Understanding bitcoin

Why you need to
understand Bitcoin?
Shuo Yang
www.shuoyangdesign.com

Why another kind of money?
The first Bitcoin block is mined contains the text:
The Times 03/Jan/2009

“It is well enough that people of the nation do not understand our
banking and monetary system, for if they did, I believe they would be
revolution before tomorrow morning.”
– Henry Ford
https://www.goodreads.com/quotes/34770-it-is-well-enough-that-people-of-the-nation-do

“If the American people ever allow private banks to control the issue
of their currency first by inflation then by deflation the banks and
corporations that will grow up around them will deprive the people of
all property until their children wake up homeless on the continent
their Fathers conquered... I believe that banking institutions are more
dangerous to our liberties than standing armies... The issuing power
should be taken from the banks and restored to the people to whom it
properly belongs.”
–Thomas Jefferson
https://www.goodreads.com/quotes/405594-if-the-american-people-ever-allow-private-banks-to-control

“The bitcoin protocol provides an elegant solution to the
problem of creating a digital currency—i.e., how to
regulate its issue, defeat counterfeiting and double-spending,
and ensure that it can be conveyed safely—
without relying on a single authority... It represents a
remarkable conceptual and technical achievement,
which may well be used by existing financial institutions
(which could issue their own bitcoins) or even by
governments themselves.”
– The Federal Reserve Bank of Chicago, Chicago Fed Letter, December
2013, No. 317

What is money?
Skip the easy answer
time shifting value and resources
space shifting

The origin of money
- Nick Szabo, 2002
The precursors of money, along with
language, enabled early modern humans to
solve problems of cooperation that other
animals cannot -- including problems of
reciprocal altruism, kin altruism, and the
mitigation of aggression.
美国原住民⻉贝壳串项链
http://nakamotoinstitute.org/shelling-out/

The origin of money - Nick Szabo, 2002
Collectable
Beads made from shells of the pea-sized snail, South Africa, 75,000 B.P
Ostrich-eggshell beads, Kenya Rift Valley, 40,000 B.P
Shell and tooth pendants appear in Australia from 30,000 B.P
Collecting and making necklaces must have had an important selection benefit,
since it was costly -- manufacture of these shells took a great deal of both skill
and time during an era when humans lived constantly on the brink of starvation

Russia, 28,000 BP, Each mammoth ivory bead may have
required one to two hours of labor to manufacture.

Evolution, Cooperation, and Collectibles
"money is a formal token of delayed reciprocal altruism”
– Richard Dawkins, 1935

"For the importance of money essentially flows from its
being a link between the present and the future."
– The General Theory of Employment, Interest, and Money,
John Maynard Keynes , 1935

Evolution, Cooperation, and Collectibles
清洁⻥鱼

吸⾎血蝙蝠
On a good night, vampire bat bring back a surplus; on a bad
night, nothing. Their dark business is highly unpredictable. As
a result, the lucky (or skilled) bats often share blood with the
less lucky (or skilled) bats in their cave.

How to delay reciprocal altruism?
Credit？
Face？
Value measurement problem

If clams can be money, furs can be money, gold can be
money, and so on -- if money is not just coins or notes
issued by a government under legal tender laws, but rather
can be wide variety of objects -- then just what is money
anyway?
Why did humans, often living on the brink of starvation,
spend so much time making and enjoying those necklaces
when they could have been dong more hunting and
gathering?

Nineteenth century economist Carl Menger -(founder of the
Austrian School of economics) first described how money
evolves naturally and inevitably from a sufficient volume of
commodity barter.
barter

Barter requires coincidences of supply or skills,
preferences, time, and low transaction costs. Its cost
increases far faster than the growth in the number of goods
traded. Barter certainly works much better than no trade at
all, and has been widely practiced. But it is quite limited
compared to trade with money.

Gains From Wealth Transfers
Thus trade almost always did benefit both parties. Trade created
value as much as the physical act of making something.
!
Benefit from lower transaction costs

Kula Ring
Melanesia
(Western end of the Pacific Ocean)
Necklaces circulated clockwise, and
armshells counter-clockwise, in a very
regular pattern.
http://en.wikipedia.org/wiki/Kula_ring

Trade of food delay reciprocity can increase food sharing

Transaction costs were usually too high -- bands were far
more likely to fight than ever trust each other.

Flints, axes, furs, and other collectibles were used as
media of exchange.

