January 3, 2009 – Birth of Bitcoin
We are living in the post-modernist age, and if anything has put post-modernist ideals and thought in practice, it is perhaps the hyper-decentralization of information and data over the last 20 years. There are billions of smartphones on the globe and almost all of them of them are connected to the internet. A vast majority of the smartphone owners are social media users, which means they have a platform to voice their opinions which can in turn, affect the lives of hundreds of thousands of people.
Just like the ideology itself, the term ‘postmodernism’ is very loose. It covers ‘everything that is not modernist’. Post-modernists fiercely oppose the establishment, and the movement is characterized by a complete disregard for the status quo and the established reality. Top of list in postmodernist ideals is a distrust of the governments, governmental institutes, and mainstream media.
If we step back a few decades, modernists and enlightenment thinkers were obsessed with ‘big ideologies’ and ‘the bigger pictures’. We were led to believe in a tech-Utopia. Our fathers and their fathers believed that the computer would help us develop flying cars. When the internet was established it was hailed as the savior of mankind. There was hope for a better future through science and the scientific process.
‘Generational curses’ is a Christian concept whereby each successive generation is cursed by the sins of its ancestors. I don’t think I am misinterpreting the plot if I say that the curse of our generation is the mass consumption of mostly irrelevant data. We are consuming information at an unimaginable rate.
To gauge the modern reality, simply count the number of screens around yourself. You are probably reading this on your mobile phone. Then there’s your laptop, your flatscreen tv, your ATM machine. On your way to work, you might as well have spotted one of those advertisement screens with a McDonald’s ad running on loop. Your workplace is likely to be equipped with a desktop computer. Now imagine you live with a family of four and go to work in an organization that employs fifty people!
The spread of post-modernist thought has paralleled the rise of the internet. As smartphone technology progressed, more and more people started getting on the internet. Everyone could express their opinion. Everyone could share the photos on Facebook and Twitter. Ordinary people started becoming celebrities through YouTube videos and Instagram. Information became more and more decentralized. But there was a catch…
In developing social media and giving a platform to regular people, we allowed the creation massive spyware networks. We allowed Google to snoop on all our passwords. Facebook was criminalized and defamed for privacy breaches in the US congress. Edward Snowden made headlines. Julian Assange came within a hair breadth of being sentenced to prison. In the money markets, the hedge funds and investment banks on Wall Street screwed everyone over in 2008 and the American government let the criminals walk free. The people responsible for creating the housing bubble and the subprime mortgage crisis through a mixture of negligence and incompetence were kept in place. There was hardly any conviction and the culprits remained untouched. The banks were bailed out and continued to operate as if nothing happened. It was only natural that regular folks started developing a distrust for the government.
“Chancellor on brink of second bailout for banks”The genesis block for bitcoin was created on 3rd January 2009, and this text was hidden in the first block chain transaction.
The roots of almost all the monetary and economic problems lie in the fact that almost all modern currencies are fiat currencies. Since fiat isn’t backed by any commodity, a central bank can print as much money as they want. The government effectively controls the supply of money, and they can basically do whatever they want.
When this money reaches investment banks, the banks spin it through credit issuance. Once the credit is issued, the original amount of money printed by the government turns into a huge bubble of ‘fake money’ through the multiplier and accelerator principles. This is quite literally a breach of confidence placed in the government by its people. We, the people, entrust our governments not to devalue the currency, but the governments aren’t ready to stop the money printer which results in bubbles, market crashes, uncontrollable inflation (and numerous secondary problems).
Naturally, this distrust in the government seethes and grows, wilting and morphing, convulsing and twisting, and in the end, erupting on the financial markets in the form of Bitcoin.
The development of bitcoin can be traced back to distrust of fractional-reserve banking and government issued fiat currency. Crypto developers and miners believe that fiat is the biggest Ponzi scheme imaginable because investment banks and the US Federal Reserve need to keep its people indebted to balance their books. They have a valid point because the US Treasury data reveals that a large proportion of Federal Reserve assets are held as T-Bills (a debt obligation backed by the US government).
On 31st October 2008, history was rewritten when a group of people identifying themselves as Satoshi Nakamoto released a white paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. The whitepaper is the Bible of crypto mining and is a monumental step in the history of financial computing. In 2009, bitcoin’s open-source code was released for public use and as a result, its implementation in the real world began.
Distrust is what makes bitcoin so successful. Bitcoin owners don’t trust each other at all. They trust the government and third-party financial institutes even less. The solution to this problem is the blockchain, which is simply a ledger that keeps track of every bitcoin in existence. Which is to say that, if you have a bitcoin, through blockchain you can trace its history all the way back to when it was first mined! The theory is simple, but practically, this is an extraordinarily complex computer science problem.
The strength of the bitcoin arises from its distributed ledger system which can be accessed by anyone, anytime, anywhere. Every bitcoin user knows what transaction is taking place. Once a transaction is verified and recorded on the blockchain, it is uploaded and shared to every computer on the network. As a result, modifying an already existing block becomes impossible.
Each block in the bitcoin blockchain is approximately 1mb in size and contains the information of the last 50 transactions that took place. Each block is made up of three parts. The data (which is the information regarding transactions), a hash (which is like the fingerprints for the block), and the hash of the previous block.
A single person or a single bank or a single government cannot control the blockchain. For a transaction to be verified, majority of the computers on the network must agree that the transaction is valid. For a bitcoin transaction to be validated, it must be verified and updated to the entire network, letting millions of users to know that the transaction actually took place. This ensures that the classic problem of ‘double spending’ of virtual currency does not arise. Every transaction is recorded, and everyone can look up the transaction history on the blockchain. As a result, it is virtually impossible to commit fraud or hacking. Consensus is what makes crypto so appealing.
Another advantage that bitcoin (and crypto in general) has over fiat is its limited supply. The upper limit of 21,000,00 bitcoins has been hardcoded into the algorithm and it is impossible to change it. This means that unlike governments printing as much money as they want, bitcoin’s supply will run out one day and no new bitcoins will be mined!
We are still several decades away from widespread adoption of virtual currency, but bitcoin is a step in the right direction. Tesla (electric car manufacturers) are probably the largest mainstream corporation accepting bitcoin in exchange of their cars and solar roofs. Brokers and traders are making top dollar by speculating on bitcoin’s performance on the markets.
It is important to keep in mind that bitcoin’s real value is extremely volatile and investing in bitcoin is very risky. Also, unless crypto becomes widely accepted, it still derives its value in hard cash-based economies only when it is converted to hard cash!
Ultimately, the best thing about crypto is it is placing the monetary power to manipulate fiscal policy back in the hands of ‘People’. It is an unregulated, decentralized economy created by the people, for the people. No central bank can control it. No tax authority can tax it. No financial institution can diminish its value through malpractices. Anyone can join the blockchain whenever they wish. And that is probably the biggest joy it can offer to the world!
- The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous, Wiley, 2018
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- bitcoin-crypto-currency: Pete Linforth from Pixabay