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Orange Pilled By Black Swan

An Unexpected Introduction To Bitcoin

sister admn

4th June 2024

While still working through the fall out of a lucrative business partnership my accounts were frozen because my property taxes were unpaid. Things were back to normal in about three weeks later, but the helpless feeling was not a fun experience. One of my customers said, “I’ll pay you in Bitcoin until you get it figured out.” On July 1st 2017 my first crypto wallet was verified and it worked like a charm. It saved me from the anxiety of not being paid for my services, however, this was the second time someone mentioned Bitcoin as a payment system outside of the traditional banking systems.

The first time was from a Nigerian computer programmer that my consulting company had hired. The regular payment channels meant a middleman would take a huge chunk in fees and settlement could take days. He explained a Bitcoin transaction fee was almost nothing and could settle in minutes. Unfamiliar with the “

peer-to-peer electronic cash system⁠

” I postured a silly “rugged individualism” attitude towards the suggestion and sent the payment with

Paypal⁠

, but the

orange pill⁠

had been planted.

⁠

America’s 31st President Herbert Hoover's concept of "rugged individualism" refers to the belief in self-reliance, personal responsibility, and minimal government intervention in the lives of individuals and the economy.

The following concepts embodied the idea of rugged individualism:

⁠

Self-Reliance The idea that individuals should take responsibility for their own lives and well-being, relying on their own efforts, hard work, and initiative to achieve success.

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Economic Freedom Rugged individualism emphasizes free enterprise and the ability of individuals and businesses to operate with minimal regulation and interference from the government. Hoover advocated for minimal government involvement in economic affairs and social welfare. He believed that too much government intervention would stifle individual initiative and the entrepreneurial spirit.

⁠

Personal Responsibility Hoover stressed the importance of individuals taking responsibility for their own actions and outcomes, rather than relying on government assistance or intervention. In this way of doing things, those in need would rely on voluntary cooperation from communities and private charity to address social and economic issues.

These views were shaped by the American frontier spirit and Hoover saw these values as central to the nation's identity and success, however adherence to rugged individualism faced significant criticism during the Great Depression that followed the Crash of 1929. Many argued that his reluctance to use federal government resources to address the widespread economic suffering prolonged economic crisis. This criticism led to a shift in American policy towards government intervention and the development of The New Deal under his successor, Franklin D. Roosevelt.

Black Swan

An unpredictable, unexpected event that has potentially severe consequences.

The term "black swan event" was popularized by a statistician, former trader, and risk analyst, in his 2007 book titled "The Black Swan: The Impact of the Highly Improbable."

The origin of the term comes from the old European assumption that all swans were white because all historical records of swans reported only white birds. This belief was shattered when black swans were discovered in Australia in the 17th century. Thus, the term "black swan" became a metaphor for an event that is a surprise (to the observer) and has a major impact.

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Black Swan in the Stock Market: What Is It, With Examples and History A black swan is an event that is rare, very important, and is both difficult to have predicted but is considered obvious in hindsight. www.investopedia.com⁠

⁠

A surprise the the observer does not equate to a surprise to everyone; especially those with inside information or those orchestrating, causing or allowing it. For example the more astute got out of the stock market the summer of 1929 before it crashed in the fall.

Astute means having or showing shrewdness and an ability to notice and understand things clearly. Our #1 job as managers of our personal economies is to clearly understand how money works. Scripture commends prudence when actions are directed towards a wise and worthy goals such as managing practical affairs, but condemns it when taking the form of cunning and deceitful scheming for sinful and selfish ends. We should strive and focus on the total lack of naivety; especially with it comes to money.

In Scripture there were 200 leaders from the tribe of Issachar that joined David’s army. They were “men that had understanding of the times, to know what Israel ought to do.” ~ 1 Chronicles 12:32 They were endowed with the wisdom to align with what God was doing, and position themselves and their brethren for success.

