The Little Bitcoin Book

1. The Current Monetary System is Broken and Unfair

Since 2000, nearly all currencies have lost significant value against the US dollar. Many, such as the South African rand, Argentine peso, and Turkish lira have lost nearly 50%.

Wealth erosion through inflation. Central banks' ability to print money at will has led to widespread currency devaluation. This affects savings and purchasing power, particularly in developing nations. The Cantillon Effect exacerbates wealth inequality, as those closest to newly printed money benefit the most.

Financial exclusion and surveillance. Billions lack access to basic banking services, while those with access face increasing financial surveillance. Examples:

• 2 billion people don't have bank accounts
• Chinese citizens limited to converting $50,000 per year
• US credit card companies sell transaction data to advertisers

Cross-border friction. Despite globalization, moving money internationally remains slow and expensive. Remittances, which totaled $700 billion in 2018, lost $45 billion to fees and exchange rates.

2. Bitcoin: A Decentralized Digital Currency Revolution

Bitcoin is a profound engineering breakthrough that offers a new alternative to the existing financial system.

Satoshi Nakamoto's innovation. In 2008, amid the global financial crisis, an anonymous creator introduced Bitcoin – a decentralized digital currency without reliance on central authorities. Key features:

• Fixed supply of 21 million coins
• Transparent issuance schedule
• Decentralized network of miners and full nodes
• Blockchain ledger for transparent record-keeping

How Bitcoin works. The system operates through:

• Miners competing to find rare numbers (proof-of-work)
• Full nodes validating transactions and blocks
• Users initiating transactions from wallets
• Developers improving the open-source software

This decentralized structure ensures no single entity controls Bitcoin, making it resistant to censorship and manipulation.

3. Bitcoin's Price Volatility Reflects Its Growing Adoption

Over the past decade, the price of bitcoin has increased from a fraction of a cent to a high of nearly $20,000.

Long-term appreciation. Bitcoin's fixed supply and growing demand have driven its value upward over time. Factors influencing price:

• Scarcity (21 million coin limit)
• Increasing adoption and utility
• Halving events (reduced mining rewards every four years)

Short-term volatility. Bitcoin's price experiences significant fluctuations due to:

• Relatively small market size ($200 billion vs. $9 trillion for gold)
• Speculation and leveraged trading
• Regulatory news and market sentiment
• Lack of traditional valuation metrics

As Bitcoin matures and becomes more widely adopted, its volatility is expected to decrease, similar to the evolution of other transformative technologies.

4. Bitcoin Empowers Individuals and Promotes Human Rights

Bitcoin can help anyone achieve more financial freedom, but it will likely first help those who need it the most.

Financial sovereignty. Bitcoin enables individuals to be their own bank, providing:

• Control over wealth without intermediaries
• Protection against confiscation and censorship
• Access to financial services for the unbanked

Escape from oppression. Bitcoin offers solutions for those living under authoritarian regimes:

• Hedge against hyperinflation (e.g., Venezuela)
• Bypass capital controls and sanctions
• Preserve wealth when fleeing oppression

Privacy preservation. As cash disappears and surveillance increases, Bitcoin (especially with Lightning Network improvements) can provide:

• Anonymous purchases for goods and services
• Protection against financial profiling
• Resistance to social credit systems

5. The Future: Bitcoin vs. Surveillance Capitalism

Opting out, silence, and exit are the new forms of protest. To enact change, an individual doesn't need to coordinate with thousands of like-minded people to flood the streets for a day or week at a time. Such people can export their wealth just as easily as they can send an email.

Two potential futures. The book outlines contrasting scenarios:

1. Surveillance capitalism:

   • Governments and corporations control money
   • Personal privacy extinct
   • Dissent impossible due to financial tracking

2. Bitcoin-powered freedom:

   • Individuals control their wealth
   • Financial privacy preserved
   • Governments compete for citizens through better policies

Three phases of Bitcoin adoption:

1. Store of Value
2. Method of Payment
3. Unit of Account

As Bitcoin progresses through these phases, it has the potential to reshape the global financial system and power dynamics between individuals and institutions.

6. Bitcoin Mining: Securing the Network and Driving Renewable Energy

The majority of bitcoin mining today is done with renewable energy that has a minimal cost to the environment. According to the latest estimates, about 75% of all bitcoin mining is currently done with hydroelectric, solar, wind, and geothermal sources of energy.

Energy consumption context. Bitcoin's energy use is often criticized, but it's important to consider:

• Bitcoin uses about 73 TWh/year (less than Austria, far less than China or US)
• Mining incentivizes use of stranded or excess energy
• Renewable energy sources dominate Bitcoin mining (75% of total)

Benefits of mining:

• Secures the network against attacks
• Subsidizes development of renewable energy infrastructure
• Provides financial services to the unbanked and oppressed

Historical perspective. New technologies often use more energy than old systems they displace (e.g., cars vs. horses). The tradeoff is usually justified by improved quality of life and innovation.

7. Scaling Bitcoin: Meeting Global Needs Through Innovation

Bitcoin is on track to scale exponentially, whereas traditional payment networks like Visa scale linearly by adding more and more servers.

Current limitations. Bitcoin's base layer can process only a few transactions per second, raising concerns about its ability to serve billions of users.

Scaling solutions:

• Lightning Network: Enables millions of transactions per second off-chain
• Divisibility: One bitcoin can be split into 100 million satoshis
• Future innovations: Potential for even greater scalability and efficiency

Historical parallel. Like the early internet's evolution from text to video streaming, Bitcoin's capacity is expected to grow dramatically through continued innovation and development.

8. Acquiring and Securing Bitcoin: Be Your Own Bank

Bitcoin is a bearer instrument, meaning people can be in complete control over the bitcoin they own.

Ways to acquire Bitcoin:

• Buying: Exchanges, Bitcoin ATMs, peer-to-peer trading
• Earning: Receiving payment for goods or services
• Mining: Now primarily for specialized businesses due to high costs

Wallet options:

• Hardware wallets: Most secure for long-term storage
• Mobile wallets: Convenient for everyday use
• Desktop wallets: Balance of security and usability
• Paper wallets: Offline storage for maximum security

Best practices:

• Research wallet options thoroughly
• Use strong passwords and two-factor authentication
• Keep private keys secure and backed up
• Regularly update software
• Be cautious of phishing attempts and scams

By following these guidelines, individuals can take full advantage of Bitcoin's potential for financial sovereignty and security.

Last updated: October 15, 2024