Different tribes specialized in different prey
seasonal specialization

Different tribes specialized in different prey
Band A Band B

Mutually beneficial trades
Band A Band B
1. An available source of meat at a time of the year when one would otherwise starve.
2. An increase in the total supply of meat.
3. An increase in the variety of nutrition from meat, by eating different kinds of meat.
4. Increased productivity from specialization in a single prey species.

Mutually beneficial trades
Trade was thus not the only kind of wealth transfer, and probably not the most important
kind during the long human prehistory where high transaction costs prevented the
development of the kinds of markets, firms, and other economic institutions we now
take for granted
We now turn to one of the most basic kinds of wealth transfer that we humans take for
granted but other animals do not have -- passing wealth onto the next generation.

Kin Altruism
• Coincidence in time and
locale of supply and
demand for trade was
rare
• Most kinds of trades and
trade-based economic
institutions we now take
for granted could not
exist.
• Heirlooms

The Spoils of War
!
• When two neighbor tribes were not at war, one was usually paying tribute to the other.
• 700 BC Lydia were the first major issuers of coins in the archaeological and historical
record
• From that day to this, government mints with self-granted monopolies, rather than
private mints, have been the main issuers of coin.

Attributes of Collectibles
Collectibles provided a fundamental improvement to the workings of reciprocal
altruism, allowing humans to cooperate in ways unavailable to other
species.collectibles have the following desirable qualities:
1）More secure from accidental loss and theft.
2）Harder to forge its value.
3）This value was more accurately approximated by simple observations or
measurements.

Conclusion on the origin of money
Primitive money was not modern money as we know it. It took on some of the
function modern money now performs, but its form was that of heirlooms, jewelry,
and other collectibles.
The use of these is so ancient that the desires to explore, collect, make, display,
appraise, carefully store, and trade collectibles are human universals -- to some
extent instincts.
The results for our ancient forebears were the first secure forms of embodied value
very different from concrete utility -- and the forerunner of today's money.
Shell money from Sumer, c. 3,000 B.C.

Hidden Secrets Of Money
- Mike Maloney “Hidden Secrets Of Money”
http://youtu.be/iFDe5kUUyT0?t=6m21s
http://youtu.be/iFDe5kUUyT0?t=18m54s

Money creation in the modern economy
- Bank of England
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/
2014/qb14q1prereleasemoneycreation.pdf

Monetary Base
http://en.wikipedia.org/wiki/Monetary_base

“You never change things by
fighting the existing reality.
To change something, build a
new model that makes the
existing model obsolete.”
― Richard Buckminster Fuller
http://www.goodreads.com/author/quotes/165737.Richard_Buckminster_Fuller

“One thing that’s missing but will soon be developed is a reliable e-cash, a
method whereby on the Internet you can transfer funds from A to B without
A knowing B or B knowing A – the way I can take a $20 bill and hand it over
to you, and you may get that without knowing who I am.”
– Milton Friedman 1999
https://www.youtube.com/watch?v=6MnQJFEVY7s

“The difference between knowing the name of something
and knowing something.”
– Richard Feynman
https://www.youtube.com/watch?v=05WS0WN7zMQ

What is Bitcoin
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly
from one party to another without going through a financial institution. Digital signatures provide
part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.
We propose a solution to the double-spending problem using a peer-to-peer network. The
network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work,
forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only
serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU
power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the
network, they'll generate the longest chain and outpace attackers. The network itself requires minimal
structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at
will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
https://bitcoin.org/bitcoin.pdf

Bitcoin made simple – video animation - theguardian
https://www.youtube.com/watch?v=r2704tWyz6I
http://www.theguardian.com/news/video/2014/apr/30/bitcoin-made-simple-video-animation

How does Bitcoin protocol work?
First steps: a signed letter of intent
“I, Alice, am giving Bob one bitcoin”
+ digital signature
http://blog.shuoyangdesign.com/?p=902

Problem: Send message multiple times
Does that mean Alice sent Bob ten different bitcoins? Was her message
accidentally duplicated?

Step 2: Using serial numbers to make coins
uniquely identifiable
• I, Alice, am giving Bob one bitcoin, with serial number 1234567
• When Bob get the message, he will check
1, the bitcoin with that serial number belongs to Alice;
2, Alice hasn’t already spent the bitcoin
• “where do serial number come from? - (third party-bank)

Step 3: Making everyone collectively the bank
• eliminate the bank entirely from the protocol
• Assume that everyone using bitcoin keeps a complete record of
which bitcoin belong to which person. You can think of this as a
shared public ledger showing all bitcoin transactions. We’ll call this
ledger the blockchain.
• Bob can use his copy of the block chain to check the
transaction。If that checks out then he broadcasts both Alice’s
message and his acceptance of the transaction to the entire
network, and everyone updates their copy of the blockchain.

