The Hayek Group, a local 501c3 nonprofit organization, champions the principles of freedom and its resulting prosperity. The organization recognizes financial freedom as a fundamental aspect of individual liberty. To achieve its mission of fostering a financially literate society, the Hayek Group actively facilitates financial education and Hayekian education. This includes integrating Dave Ramsey’s financial literacy curriculum into Northern Nevada high schools and offering financial education and Hayekian education to college-aged youth. The organization also hosts monthly dinner meetings featuring speakers who share their expertise and perspectives on relevant topics.
By Nicholas Maier
Learn about Bitcoin and cryptocurrency through a series of blogs, starting with this introduction.
The goal of this series of blog posts is to educate the Hayek Group community on Bitcoin and Cryptocurrency. I’ve been investing in Bitcoin for 5 years and have spent hundreds of hours educating myself on the philosophy, the technology, the network, the incentive structure, and how to transact in Bitcoin. My knowledge is primarily focused on Bitcoin because of its unique incentive and security architecture. In future blog posts, I will discuss the fundamental differences between Bitcoin and other cryptocurrencies so you will gain an understanding of why Bitcoin is so different and so unique as a cryptocurrency.
In future blog posts, I will be presenting the following topics:
- The history of Bitcoin and the problem that it solves
- Bitcoin as Money: How it is unique as an asset class and comparable to gold.
- How Bitcoin uniquely promotes freedom.
- The Bitcoin Network – How new Bitcoin is created, how transactions are verified, and the incentive structure that assures compliance and verification.
- How to buy and hold Bitcoin
- The unique trajectory of Bitcoin’s historical price and how it is mapped
- The case for Bitcoin as a treasury asset on corporate and sovereign balance sheets
- Who is buying Bitcoin? You’d be surprised.
- Bitcoin and the US political ramifications
Bitcoin is destined to change the world forever because of its unique properties. So, let’s jump right in.
What is Bitcoin? Here are some useful fundamentals
Bitcoin is a digital currency that runs on a peer to peer network. Any person on the globe that has an internet connection via a phone or computer can transact in Bitcoin. All transactions in Bitcoin are encrypted and recorded using blockchain technology. Bitcoin’s blockchain is a public, distributed ledger. Every 10 minutes, a new Bitcoin block is recorded and added to the blockchain, and the new block holds all the Bitcoin transactions that have taken place since the last Bitcoin Block was recorded.
For a new Bitcoin Block to be added to the blockchain, the Block has to be verified by thousands of independent Nodes all across the globe. This is a peer-to-peer network of independent Bitcoin advocates who are running their own computers. Their function in the Bitcoin network is to validate each and every block transaction. Every Node has a vested interest in the security and the validity of every recorded Bitcoin block. For a new block to be printed, every Node must agree that the block is valid. The Nodes are independent agents who use their own agency to secure the network. This is the essence of Human Action, as Ludwig Von Mises would describe it. Humans act in their own self-interest to secure property. Note: There is no government involvement anywhere in the Bitcoin Network.
Why is Bitcoin unique compared to other cryptocurrencies?
The Bitcoin algorithm only allows for 21 million Bitcoins ever to be made, the last of which is expected to be mined around 2140. This 21 million number is inviolate and is enforced by the Bitcoin Nodes and the Bitcoin Miners. It is worth noting that there are already 19.7 million Bitcoins already in existence, so there are only 1.3 million new Bitcoins that will be mined and come into existence between now and 2140.
Because of the limited number, Bitcoin is a scarce asset and scarcity is one of the key fundamentals of money. Money needs to be scarce in order to have value. Unlike Bitcoin, most other cryptocurrencies are controlled by a group of insiders/developers who can change the number of issued coins whenever they feel like it which is akin to printing money.
A Bitcoin (BTC) is a unit of digital currency, which can be broken down into 1/1,000,000, making the smallest unit equal to 0.000000001 BTC. This is known as a satoshi (named after the anonymous creator).
How Are Bitcoins Created?
Bitcoins are created by a process known as “Bitcoin mining”. This is analogous to gold mining where gold mining entails applying energy and machinery to physically dig and separate gold ore from the ground. In a similar fashion, Bitcoin miners use energy to run giant data centers of liquid-cooled computers to solve complex mathematical algorithms. Solving the algorithm gives the miner the right to print the next block of Bitcoin transactions to the blockchain. The miner who successfully solves the algorithm and confirms the Bitcoin transactions within a block on the blockchain is then rewarded with Bitcoins for its work. This is called “proof of work” and is unique to the Bitcoin network. Currently, the reward for Bitcoin mining is 3.125 BTC for each successful block mined, and this happens about every 10 minutes. Every 4 years, the reward rate is halved, in an event called “the halving.” This gradual decrease of issuing new Bitcoin is why it will be another 116 years until all Bitcoins have been mined.
Resources
The Little Bitcoin Book: Why Bitcoin Matters for Your Freedom, Finances, and Future – Simple and straightforward. Written by Bitcoin technology pioneers.
The Bitcoin Standard: The Decentralized Alternative to Central Banking – by Saifedean Ammous – The technical bible of Bitcoin
Why Buy Bitcoin: Investing Today in the Money of Tomorrow – by Andy Edstrom – Bitcoin from an investor’s point of view.
Bitcoin Fundamentals with Preston Pysh – Hear interviews with the leading technologists and investors in the Bitcoin industry.