Even the parable of the Unjust Steward seems to be a commendation for acting quickly to look out for one’s own best interests. ~Luke 16:1-15 Certainly that is not to say to put trust in wealth or make it your primary focus, but indeed to do what we can to take advantage of advantages; to improve opportunity to have a good future now and in eternity.

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Money Fails

Ecclesiastes 10:19 says, “Money answers all things.” Throughout history there have been lots of things used as a medium of exchange; feathers, rocks, seashells, beads, gold and paper come to mind. Understanding money means understanding its history and how it is created. A government or a people group decide what will become money when something has all of the money attributes, e.g., durability, portability, divisibility, fungibility.

Money that is not just created by a government, first starts as a collectible. For example, some people store their wealth in old cars, fine art, and the like.

If a collectible has money attributes, it could become to a medium of exchange. Avocados would be a horrible medium of exchange because they are not durable. They last a week or so and go bad. Even a cow is not a great medium of exchange because though you can divide it, one part of the cow is more valuable than other parts, so a cow is not fungible. Fungible means mutually interchangeable or replaceable by another identical item.

Money that is a unit of account can measure the market value of goods and services. As the global reserve currency, the USA dollar is the unit of account for transactions around the world. In the following verse silver was the unit of account for the land Abraham purchased.

⁠

Genesis 23:16

And Abraham hearkened unto Ephron; and Abraham weighed to Ephron the silver, which he had named in the audience of the sons of Heth, four hundred shekels of silver, current money with the merchant. ~KJV

So Abraham agreed to Ephron’s price and paid the amount he had suggested—400 pieces of silver, weighed according to the market standard. The Hittite elders witnessed the transaction. ~NLT

Bank failures during the Great Depression led to the public hoarding gold. Gold had been money for 5,000 years. Gold has all of the attributes to be a medium of exchange. The scarcity and value of gold was set by God in Genesis 2:11-12 and for 100 years prior to April 5th 1933 an ounce of gold in the USA was worth about $20. All the dollars in circulation was backed by gold.

Gold is really heavy to move around and subject to theft so it was put in banks for safe keeping. The bank used a ledger to keep up with transactions and balances. A paper IOU from the banker represented the gold that was being held. The paper was debt. A person in possession of the “IOU Paper Money” could go to the bank and exchange it for gold. Bankers would print too many paper claims to gold. They increased the amount of money in the system, but they didn’t have the underlying gold.

President Franklin D. Roosevelt signed Executive Order 6102 forbidding the hoarding of gold and declared a bank holiday. All the banks shut down for a week and no one could get their money out of the bank. When the banks opened back up, holding gold was illegal and you could get $20.67 per ounce in government (fiat) money, but could no longer withdraw gold.

Fiat means “a formal authorization or proposition; a decree.” That means government money had value because the government says so, not necessarily because there was an underlying commodity backing it. This means fiat can be created at will, which can lead to inflation or hyperinflation. With inflation it takes more money to buy the same goods and services.

In 1934 the government price of gold was increased to $35 per ounce and held that price until August 15th 1971 when President Richard Nixon announced the USA would no longer convert dollars to gold at a fixed value. The gold standard was completely abandoned until President Gerald Ford signed legislation in 1974 permitting Americans to own gold bullion.

It is clear that other people cannot be trusted to have absolute control of the money that we think we own. That has been proven over and over for millennia. Sometimes money fails because of something a government did and sometimes it fails because it becomes worthless.

A modern example is the dramatic increase of the amount of Zimbabwe money in circulation which caused rapid price increases and its money failed. A Biblical example of money failing is the drought during the time of Joseph in Egypt

⁠

Genesis 47:15

“And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth.” ~KJV

“When the people of Egypt and Canaan ran out of money, all the Egyptians came to Joseph. “Our money is gone!” they cried. “But please give us food, or we will die before your very eyes!” ~NLT

Bitcoin Money

Bitcoin doesn’t do much except be money. It is a monetary expression of human value. It may seem new, but it represents 40 years of innovation. It’s price is known for volatility, with significant fluctuations driven by market demand, investor sentiment, regulatory news, and technological developments. Bitcoin was the first cryptocurrency and thousands of other cryptocurrencies known as altcoins have been created.