Double Spending Problem

Double Spending Problem
““I, Alice, am giving Bob one bitcoin 1234567”
““I, Alice, am giving David one bitcoin” 1234567”
confirm
confirm

Step 4：Solve The Double Spending Problem
“…” waiting
to verify
• When Alice sends Bob an bitcoin, Bob shouldn’t try to verify the transaction alone.
Rather, he should broadcast the possible transaction to the entire network of bitcoin
users, and ask them to help determine whether the transaction is legitimate.
• If they collectively decide that the transaction is okay, then Bob can accept the
bitcoin, and everyone will update their block chain.

Problem：Alice can taking over the network by
set up large number of identities
Suppose Alice wants to double spend in the network-based protocol I just described. She could do this by
taking over the Infocoin network. Let’s suppose she uses an automated system to set up a large number of
separate identities, let’s say a billion.
Alice’s sock puppet identities swamp the network, announcing to Bob that they’ve validated his
transaction, and to Charlie that they’ve validated his transaction, possibly fooling one or both into
accepting the transaction.

Step 5: Proof-of-work
1. Artificially make it computationally costly for network users to
validate transactions;
2. Reward them for trying to help validate transactions.

David
unconfirmed transactions
Block
SHA-256 hash
I, Tom, am giving Sue one infocoin, with serial number
1201174.
!
I, Sydney, am giving Cynthia one infocoin, with serial
number 1295618.
!
I, Alice, am giving Bob one infocoin, with serial number
1234567.
……

Mining
• Initially, this was set to be a 50 bitcoin reward. But for every 210,000 validated blocks (roughly, once
every four years) the reward halves. This has happened just once, to date, and so the current reward for
mining a block is 25 bitcoins. This halving in the rate will continue every four years until the year 2140.
• You can think of proof-of-work as a competition to approve transactions
previous block hash
+ transactions hash
+ nonce(unknown)
Hash
1312af178c253f84028d480a6adc1e25e
81caa44c749ec81976192e2ec934c64
Result need to start with a certain number of Zeros
00000000000000002e0af2a8c92696a5f1146a9557369dfd9468a98b1dad6e06
“Bitcoin mining the hard way”
http://www.righto.com/2014/02/bitcoin-mining-hard-way-algorithms.html
https://blockexplorer.com/block/0000000000000000042aed1324cf6322521fa56c47f26d31967439139b0b1795

new block 2
hash
Hash of
current
block’s TXs
Nonce 3
new block
1 hash
Hash of
current
block’s TXs
Nonce 2
previous
block hash
Hash of
current
block’s TXs
Nonce 1
new block 3
hash
Hash of
current
block’s TXs

Each block containing a pointer to the immediately prior block:
Occasionally, a fork will appear in the block chain. This can
happen, for instance, if by chance two miners happen to validate a
block of transactions near-simultaneously

They both broadcast their newly-validated block out to the network,
and some people update their block chain one way, and others
update their block chain the other way:
6 confirmations

What could it possibly do?
• Internet is not just faster telegram
• Email is not just faster mail
• Bitcoin It’s not just money

• Bitcoin is a revolutionary protocol for information synchronization. It
can precisely order all database entries and check their validity
without any central authority.
• Blockchain acts like a giant accounting ledger, allowing the
storage and transmission of financial information.
• It can serve as a worldwide public record, for many potential
purposes, without need of a central controlling authority. For
example: Proof of ownership

Bitcoin as Money
• Script in blockchain made it can be programmable.
• For example: transaction will be executed on a certain date or met
certain condition.
• Complex example: Kickstarter

- The Present
Bitcoin as Secure Record Keeping
!
- Near Future:
Bitcoin as Proof of Ownership
!
- Future:
Bitcoin as a Decentralized Stock Exchange

Public payments
He received $25,000 in Bitcoin in the first 24 hours

Four-sided network effect
(1) consumers who pay with Bitcoin,
(2) merchants who accept Bitcoin,
(3) “miners” who run the computers that process and validate all
the transactions and enable the distributed trust network to exist.
(4) developers and entrepreneurs who are building new products
and services with and on top of Bitcoin.

