What's really scarce in btc? \ stacker news ~bitcoin

13.1k sats \ 31 comments \ @elvismercury 3 Dec 2023 bitcoin

(The fifth post in the meta-experiment series of the Broken Money book club, part 5. Check out the fourth.)

If someone asked me what was the most fundamental axiom of btc, I'd probably say it's there will only ever be 21m btc. This is not usually that hard to wrap your mind around, although some people still manage to be confused.

Still, I think there's a profound idea underneath the idiotic objections to btc's scarcity, and Lyn describes it here:

My primary hesitation from the very beginning was that it seemed to me like anyone could just copy the code and create a different blockchain money. With precious metals, each one is scarce, and there are only a handful of different types. With blockchain monies, anyone with a bit of coding experience can copy one of the existing ones, change a few variables, and release it. Therefore, although there will only ever be 21 million bitcoin, the concept can experience supply inflation and dilution by the introduction of countless new blockchain monies. If the market share becomes and remains highly fragmented between countless blockchains, then perhaps none of them will persistently maintain any significant purchasing power, liquidity, or security. (p. 412)

Basically, while the current realized system of bitcoin will only ever have 21m btc (setting aside tail emission issues for now), there's nothing in the way of someone firing up a fork, and boom: now there's 42m 'btc'. Lather, rinse, repeat, and you can get digital scarcity multipled to infinity.

To deal with this objection, which is technically accurate, you have to really screw down your definition of what exactly is the scarce thing here. My attempt would be something like: btc is a system which instantiates the shared commitment of a group of people to a distributed ledger with dynamics allowing only 21m coins to be created and transmitted under such-and-such circumstances.

In other words, the thing that's really scarce is that collective commitment, which is not principally a technical construct. It's the thing that the "network effect" is the surface-level measure of. There was a brief stretch when there was another credible commitment of comparable size (bch, right after the fork wars) but that quickly dwindled into obscurity; and for a while eth seemed to be quite similar, before it became a system committed to a wholly other kind of thing.

The commitment that is btc is cultivated using far more than just the node software or just the hashpower deployed by miners around the world. It's everything. It's us, here, now, doing this. The software, the miners, and the rest are just the roles by which this commitment is enacted. They are not, themselves, the thing that is scarce.

If that's true, or even kind of true, it seems useful to ask about how that commitment can be cared for and strengthened? And how do we think it will evolve in the future, as it has done in the past?

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454 sats \ 3 replies \ @antic 3 Dec 2023

I think a good way of countering the argument that Bitcoin can be forked or copied is to compare it to Facebook. Anyone can launch a copy of a social network or a newer or “better” version of it—but that doesn’t copy the network of users that are on Facebook. Rather than the existence or potential of new social networks making Facebook worthless, it makes Facebook worth more every time they prove that another network can’t take their supremacy away. And over time, everyone is sucked into it because that’s where people already are. Ethereum only has so much power because they fronted the shitcoin minting and garbage NFT network. But those are not fundamental draws or features.

21 sats \ 0 replies \ @elvismercury OP 3 Dec 2023

Also, following that, when a different commitment can steal a bunch of the users. Migrations to Substack away from Twitter being the relevant example in my life right now; or Trump's network, whatever that's called. If one of the principal things you're committing to is fealty to Trump's mindfuck universe, network effects can be overcome.

101 sats \ 1 reply \ @siggy47 3 Dec 2023

Very good point. Same thing when Zuckerburg's twitter copy flopped. Network effect is overriding

42 sats \ 0 replies \ @antic 3 Dec 2023

Exactly. Twitter and Facebook each have different network effects and usages just like Bitcoin and Ethereum. If you want hard money, Bitcoin. If you want shitcoins and scams on a blockchain that can be rolled back, Ethereum.

105 sats \ 1 reply \ @zuspotirko 3 Dec 2023

My attempt would be something like: btc is a system which instantiates the shared commitment of a group of people to a distributed ledger with dynamics allowing only 21m coins to be created and transmitted under such-and-such circumstances.

Don't use the word "commitment". Commitment is a thing in cryptography with a hard definition that means something else

355 sats \ 0 replies \ @elvismercury OP 3 Dec 2023

It's also a term in the social sciences that has about 150 years of prior art; or perhaps 2500 years, depending on how you look at it.

249 sats \ 5 replies \ @siggy47 3 Dec 2023

I'm having trouble understanding the distinction between network effect and your collective commitment term. Maybe I'm not understanding collective commitment. For example, the bch example could be interpreted as purely network effect. I'm not saying that's all it was, but keeping that "bitcoin" name meant a lot.

42 sats \ 4 replies \ @elvismercury OP 3 Dec 2023

The intended distinction is that network effects are a function of a bunch of things, so if you want to dig into network effects, you want to look at the inputs that ultimately give rise to them.