⁠

2024-05may27th-bitcoin-history-fish-40-years-of-research-and-demand.png

⁠

I have come to appreciate Bitcoin as a permissionless, censor resistant type of Black Swan Insurance. It has been the best performing asset for the last 10 years. and I now appreciate that to really understand it you should have to have a working knowledge of multiple disciplines.

Many, smart hard-working people only understand one or two pieces and its importance can’t click. The history of money, monetary policy, computer science, economics, information technology, philosophy, human incentives, and game theory are disciplines tied to what Bitcoin really is.

Bitcoin is a decentralized digital currency, also known as a cryptocurrency. It was invented in 2008 by an unknown person or group of people using the pseudonym Satoshi Nakamoto and was released as open-source software in 2009.

As a peer-to-peer network without a central authority or intermediary, bitcoin transactions are verified by network nodes using cryptography and recorded in a public distributed ledger called a blockchain. A block contains a list of transactions that cannot be changed (immutable). Bitcoin transactions involve transferring value from one address (a unique string of alphanumeric characters) to another.

Bitcoin represents a revolutionary shift in digital transactions and has influenced the development of the broader cryptocurrency and blockchain industries.

⁠

Anonymity and Pseudonymity While Bitcoin transactions are publicly recorded on the blockchain, the identities of the participants are not directly tied to their addresses. This provides a degree of anonymity which actually makes transactions pseudonymous because transactions can sometimes be traced back to an individual with enough information.

⁠

Scarcity There will only ever be 21 million bitcoins. This monetary policy is hard coded into its protocol. As a certified software development project manager, this was a hard concept. It’s just code right? What do you mean you can’t change it? I was confident of this limited supply when I understood the bitcoin network consensus mechanism.

⁠

Proof of Work The Bitcoin consensus mechanism is called Proof of Work (PoW). A network of computers all over the world (decentralized) must agree on the computer code used to verify the state of the blockchain, ensuring that all transactions use the same computer code; that all the transactions are valid; and that no double-spending has occurred. In other words, the entire blockchain is audited every time a new block is added. A new block is added approximately every 10 minutes. If something is different then that block is not Bitcoin, it’s something else so the original remains the original.

Bitcoin Cash (BCH) was created as a result of a hard fork from Bitcoin (BTC). The primary reason for the split was a disagreement in the Bitcoin community over block size limits and transaction throughput. Bitcoin Cash aimed to increase the block size from 1 megabyte (MB) to allow more transactions per block to improve scalability.

The hard fork resulted in two separate blockchains with a shared history up to the point of the fork. Bitcoin (BTC) and Bitcoin Cash (BCH) now exist as distinct cryptocurrencies with different development paths, different communities, and different market value.

If God changes He is not God; So it made sense to me if BTC changes it’s not (the original) 21 million capped BTC.

In a world that constantly changes, I find comfort that God does not change; so this characteristic of Bitcoin was definitely something to explore.

⁠

Malachi 3:6

For I am the Lord, I change not;... ~KJV

I am the Lord, and I do not change... ~NLT

No where in the code is the string “21 million coins.” The code defines the initial block reward of 50 bitcoins and every 210,000 blocks the block reward that miners received is cut in half. This is known as the halving and it occurs approximately every four years based on the average of 10 minutes to mine each block.

⁠

"Monetary Policy" Code

"Monetary Policy" Code

⁠

2012 2012 was the first halving at block 210,000. The block reward was reduced from 50 BTC to 25 BTC and the cycle high was

$126.24⁠

⁠

2016 2016 was the second halving at block 420,000. The block reward was reduced from 25 BTC to 12.5 BTC and the cycle high was

$1,002.92⁠

⁠

2020 2020 was the third halving at block 630,000. The block reward was reduced from 12.5 BTC to 6.25 BTC and the cycle high was

$14,849.09⁠

⁠

2024 April 19th 2024 was the forth halving at block 840,000 and the block reward was reduced from 6.25 BTC to 3.125 BTC. The price at that time was about $68,000 — the 1st time BTC hit a new all time high before the halving.