In Nov. 2008, Satooshi published a paper on The
Cryptography Mailing list
http://www.mail-archive.com/cryptography%40metzdowd.com/msg09959.html

What Did Nick Szabo Say?
From“Myself, Wei Dai, and Hal Finney were the only people I
know of who liked the idea (or in Dai's case his related idea)
enough to pursue it to any significant extent until Nakamoto
(assuming Nakamoto is not really Finney or Dai). Only
Finney (RPOW) and Nakamoto were motivated enough to
actually implement such a scheme.”
– Nick Szabo
http://unenumerated.blogspot.com/2011/05/bitcoin-what-took-ye-so-long.html

What Did Wei Dai Say?
“Two reasons, One: in Satoshi’s early emails to me he was apparently
unaware of Nick Szabo’s ideas and talks about how bitcoin ‘expands
on your ideas into a complete working system’ and ‘it achieves nearly
all the goals you set out to solve in your b-money paper’. I can’t see
why, if Nick was Satoshi, he would say things like that to me in
private. And, two: Nick isn’t known for being a C++ programmer.”
– Wei Dai
http://www.gwern.net/docs/2008-nakamoto

Dai/Nakamoto emails
“Nick considers his ideas to be at least an independent
invention from b-money so why would Satoshi say “expands
on your ideas into a complete working system” to me, and cite
b-money but not Bit Gold in his paper, if Satoshi was Nick? An
additional reason that I haven’t mentioned previously is that
Satoshi’s writings just don’t read like Nick’s to me.”
– Wei Dai
www.gwern.net
http://www.gwern.net/docs/2008-nakamoto

Bitcoin and me (Hal Finney)
I had long been interested in cryptographic payment schemes. Plus I was lucky
enough to meet and extensively correspond with both Wei Dai and Nick Szabo,
generally acknowledged to have created ideas that would be realized with Bitcoin. I
had made an attempt to create my own proof of work based currency, called RPOW.
So I found Bitcoin fascinating.
!
Today, Satoshi's true identity has become a mystery. But at the time, I thought I was
dealing with a young man of Japanese ancestry who was very smart and sincere. I've
had the good fortune to know many brilliant people over the course of my life, so I
recognize the signs.
– Hal Finney
https://bitcointalk.org/index.php?
topic=155054.msg1643833#msg1643833

MT Gox Dead
1. The Bitcoin ecosystem is growing up.
2. Haters gonna hate
3. Antifragile.

The Antisocial Network - Paul Krugman - April 14, 2013
The fruitless search for dehumanized money.
http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-network.html?_r=0
The Face Behind Bitcoin - March 06, 2014
http://www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html#
Bitcoin CEO found dead in Singapore, suicide suspected - March 06, 2014
https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin
Bitcoin Is Dead — Long Live Bitcoin - March 23, 2014
https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin

Digital money: The Bitcoin bubble | The Economist
http://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-
if-digital-currency-crashes-others-will-follow-bitcoin
Bitcoin in Argentina, a Match Made in Heaven?
http://www.economist.com/blogs/schumpeter/2014/06/bitcoin-argentina
Bitcoin For the Poor: Cash Transfers in Africa
http://www.economist.com/blogs/baobab/2014/06/cash-transfers-africa
Wall Street welcomes Bitcoin in 2014: SecondMarket CEO
http://www.cnbc.com/id/101750918

“A scientific truth does not triumph by convincing its
opponents and making them see the light, but rather
because its opponents eventually die and a new generation
grows up that is familiar with it.”
- Max Planck
http://en.wikiquote.org/wiki/Max_Planck

“I am very intrigued by Bitcoin. It has all the signs.
Paradigm shift, hackers love it, yet it’s derided as a toy.
Just like microcomputers.”
“Truly innovative ideas often look like bad ideas at the time”
– Paul Graham
https://news.ycombinator.com/item?id=5402513

Personal computers in 1975, the Internet in 1993,
and – I believe – Bitcoin in 2014.
In 20 years, we’ll talk about Bitcoin like we talk
about the Internet today
– Marc Andreessen
http://video.cnbc.com/gallery/?video=3000279168

“Bitcoin is still very much a fringe thing […]
But I like to pay attention to the jokes, the laughing
stocks, because occasionally they get the last laugh”
– Fred Wilson

Can Do vs. Can’t Do Cultures
- Ben Horowitz
“The reasonable man adapts himself to the world; the unreasonable
one persists in trying to adapt the world to himself. Therefore, all
progress depends on the unreasonable man.”
- -George Bernard Shaw
http://www.bhorowitz.com/can_do_vs_cant_do_cultures