The point is not to nitpick or introduce useless terms, but to talk about what it is that's valuable and scarce -- it's not simply that there's a line of code that checks to see if emission is within compliance, that is not why there will only be 21m btc. Or rather, it is that, but without a bunch of other stuff, that one line of code is useless. It's a smokescreen.

For a while, bch had a lot of hashpower, a lot of miners, a bunch of devs, fiat inflows from investors, shills, etc. But they didn't have the ineffable fabric tying all of it together, it didn't have the narrative cohesion. The commitment of the various participants in the ecosystem was small and did not hold together. Entropy quickly took over, and now it's dead.

228 sats \ 3 replies \ @siggy47 3 Dec 2023

Okay, sticking with the bch example, I believe whichever side won would have had that argument. But for the UASF and really dumb tactical errors on the big block side, bitcoin would have big blocks. Gavin Andreson was as OG a bitcoin guy as you can get, but he picked the wrong horse. Was he a part of the collective commitment? You can just say no, but the winners get to write the history.

168 sats \ 2 replies \ @elvismercury OP 3 Dec 2023

I agree that it was a closer thing than the modern narrative suggests -- as you say, the winners have formed the story in a way favorable to themselves -- and it could easily have gone the other way. (It's a fun exercise to steelman the big block position, there are compelling arguments to be made there.)

I'd say that, in the early days of btc, there was a giant and (it later became clear) somewhat nebulous commitment as to what btc really was, at its most fundamental essence. Satoshi himself was unclear about this in the way he talked about it at first, which should be no surprise, since the essence of the system was revealing itself in the environment in which it found itself, and these things can't be foreseen in systems of non-trivial complexity. In the course of the blocksize war, the different commitments were crystallized, and in the end one held together better. In parlance bitcoiners seem to like, the commitment that held together became a Schelling point.

But many participants would have been happier with either, I'm under no illusion about that.

240 sats \ 1 reply \ @siggy47 3 Dec 2023

Yes. That's a good way of looking at it- Bitcoin's commitment was crystalized, and had essentially evolved. This line of thinking supports the idea that asking about a particular current controversy "what would Satoshi think" is irrelevant.

126 sats \ 0 replies \ @elvismercury OP 3 Dec 2023

100%. It's also interesting to think of the power of Satoshi (or really, any prominent figure) in terms of coelescing these kinds of commitments; and how that changes with time, and the nature of the enterprise.

I expect that if Satoshi had returned six years ago (or whatever) like Gandalf the White, his opinion on the blocksize war would have had great impact. I suspect that if he returned, now, with a hot take on Ordinals, that it wouldn't matter much.

328 sats \ 1 reply \ @davidw 3 Dec 2023

I like the term collective commitment.

Certainly a better way to describe the network’s principles than Taleb’s definition. He calls it a “cult”.

0 sats \ 0 replies \ @NewsnNudes 3 Dec 2023 freebie

cult is not suitable at all.

228 sats \ 1 reply \ @BitSapien 4 Dec 2023

Besides the 21m cap, can block space also be considered scarce ?

0 sats \ 0 replies \ @elvismercury OP 4 Dec 2023

Yup, subject to the same systemic definition. It's the same for all of its technical settings.

228 sats \ 3 replies \ @0260378aef 3 Dec 2023

This is indeed the question anyone should ask themselves when they get interested in bitcoin as an investment (you can consider its properties as a means of exchange separately, though of course it all intertwines).

Arguments based on "it's about an agreement between people that it is .. (insert your concept" are superficial. Hence, your:

In other words, the thing that's really scarce is that collective commitment

is to me just fundamentally wrong. That is not what is different about Bitcoin compared to a million other things.

The real answer is proof of work. Not "work == value" (literally the 'labour theory of value', more or less), it's more subtle than that. The proof of work is almost like a binding agent; without it, you could have just as many people committing to some other "history of ownership", but it would be an unstable equilibrium.

Bitcoin is the "money of enemies" because of the proof of work.

This is why I don't believe proof of stake systems will ultimately work in being a "better bitcoin", and also why it doesn't bother me that there are other proof of work coins, because the availability of that "binding agent" is scarce, and it's unsurprising that it overwhelmingly stays with the biggest and most pure instantiation of the idea.

0 sats \ 2 replies \ @elvismercury OP 3 Dec 2023

The proof of work that accrues to a project is a function of its commitment to a particular instantiation of an idea. (I'm using PoW in its most literal instantiation here -- hashpower. If you mean "proof of work, in aggregate, across all system activities" then I'd say that's isomorphic to the idea I'm proposing.)

Proof of work is being directed to something. What is that something, and why? That's the distinction here. Here's a thought experiment:

Imagine that a supervillain devoted to the enslavement of mankind gets control of 75% of btc hashpower, and proceeds to censor transactions, double-spend strategically, decry carnivory, etc. What happens?