⁠

These halvings will continue approximately every 210,000 blocks until the maximum supply of 21 million bitcoins is reached, which is estimated to occur around the year 2140.

What will be the price for the 2028 halving? If bitcoin adds a zero as in the past cycles, that would suggest a price over $100,000. Well, when President Hoover was feeling uneasy about the stock market in 1929 and he asked his banker friends if he should be concerned. Thomas W. Lamont, who was the senior partner of the JP Morgan Company sent a memo to the president that ended, “the future appears brilliant,” but five days later the market crashed.

No one has a crystal ball to say for certain what the price of bitcoin will be in four years, but we have 15 years of history that says the future really does appear to be brilliant, but we all must be good stewards and do our own due diligence to have the confidence and conviction to store value in Bitcoin (or anything else).

Henry Ford is credited with saying, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Many believe Bitcoin is today’s money revolution. The more I learn about how money works, the more Ford’s quote makes sense.

⁠

Mining Miners are participants in the Bitcoin network who use advanced cryptographic techniques to secure transactions and control the creation of new units. Miners solve complex mathematical problems to add a new block of transactions to the blockchain. Each block contains a list of recent transactions and a reference to the previous block, forming a chain. At first anyone could do Bitcoin mining with a simple laptop, today powerful, expensive and dedicated computers are needed.

The first miner to find the correct hash broadcasts the new block to the network. Verification and Consensus happens when other miners (nodes) must agree the hash solution is correct. They also verify that all transactions within the block are legitimate (e.g., no double-spending, correct signatures). The use of private and public keys ensures that only the owner of a bitcoin can spend it.

Nodes accept the longest valid chain of blocks as the true blockchain. The longest chain is the one with the most cumulative proof of work, meaning the most computational effort has been expended on it.

As a reward, the successful miner receives newly created bitcoins (the block reward) and the transaction fees from the transactions included in the block. This reward incentivizes miners to contribute their computational power to participate in the network.

⁠

Hash Function Miners use the data of a block to solve a cryptographic puzzle to find a nonce (a variable used only once) that when passed through the SHA-256 function creates a hash (a fixed-length string of characters) that meets certain criteria. The produced hash must have a specific number of leading zeros which makes the puzzle difficult and random.

⁠

Difficulty Adjustment The difficulty of the math problem is adjusted every 2,016 blocks (or about every two weeks) to ensure that new blocks are added to the blockchain roughly every 10 minutes, regardless of the total computing power of the network.

⁠

Security The Proof of Work (PoW) mechanism secures the network by making it computationally impractical for any single entity to control the blockchain. An attacker would need to control more than 50% of the total mining power (hash rate) to successfully alter the blockchain. This is considered highly unlikely due to the vast amount of computational resources required. This decentralized consensus ensures that no central authority controls the network, maintaining Bitcoin's trustless and permissionless nature.

⁠

Decentralization The Bitcoin nodes that are all over the world make its network decentralized. This means no single (or centralized) entity can control it. The Bitcoin network is the largest computer network in the world. It is orders of magnitude larger than the combined size of the clouds that Amazon, Google, and Microsoft have built over the last 15-20 years.

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Use Case

My first use case for Bitcoin was a medium of exchange outside traditional finance rails. Silk Road is considered Bitcoin’s first real use case. Silk Road was an anonymous marketplace to buy and sell goods with Bitcoin as payment. It operated from 2011 to 2013 and its story is deep. If you’re interested in learning more, watch this video:

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Loading www.youtube.com⁠

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Bitcoin can be used for various purposes, including online purchases, investment, and as a store of value. It has gained acceptance among a growing number of merchants, financial institutions, and even some governments.

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