Dan Held is the founder of crypto portfolio service Picks & Shovels. He previously founded data service ZeroBlock, which sold to Blockchain, and served as VP of product at ChangeTip.
This exclusive opinion piece is part of CoinDesk’s “Bitcoin at 10: The Satoshi White Paper” series.
Bitcoin’s origin is akin to planting a tree.
It wasn’t just Satoshi’s selection of the species (code), but the season (timing), soil (distribution) and gardening (community) that were essential to its success. It had to grow to be strong, mighty and huge. It had to survive droughts, storms and predators. Its deep roots had to support the weight of becoming a new world reserve currency.
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What is Money?
Money is most easily defined as the medium in which value is transferred.
But money is not just paper in your hand, or numbers in your bank account, money represents something much more fundamental:
Money is a primitive form of memory or record-keeping. It is the collective memory of who has the ability to allocate wealth.
Money, which is the representation of the work required to acquire goods and services, can also be viewed as stored energy.
Money is the central information utility of the world economy. As a medium of exchange, store of value, and unit of account, money is the critical vessel of information about the conditions of markets.
The main functions of money are Store of Value (SoV), Medium of Exchange (MoE), and Unit of Account (UoA). No money starts by providing all three functions, each new species of money follows a distinct evolutionary path that we will cover later. Let’s first start by identifying the newest species of money, Bitcoin.
“These protocols can’t be described comprehensively as static objective things. They’re best thought of as live systems.” — Ari Paul
Bitcoin is a new form of life, a new species of money called “cryptocurrency.” More importantly, it is “sound money,” or using proper taxonomy, “sanum pecuniam.” Sound money is defined as money that has a purchasing power determined by markets, independent of governments and political parties which is essential for individual freedom.
“I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper.” — Satoshi Nakamoto
The code of life is written into an organism at its inception. Satoshi carefully architected Bitcoin’s DNA, or genetic code, to be the best sound money ever created.
We can think of Bitcoin‘s genetic code as representing instructions that have been written to incentivize the organization and coordination of cellular function.
“I believe I’ve worked through all those little details over the last year and a half while coding it, and there were a lot of them.” – Satoshi Nakamoto
Bitcoin’s genetic code:
Satoshi needed a way for the Bitcoin to spark itself into existence, so he coded in its DNA a fixed supply (21 million Bitcoins). An increase in Bitcoin‘s price inevitably leads to a corresponding increase in participants (users), security (mining), and developers. This becomes a self-reinforcing feedback loop.
Bitcoin’s mining function, proof-of-work (PoW) is both its metabolism and defense mechanism. Bitcoin eats energy to generate new coins and build digital walls to protect the network. PoW also makes Bitcoin anti-fragile, or in other words, as it grows larger, it becomes more resistant to attack.
A new Bitcoin block is found every 10 minutes, this genetic code enables Bitcoin’s cells to effectively communicate and coordinate with each other despite enormous distances. It is the internal clock that sets the metabolic rate.
“It lives and breathes on the internet. It lives because it can pay people to keep it alive. It lives because it performs a useful service that people will pay it to perform. It lives because anyone, anywhere, can run a copy of its code. It lives because all the running copies are constantly talking to each other. It lives because it is radically transparent: anyone can see its code and see exactly what it does. It can’t be changed. It can’t be argued with. It can’t be tampered with. It can’t be corrupted. It can’t be stopped. It can’t even be interrupted. If nuclear war destroyed half of our planet, it would continue to live, uncorrupted.” — Ralph Merkle
Bitcoin’s genetic code manifests itself via traits (characteristics of an organism) that may or may not be visible.
In biology, a trait or character is a feature of an organism.
According to Charles Darwin’s theory of evolution by natural selection, organisms that possess heritable traits that enable them to better adapt to their environment compared with other members of their species will be more likely to survive, reproduce, and pass more of their genes on to the next generation.
Money is no different. Money has traits…