If the community -- defined in the hazy way that's necessary when talking about something as nebulous as the people who have some kind of stake in btc -- believes, collectively, that this state of affairs violates the ideas that it's committed to, they'll fork away from that chain, despite its preponderance of PoW, and direct their various efforts toward the new enterprise. The fact that there's exahash sitting on the sidelines is not the issue.

In the same way that hashpower follows price, and not the reverse, hashpower is a function of commitment, which itself is mediated by price.

249 sats \ 1 reply \ @0260378aef 3 Dec 2023

Imagine that a supervillain devoted to the enslavement of mankind gets control of 75% of btc hashpower, and proceeds to censor transactions, double-spend strategically, decry carnivory, etc. What happens?

That's a really good thought experiment, but the point that's missing is that the coordination problem.

That's exactly what the Byzantine Generals (and Satoshi's update "the king's wifi") are about - if you presuppose the ability to globally coordinate and trust non-defection, then proof of work as a solution is not needed.

And indeed, your analogy is not at all contrived - it's the true state of the world. Governments and other large powerful entities could coordinate to attack bitcoin at the level of hashpower, but they have not, and I contest, they will not succeed in doing so, exactly because of that inability to coordinate at a sufficiently overwhelming scale (in geography, in time, in category etc.).

We've seen an example already - China hosted the majority of the world's hashpower and then suddenly outright banned mining - but they couldn't get other large powers to coordinate, so Bitcoin was (more or less!) fine.

If the community -- defined in the hazy way that's necessary when talking about something as nebulous as the people who have some kind of stake in btc -- believes, collectively, that this state of affairs violates the ideas that it's committed to, they'll fork away from that chain, despite its preponderance of PoW, and direct their various efforts toward the new enterprise. The fact that there's exahash sitting on the sidelines is not the issue.

In the same way that hashpower follows price, and not the reverse, hashpower is a function of commitment, which itself is mediated by price.

Yes I always get this line of counterargument when I say these things, and of course, it must be partly true - one of the main two factors here (let's say "network effect" and "proof of work") doesn't work without the other.

The reason I see network effect as a proximate cause, not an ultimate cause, is a matter of simple logic - network effect could somehow arrive in any other system of money, why doesn't it (hence me saying "unstable equilibrium")? You're not getting at the ultimate cause of bitcoin's success if you focus on network effect.

0 sats \ 0 replies \ @elvismercury OP 3 Dec 2023

Yes I always get this line of counterargument when I say these things, and of course, it must be partly true - one of the main two factors here (let's say "network effect" and "proof of work") doesn't work without the other.

All those feedbacks and recurrences add up to quite a muddle, I think. You got peanut butter in my chocolate, etc.

I keep intending to play around with a differential equations model so that at least it could be talked about concretely and coherently, but have not got around to it. It's probably the best (only?) way to push harder into the distinctions you and I are proposing. I know there are other models, e.g., valuation models, that purport to do this, but I last ran into them years ago and can't remember what they are to see if there's inspiration there.

Anyway, I appreciate your comments. I'll keep noodling on them.

228 sats \ 0 replies \ @quark 3 Dec 2023

yes it is the community what matters. It is self cared by the community itself by its own interest. Hard forks are very difficult to achieve this way.

152 sats \ 0 replies \ @faithandcredit 3 Dec 2023

I want to say sovereignty is scarce. Like for example if Bitcoin fails what are people going to do? What will they revert to? If they dont know then they are not really sovereign imo? But i could be wrong. And also i am aware of the irony of saying Sovereignty in Bitcoin is scarce.

100 sats \ 0 replies \ @Entrep 4 Dec 2023

Bitcoin is scare itself

1 sat \ 0 replies \ @DarthCoin 3 Dec 2023

For this one I would like to hear the answer from @Murch and/or @petertodd

0 sats \ 0 replies \ @rafaelasprilla334 3 Dec 2023

This issue is very complex, which is why Bitcoin is desirable because it is so scarce.

0 sats \ 1 reply \ @karanjajes 3 Dec 2023

I don't think it's possible to copy btc

0 sats \ 0 replies \ @NewsnNudes 3 Dec 2023 freebie

nada chance

0 sats \ 0 replies \ @BITC0IN 3 Dec 2023

good faith discourse

0 sats \ 0 replies \ @NewsnNudes 3 Dec 2023

interesting intersting....

0 sats \ 0 replies \ @duruzorcf 3 Dec 2023

The thing that's really scarce about bitcoin is the infinity nature. Bitcoin has only 21m coin but it is infinite. This is just a number to put the whole thing under control.

0 sats \ 0 replies \ @random_ 3 Dec 2023

Running a Bitcoin implementation is the commitment.

Criteria to be the Bitcoin blockchain:

start with the genesis block
have the most PoW

Any copy/fork will lack one of these two qualities.