Bitcoin: Fundamentals For Financial Regulators

  1. Bitcoin, as designed by Satoshi Nakamoto in the Bitcoin White Paper, is a commodity. A commodity is something that is ‘common’ to everyone & therefore does not have as central point of authority or control.
  2. How can Bitcoin not have a central point of authority or control if it is man-made? Ans: The central point of authority & control within Bitcoin becomes diluted over time through a process that Dr. Craig S.Wright (a.k.a Satoshi Nakamoto) implemented called Proof Of Work (POW).
  3. How does Proof Of Work (POW) dilute the central point of authority & control over time? Ans: Bitcoin is fixed in supply and can be divided by 16 or more decimal places, which means it is more than capable of absorbing all the worlds various financial markets by a factor of approximately x50. Because it is fixed in supply, as more people come in to start using Bitcoin its price increases which incentivises yet more people to start using it. This also incentivises people & companies to add Hashrate to the Bitcoin network (which is computing power used for processing transactions) in exchange for the opportunity cost of being rewarded in Bitcoin. This process is competitive & because Bitcoin is fixed in supply it means its value should increase over time enabling the competition to continue indefinitely. POW is therefore a continual process of dilution & will eventually lead to a market containing various specialised Bitcoin mining operations.
  4. If Dr. Craig S.Wright can start the network what differentiates the Bitcoin network from any other? Ans: According to Wikipedia Dr. Craig S.Wright released the Bitcoin white paper to a cryptography mailing list 2 months + 4 days prior to the network being started. This gave an equal opportunity for any one of a number of very competent individuals within the group to start the network themselves. 2+ months, in this case, being considered a “reasonable” amount of time. This provides credibility to neutralise the possibility of a single entity having control of the starting point. The network was then started by Dr. Wright using the pseudonym “Satoshi Nakamoto”. The White Paper was release to a group of competent, English speaking individuals & information contained within it was written in the English language. The author being a Japanese pseudonym meant that any potential bias was negated & effectively divided the start of the network between two identities, English & Japanese. He then stepped back from Bitcoin in order to let the network grow organically without any central point of authority, control or influence. It is this neutral growth and size that is unique to Bitcoin that separates it from any other network & ultimately provides Bitcoin with it’s fundamental value as a commodity.
  5. Bitcoin mining might be diluted, but what’s to stop a group of centralised developers from taking over the network? Ans: Dr. Wright designed Bitcoin as an immutable ledger with a chain of signatures to hold all uses & developers of the network to account. This way no one single individual or group could do anything on the network that no one else would know about. It is accountability through this chain of signatures that prevents a group of centralised developers from taking over the network.
  6. How can the Bitcoin network be considered to be a public network? Ans: The network has to be permission-less. If anyone & everyone has the opportunity to use & build on the network it can be considered to be available to the public & ‘common’ to everyone. This is achieved with a locked protocol. Once the protocol is locked it means no-one has the power to change it. A locked protocol is just as important as a fixed supply for the very same reason.
  7. What is it that makes Bitcoin a valuable ‘commodity’? Ans: Data sovereignty. The Bitcoin network is decentralised through competition (POW), distribution, accountability, a locked protocol & fixed supply. This means that any & all data that is uploaded to the network is immutable because it cannot be deleted. It also means that whoever uploaded the data is responsible for it & has paid a fee to a decentralised, distributed network of competing mining operations in order to do so. It is this data sovereignty which is the ultimate use case for Bitcoin besides that of a medium of exchange that provides its value & makes it a commodity.
  8. To recap & for clarity I have numbered the above points below:

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Defender of Bitcoin

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