated. Miners, as counterpart, are incentivized to execute these consensus rules as provided since payment for their services is contingent upon their following of the rules. This vortex of positive incentives is foundational to what keeps the Bitcoin network safe from corruption and uniquely neutral as a man-made digital commodity money.
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