Wat Bitcoin is?

In crypto blogging there's a theme which I call Wat is Bitcoin. It's a fruitful topic, I've seen a lot of articles, ranging from "Bitcoin 101" and "Bitcoin for noobs" to pretty smart and clear math explanations. Today I'd want to add my own 2 sats to the pile.

Since I'm not that good at math (to say the least), my 2 sats will be more of "philosophical" value. After all, Bitcoin is much more complicated "philosophically" than mathematically.

Some time ago I made an article about Bitcoin's hyperreality. Those who read it would learn that Bitcoin is actually a simulacrum, a solution for a non-existing problem that we believe existing only because its solution already exists. Pretty weird, huh?

Ok, I can put it another way, to drive some professors mad. In theory, the math doesn't care about reality at all. For the math it's enough (and essential) to stay logical into its own world. That is, you can lay down an axiom that in your world 2+2=3 and build your own logically consistent math upon it. It's not important that your math doesn't fit reality -- it just needn't to. The same is true for Mr. Nakamoto's thing -- in its own world, it's a witty and logical answer to a postulated riddle. But the real world is another story.

Mr. Nakamoto put Bitcoin as a trustless P2P transaction system. "P2P" means that a transaction can be made directly between two addresses, and "trustless" means that there's no need for a trusted third-party mediator to validate transactions and to prevent overspending fraud. Mr. Nakamoto believed that the world needed such a system and I suspect he thought of such a system as a tool for "reshaping the financial world" (in the sense of "more equal distribution of wealth, defying hegemony of banks, etc.").

Well, the world seemed not to need it that much, actually. Yes, the system was more or less functional, but the question remained: why would someone want to transfer bitcoins, even trustlessly, p2p-ly, securely, anonymously, affordably, irreversibly, etc, etc.? To get two pizzas? The bitcoins were mined and mostly stacked because there was no other actual use for them.

The idea of binding BTC to fiat was pretty natural. You swap your fiat into BTC, send BTC to another guy in exchange for something, that guy swaps BTC back into fiat (if he wants to, of course -- the possibility of such a swap is what's important here). No matter how awkward and far from "Satoshi's vision" this scheme was, it definitely boosted bitcoin "adoption" as a "medium of exchange". Mt.Gox was founded in 2010 and Silk Road started accepting bitcoins in 2011. Bitcoin became "a medium of exchange for a medium of exchange". Layer 2, so to say -- as long as there exists a "BTC-to-fiat bridge".

I don't know what Mr. Nakamoto smoked when he decided to cap BTC supply at 21M. I don't know if he thought about Gresham's law and that capped supply kinda contradicts with the "medium of exchange" idea. Quite may be that he knew it all but didn't care. After all, the amount of supply doesn't matter for trustless p2p-ing.

So even those who didn't know anything about Gresham's law pretty soon realized, that with the capped supply the number of available bitcoins will decrease over time (some will be staked, some will even be lost forever). And if the more people want to buy BTC -- the more expensive it will become. It was considered as an advantage.

The wording shifted from "medium of exchange" to "store of value". A store of value is essentially an asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value, as Investopedia tells us. It's hard to tell what exactly that value is, but in the general view, it's like a "purchasing power" of some amount of money.

The idea of a "store of value" attracted the big guys. Indeed, it's hard to profit from the idea of "more equal distribution of wealth" or from the idea of "medium of exchange". But the idea of a "store of value" is much more sellable. That's exactly what they do right now -- they sell the idea and buy bitcoins. Right now they don't need you to buy bitcoins, they need you to believe the idea as hard as possible. If they succeed -- the profits will be beyond any imagination. If they lose -- they will lose several hundred million US dollars.

That's where we are now. Maybe later I will make another article on what the bitcoin market is today.

Actually, Bitcoin is neither a "financial rebel", nor a "medium of exchange", nor a "store of value". It was technically possible to be one, it was supposed to be, it was wanted to be, but it didn't happen. Today it's a pure speculative vehicle. By speculative I mean that pretty much the only thing to do with bitcoins is to sell them back later at a higher price. And by pure I mean that bitcoin has much fewer requirements than other speculative vehicles -- no "underlying" of any kind, no storage costs, almost no transfer costs, no regulation, and so on. It can be said that bitcoin is a tradable imagination, a distilled speculation. They often say that bitcoin is "digital gold". I'd say that bitcoin is (theoretically) better than gold in everything, except the myth behind the scene -- the gold myth is much deeper rooted in the mentality of humankind.

"Do you mean that bitcoin is not actually a store of value?", you might ask. Well, it depends on what exactly you mean by value and how much people believe that bitcoin actually has this value. "Store of value" as we know it is largely a matter of belief. If tomorrow people decide that the King has no clothes -- its whole "store of value" will become shit. If people will believe in the King for the next 10 thousand years -- $1M per 1 BTC is quite possible.

"But your reasoning means that gold is a speculative vehicle too", some might note. Yes, it is. Why it can't be? All those useless "stores of value" are mere speculation, at the end of the day. Gold is only deeper believed in and still requires gold bars to be physically stored somewhere. Bitcoin can be superior to gold.

I must note that I don't imply that to do with bitcoins now. Let everyone make his investment decisions hisself. Neither I imply any moral assessments. I'm just playing a mind game that may or may not correspond to reality. And I'm already going back to reality for my New Year vacation. Though I'm eager to see wat bitcoin will be in two weeks.

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