Summary-The Internet of Money - Andreas M. Antonopoulos
Here is a summary of the praise and preface for the book "The Internet of Money":
Marc Andreessen, co-founder of Netscape and Andreessen Horowitz, praises Andreas for explaining how bitcoin enables an "Internet of Money" and for capturing the power of innovation on the Internet.
Balaji Srinivasan, CEO of 21.co, calls the book one of the best on bitcoin for a broad audience.
Michael J. Casey, co-author of The Age of Cryptocurrency, says Andreas has done the most to help people understand bitcoin and its potential.
Foreword by Don Tapscott:
Don Tapscott and his son Alex were researching blockchain technology in 2014 and were influenced by Andreas's talks and writings.
Andreas showed a deep knowledge and ability to explain complex topics clearly. His talks educated people at a time when bitcoin was dominated by builders and speculators.
Andreas's testimony to the Canadian Senate helped shift their view of bitcoin to see more opportunities and less need for regulation.
This book captures the insights from those early talks and shows their relevance today. Andreas was ahead of his time in seeing the potential for an "Internet of Value" or "Internet of Money".
Preface by Andreas M. Antonopoulos:
The book contains edited versions of talks Andreas gave between 2013 to 2016 as he discovered and learned about bitcoin.
The talks were improvised and evolved based on audience reaction and Andreas's developing ideas. The book has cleaned up minor errors but loses some of the spontaneity and audience interaction of the live talks.
The talks reflect Andreas's vision for how bitcoin can unleash innovation and transform society, starting with creating an "Internet of Money".
His work is available for free and open source. This book provides a glimpse into his thoughts on bitcoin's uses and impacts.
Andreas Antonopoulos is known for giving innovative and thought-provoking talks about bitcoin and blockchain.
This book contains a selection of talks Andreas has given over the past 3 years. Choosing which talks to include was difficult given the large volume of content. More volumes may be released in the future.
The goal of the book is to provide an easy to understand overview of why bitcoin matters in a short story format. It aims to be engaging, inspirational and honest.
The book is copyrighted by Merkle Bloom LLC who have licensed the content from Andreas. Requests to use portions of the book should be sent to firstname.lastname@example.org.
Each talk is meant to stand alone so you can read them in any order. Some analogies and examples are repeated across talks to illustrate different points. There is an index at the end to allow cross-referencing of topics.
Chapter 1: What is Bitcoin? This talk explains bitcoin as a digital currency and technology invented in 2008 by Satoshi Nakamoto to solve the Byzantine Generals Problem. Bitcoin is decentralized digital money that allows for instant, low cost payments globally.
Bitcoin is more than just a currency. It is a technology and network that enables decentralized applications like voting, stock ownership, notarization, etc.
Bitcoin gives 1 billion unbanked people access to an international economy and finance. It is the "money of the people" governed by mathematical rules rather than any single entity.
Bitcoin can be used as a currency, to start a business, or enable low-cost international payments by avoiding middlemen that charge high fees.
It is difficult to transport products and services across borders. The internet solved this by enabling virtual products and services that can be sold anywhere. However, receiving payments remained a challenge.
Bitcoin solves this by enabling instant payments from anywhere in the world. It allows even tiny amounts to be sent, as little as 0.00000001 bitcoin. This enables new business models based on micropayments and collecting many small payments. Yet it also handles large payments just as well.
Bitcoin is neutral as to the sender, recipient, and amount. This gives individuals the same ability to innovate in finance as large institutions. It upends the traditional hierarchical system of finance based on limiting access. Like the internet, it allows permissionless innovation.
Although bitcoin is currently used by some criminals, the technology's potential benefits are vast. The internet was also initially used for criminal purposes but has had an overwhelmingly positive impact. Bitcoin can bring financial integration and access on an unprecedented scale, especially for the underbanked.
Bitcoin is not just a currency but a technology, network, and currency. Its potential goes far beyond its current price or volatility. It enables decentralized lending, currencies tailored to different needs, automatic contract execution, and more.
