Introduction to bitcoin

1. Bitcoin A Peer-to-Peer Electronic Cash
System

2. Bitcoin is peer-to-peer electronic cash
Bitcoin is peer-to-peer electronic cash. Explanation: “Peer” means a person. If Alice wants to pay
Bob, Alice creates a Bitcoin transaction and hands the transaction to Bob. Bitcoin is electronic
cash. It is analogous to physical cash. Just like Alice would hand a dollar bill to Bob, or any other
fiat currency note, Alice can hand a Bitcoin to Bob. Because Bitcoin is electronic, it works on
computers, making it possible to send cash over the internet. You can’t do that with physical
cash. Bitcoin is an important innovation that makes peer-to-peer electronic cash possible for the
first time.

3. Bitcoin brings law to the internet
How do you send money to someone over the internet? You can’t just send them an image of
money, because the image can be easily copied. Sending the same image to more than one
person is called double spending. Bitcoin solves double spending problem. Bitcoin makes digital
property possible for the first time. Property rights are enforced in law. Bitcoin makes it possible
to enforce property rights on the internet for the first time. Bitcoin brings law to the internet.

4. Bitcoin is private not anonymous
Bitcoin is private, not anonymous. Explanation: Bitcoin is private because your identity is firewalled
from the blockchain. Your identity exists, but you don’t tell everyone what your identity is. You
only tell the people you are transacting with. And even then, you only tell them if you want or need
to. Bitcoin is not anonymous, because anonymous means your identity is not known or cannot be
proved by anyone. Everyone needs privacy. No one needs anonymity. Bitcoin is private, not
anonymous.

5. Bitcoin scales
Bitcoin scales. Explanation: There is no upper limit to the volume of transactions on Bitcoin.
Because Bitcoin transactions can be validated in parallel, in principle miners must add more
computational hardware for a larger volume of transactions. Of course, they must also write the
software to manage the computers. With a larger volume of transactions, blocks can become very
large. Bitcoin scales all the way from here to global adoption.

6. Bitcoin is Turing complete
Bitcoin is Turing complete. Explanation: A Turing complete computer is a computer that can
compute any number that can be computed. In Bitcoin, the key to understand Turing completeness
is to understand looping. A loop can be created either by unrolling the loop to an arbitrary number
of iterations inside a single script, or to loop inside of a payment channel that settles on-chain.
There is no computer that can be compute something that can’t be computed by Bitcoin. Bitcoin is
Turing complete.

7. Bitcoin has two networks: miners and users
Bitcoin has two networks: miners and users. Explanation: Bitcoin is decentralized because users
send transactions directly to each other with no trusted third party. Users form a mesh network
because each user connects only to the other users they transact with. Miners form a separate
network. The miners form a small world network because every miner connects to every other
miner. Both networks, miners and users, are connected. Together, the network structure is called a
Mandala network.

8. Proof of work de anonymizes bitcoin miners
Proof of Work de-anonymizes Bitcoin miners. Explanation: Proof of Work is where the miners
produce a hash of a block with a value above the current difficulty target. They do this by running
a hash function on the block header over and over with a different nonce. Because miners need
to get their blocks to other miners quickly, they must send the block straight to the other miners.
This makes it possible to triangulate the physical location of the miner. Therefore, every miner
will inevitably reveal their identity. It is not possible to mine Bitcoin anonymously.

9. Proof of Work is a signal of investment
Proof-of-Work is a signal of investment. Explanation: Why do you buy a car from a fancy car
dealership rather than some shady guy on a street corner if the fancy car dealership charges 10%
more? The fact that the car dealership has a fancy building with fancy marketing indicates they are
investing in their business which means they are unlikely to leave and unlikely to scam you. The
shady guy on the street corner has not made that investment. Why save 10% if you risk being
scammed and losing all of your money? Proof-of-Work is an algorithm for creating the same signal
as a fancy car dealership. Proof-of-Work signals that you can trust miners because they have
invested in the system.

10. Bitcoin is an economic system
Bitcoin is secured by economic incentives. It is not secured by cryptography. Explanation: Bitcoin
uses two types of cryptographic algorithms: hash functions and digital signatures. Hash functions
are used for proof-of-work, to index blocks and transactions, and for Bitcoin addresses. Digital
signatures are used to sign transactions. Bitcoin uses cryptographic algorithm not for security, but
to make it more profitable to work within the rules than to violate them. Bitcoin is an economic
system. Bitcoin is not a cryptosystem.

11. Bitcoin is not a cryptocurrency
Bitcoin is not a cryptocurrency. Bitcoin is an economic system. Explanation: Bitcoin is secured by
economic incentives. If someone gives you a Bitcoin transaction, you check that it contains a valid
signature. The definition of what constitutes a valid signature is defined by the Bitcoin rules. Why
do you enforce the rules? Because you would lose money if you didn’t. Users enforce the rules
because they are economically incentivized to do so. Miners enforce the rules because they are
economically incentivized to do so. Bitcoin is secured by economics. Bitcoin is not secured by
cryptography. Bitcoin is not a cryptocurrency.

12. BTC is not bitcoin
BTC is not Bitcoin. Explanation: BTC changed the rules by adding segwit. Segwit removes the
signatures from the chain of transactions, which violates the definition of a “coin” in the white
paper. Furthermore, BTC has a strictly limited maximum block size which completely ruins all of
the economics of the system. BTC is what happens when cypherpunk ideologues who have no
idea about economics steal the name “Bitcoin” and use it for a project with little relation to the
original idea of Bitcoin. Bitcoin is an economic system that is encouraged to succeed through
thoughtful economic incentives. BTC is a boondoggle that will definitely fail.

13. BTC has an economic security vulnerability
BTC has an economic security vulnerability. Explanation: When the last person who will buy BTC
buys BTC, the money will stop flowing in and the price will crash. The price will crash so much
that the miners will no longer be incentivized to mine the chain. The blockchain will stop. It is
analogous to a game of musical chairs where all the chairs are removed and everybody false on
the ground. This is how BTC will die.