The Back Story

Very recently, I was reading an interesting little book titled “The Seven Pillars of Statistical Wisdom.” That title reminded me of T.E. Lawrence’s classic: “Seven Pillars of Wisdom,” in which he recounted his war experiences as Lawrence of Arabia during the First World War. Both titles prompted me to write this extremely short post about bitcoin and the understanding I have gained over the last 21 months about bitcoin and blockchain technology. The second reason for writing this short post is my attempt to balance the misinformation and disinformation that pervade the world of crypto. I have not used the term cryptocurrency in the last sentence because 99% of the coins and tokens are in reality not currencies at all. All involve some form of cryptography and some have valuable use cases. Let us proceed nevertheless.

I have gleaned these ideas from the reading I have done over the last 21 months.

First Pillar

Bitcoin has become a non-sovereign store of value. It is the only store of value that can be used to transfer wealth through time and space. Gold and silver filled that role in previous centuries but they have been marginalized by central banks with the issuance and rise of fiat currencies; all the latter have experienced extreme inflation and dramatic loss of purchasing power. This should be a red flag of warning for all.

Second Pillar

The bitcoin network is highly decentralized, very robust, and secure against all cyber threats, except for the total shutdown of the Internet. Such a shutdown is certainly doable but highly unlikely because of the severe adverse consequences that would ensue for everyone.

Third Pillar

Bitcoin has gone way beyond the “peer-to-peer payment system” that its creator, Satoshi Nakamoto, envisioned in the white paper he wrote at the end of 2008. Bitcoin began life in January 2009, unheralded, except for the cyberpunks who received Satoshi’s email message. Bitcoin has been with us now for almost 14 years.

Fourth Pillar

Bitcoin has all the attributes of a great store of value or even hard money, again much more so than gold or silver. The recognized attributes of a store of value or a hard money are considered to be durability, portability, fungibility, verifiability, divisibility scarcity, established history, and censorship resistance.* Bitcoin scores high to very high on all these attributes except for established history.

Fifth Pillar

The Bitcoin network provides a form of intrinsic value in accordance with Metcalf’s Law. Metcalf’s Law states simply that the more users of a network, the more valuable the network is. Amazon and Facebook are dramatic examples of network value.

Sixth Pillar

Bitcoin is not a currency as implied above. Bitcoin is a digital asset that has become comparable to digital gold.

Seventh Pillar

Bitcoin is totally and completely deflationary, because the bitcoin protocol specifies a maximum number of coins to be mined and that number is 21 million. The mining of those final coins is projected to happen in 2140.

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Cordially,

Andrew J Guinosso

Note: *These attributes are listed in most books regarding money. I took these from a book written by Vijay Boyapati who referenced them in his book, “The Bullish Case for Bitcoin.”