Critics of The Computer
“The Analytical Engine”
the world’s first general-purpose computer
In 1837, Charles Babbage set out to build
something he called The Analytical Engine the
world’s first general-purpose computer that could
be described in modern times as Turing-complete.
!
English mathematician and astronomer George
Biddel Airy advised the British Treasury that the
Analytical Engine was “useless” and that
Babbage’s project should be abandoned. The
Government axed the project shortly after. It took
the world until 1941 to catch up with Babbage’s
original idea after it was killed by skeptics and
forgotten by all.
Source:Can Do vs. Can’t Do Cultures

Critics of The Telephone
Alexander Graham Bell
In 1876, Alexander Graham Bell, inventor of the
telephone, offered to sell his invention and patents
to Western Union, the leading telegraph provider, for
$100,000. Western Union refused based on a report
from their internal committee. Here are some of the
excerpts of that report:
“The Telephone purports to transmit the speaking
voice over telegraph wires. We found that the voice
is very weak and indistinct, and grows even weaker
when long wires are used between the transmitter
and receiver. Technically, we do not see that this
device will be ever capable of sending recognizable
speech over a distance of several miles. ”

Critics of The Telephone
Alexander Graham Bell
“Messer Hubbard and Bell want to install one
of their “telephone devices” in every city. The
idea is idiotic on the face of it.
!
Furthermore, why would any person want to
use this ungainly and impractical device when
he can send a messenger to the telegraph
office and have a clear written message sent
to any large city in the United States?”

Critics of The Internet
Why the Web Won’t Be Nirvana in Newsweek
“Then there’s cyberbusiness. We’re promised
instant catalog shopping—just point and click for
great deals. We’ll order airline tickets over the
network, make restaurant reservations and
negotiate sales contracts. Stores will become
obselete. So how come my local mall does more
business in an afternoon than the entire Internet
handles in a month? Even if there were a
trustworthy way to send money over the Internet—
which there isn’t—the network is missing a most
essential ingredient of capitalism: salespeople.”

“What mistake did all these very smart men make in
common? They focused on what the technology could
not do at the time rather than what it could do and might
be able to do in the future. This is the most common
mistake that naysayers make.”
- Ben Horowitz

• 2014: $1.2 Billion Funding Round At A $17 Billion Valuation
• http://techcrunch.com/2014/06/06/uber-1-2b/
• 2011: Raises $11 million From Benchmark Capital
• http://techcrunch.com/2011/02/14/huge-vote-of-confidence-uber-raises-11-million-from-benchmark-capital/

2011 Comments on Techcrunch
"As someone who has been in the car service business his whole
life, a valuation that high is asking for trouble.”
“I wish them luck; however, it is a very mom and pop industry and
you will be lucky to just make a living.”
"If Uber becomes the most successful [car service company] out
there, you are not looking at a billion dollar company by any means."
http://techcrunch.com/2011/02/14/huge-vote-of-confidence-uber-raises-11-million-from-benchmark-capital/

2011 Comments on Techcrunch
"I don't know of any competitive advantage Uber has over
Carey or Boston Coach...which can launch similar technology
in matter of weeks.”
"I'm looking forward to seeing if Uber is actually successful
outside of San Francisco.”
"Wow, $11 million for a company that is equivalent to calling a
taxi! Why didn't I think of that!”
"I'm surprised. Is Uber in the clear yet legally? Seems like they
could still be shut down any day."
http://techcrunch.com/2011/02/14/huge-vote-of-confidence-uber-raises-11-million-from-benchmark-capital/

Adoption Curve
Geoffrey Moore
Adoption Today

Adoption Curve
Geoffrey Moore
Mainstream Adoption

How can you view it.
• Alan Kay: IQ < Knowledge < Outlook.
• “If you don’t believe me or don’t get it, I don’t have time to try to
convince you, sorry.” - Satoshi

Problem: “I don’t understand it”
“Like the internet, bicycles, and many financial
instruments, both airplanes and Bitcoin rely on ideas
that few in the world understand fully”
Satoshi Nakamoto 2010
Wright Brothers

Problem: “dangerous”
“Like the internet, bicycles, and many financial
instruments, both airplanes and Bitcoin rely on ideas
that few in the world understand fully”
Satoshi Nakamoto 2010
Wright Brothers

Myth: Educated economists think Bitcoin is a load of rubbish
and going no where
• 2007: Steve Ballmer, “There's no chance that the iPhone is going to get any
significant market share.”
• 2010: Why Tesla Is the Next Webvan
• http://www.thestreet.com/story/10838464/2/why-tesla-is-the-next-webvan.html
• 2011: How Dropbox Will Die
• http://www.forbes.com/sites/davidcoursey/2011/10/18/how-dropbox-will-die/
• 2013: FINANCE PROFESSOR: Bitcoin Will Crash To $10 By Mid-2014
• http://www.businessinsider.com/williams-bitcoin-meltdown-10-2013-12
https://en.bitcoin.it/wiki/Myths

Myth: Bitcoin is just like all other digital
currencies; nothing new
• Nearly all other digital currencies are centrally controlled. This
means that:
• They can be printed at the subjective whims of the controllers
• They can be destroyed by attacking the central point of control
• Arbitrary rules can be imposed upon their users by the
controllers
• Being decentralized, Bitcoin solves all of these problems.

Myth: Bitcoins don't solve any problems that
fiat currency and/or gold doesn't solve
• Unlike gold, bitcoins are: easy to transfer, easy to secure, easy to
verify, Easy to granulate
• Unlike fiat currencies, bitcoins are: predictable and limited in supply,
not controlled by a central authority (such as The United States
Federal Reserve), not debt-based
• Unlike electronic fiat currency systems, bitcoins are: potentially
anonymous, freeze-proof, faster to transfer, cheaper to transfer

Myth: Bitcoins are worthless because they
aren't backed by anything
• One could argue that gold isn't backed by anything either. Bitcoins
have properties resulting from the system's design that allows
them to be subjectively valued by individuals. This valuation is
demonstrated when individuals freely exchange for or with
bitcoins

Myth: Bitcoins have no intrinsic value
• The value of bitcoin the global network, rather than each bitcoin in
isolation. The value of an individual telephone is derived from the
network it is connected to. If there was no phone network, a telephone
would be useless. Similarly the value of an individual bitcoin derives
from the global network of bitcoin-enabled merchants, exchanges,
wallets, etc...
• Just like a phone is necessary to transmit vocal information through
the network, a bitcoin is necessary to transmit economic information
through the network.
• Value is ultimately determined by what people are willing to trade for -
by supply and demand.

Myth: Bitcoin is a Ponzi scheme
https://en.bitcoin.it/wiki/Myths
• In a Ponzi Scheme, the founders persuade investors that they’ll
profit. Bitcoin does not make such a guarantee. There is no central
entity, just individuals building an economy.
• A ponzi scheme is a zero sum game. In a ponzi scheme, early
adopters can only profit at the expense of late adopters, and the
late adopters always lose. Bitcoin has an expected win-win
outcome. Early and present adopters profit from the rise in value
as Bitcoins become better understood and in turn demanded by
the public at large. All adopters benefit from the usefulness of a
reliable and widely-accepted decentralized peer-to-peer currency.

Myth: Bitcoin is inherently deflationary. Thus
less cash for everybody to spend.
8 decimal places. we can simply use smaller units of Bitcoin.

Myth: Bitcoin is designed for tax evasion.
• Cash transactions hold the same level of anonymity but are still
taxed successfully. It is up to you to follow the applicable state
laws in your home country, or face the consequences.
• While it may be easy to transfer bitcoins anonymously, spending
them anonymously on tangibles is just as hard as spending any
other kind of money anonymously. Tax evaders are often caught
because their lifestyle and assets are inconsistent with their
reported income, and not necessarily because government is able
to follow their money.

Myth: Early adopters are unfairly rewarded
• Early adopters are rewarded for taking the higher risk with their
time and money.
• Arguing that early adopters do not deserve to profit from this is
akin to saying that early investors in a company, or people who
buy stock at a company IPO (Initial Public Offering), are unfairly
rewarded.

Myth: Bitcoin mining is a waste of energy and
harmful for ecology
• No more so than the wastefulness of mining gold out of the
ground, melting it down and shaping it into bars, and then putting
it back underground again. Not to mention the building of big
fancy buildings, the waste of energy printing and minting all the
various fiat currencies, the transportation thereof in armored cars
by no less than two security guards for each who could probably
be doing something more productive, etc.
• Bitcoin is actually quite economical of resources, compared to
others.

Myth: Bitcoins serve as opportunities for
criminals and will be shut down
• Visa, MasterCard, PayPal, and cash all serve as opportunities for
criminals as well, but society keeps them around due to their
recognized net benefit.
• Terrorists fly aircraft into buildings, but the governments have not
yet abolished consumer air travel. Obviously the public good
outweighs the possible bad in their opinion.

“some people see the world and ask why, others dream about
the world that never before and ask why not.”
- -George Bernard Shaw

Understanding bitcoin

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