There are now many alternative cryptocurrencies with different properties. But bitcoin was the first and most prominent. Cryptocurrencies in general will shape the future of finance because the technology cannot be undone.
Bitcoin represents programmable money. It enables peer-to-peer transactions with no intermediary as well as the invention of new types of money with different rules. Bitcoin is the internet of money - its applications go far beyond just currency.
In summary, bitcoin enables a financial revolution. We should look beyond the current imperfections and volatility to see its potential to change the world for the better through permissionless innovation. Bitcoin allows money and finance to be reinvented in ways that can benefit all of humanity.
Here is a summary of the key points:
• Money is an ancient technology that is older than writing. We don't know exactly how old money is but we know it has existed as long as human civilization.
• Money evolved from physical exchange (barter) to more abstract forms using precious metals, paper currency, plastic cards, and now digital currencies like Bitcoin. Each new form was met with skepticism but eventually became accepted.
• Bitcoin represents the most radical change in the technology of money. It is not just digital money, it is a complete transformation of money into a network-centric, protocol-based system.
• This transformation mirrors a broader shift happening in society from hierarchical institutions to open platforms and protocols. Bitcoin works as a protocol - it has no central authority and just exists as a language that people opt into using.
• Bitcoin is scarce, divisible, universally valued and easily transferable - like precious metals - but exists entirely digitally and decentralizatedly. This makes it unlike any previous form of money.
• The difficulty in describing Bitcoin comes from trying to use references to physical money. Bitcoin is an entirely new abstraction of money that exists on the network.
That covers the key highlights and main arguments around how Bitcoin represents a fundamental new technology of money, according to the speaker. Please let me know if you would like me to clarify or expand on any part of the summary.
Bitcoin is a peer-to-peer digital currency that exists without reference to an institutional or platform context. This means no single entity controls it and all nodes in the network are equal. This is unlike our current financial system which is based on a client-server model where banks act as the servers that control and mediate people's access to their own money.
Our current financial system is based on debt and inherently creates a master-slave relationship where one party owes and is subordinate to the other. Bitcoin, on the other hand, is based on ownership - if you control the private keys, you fully own and control the bitcoin. No one can censor, seize or freeze your money.
Bitcoin represents a fundamental transformation of money by changing it into a neutral, decentralized and borderless system that gives people absolute control over their own money. Many find this terrifying because it disrupts existing power structures in society. However, the current system has become centralized and corrupt over time, accumulating power and limiting people's freedom and privacy.
Technology architectures can have negative outcomes not due to bad intent but by design. Our current financial system was built on an architecture that inevitably led to the concentration of power and corruption. Bitcoin's architecture, on the other hand, is designed to avoid these negative outcomes by distributing power and control.
Overall, bitcoin aims to disrupt existing institutions like banking that have become limiting rather than liberating, giving people privacy, freedom and control over their own money and financial lives.
• The architecture and design of systems ultimately determine the outcomes they produce. While individuals within a system may be well-intentioned, the system itself can lead to harmful results due to its structure and shape.
• The current financial system is fragmented along geographic and jurisdictional borders, resulting in increased restrictions and decreased access for many. At the same time, communications networks have become more open and global.
• Bitcoin's architecture provides an alternative that allows open access and neutrality. Anyone can build applications or conduct transactions on the network by simply connecting, without needing permission. The network does not discriminate based on source, destination, amount, or type of transaction. As long as enough fees are paid, any transaction is considered valid.
• Bitcoin should not be thought of as just a digital currency. It is a cryptocurrency - a new type of network-centric money that allows people to trust the network itself rather than central institutions. The network acts as a decentralized arbiter of truth regarding transactions and security.
• Governments have long dreamed of gaining total control over all financial transactions, enabling complete surveillance and censorship. The current system requires identification and restricts access, excluding billions of people. The privileged few who do have access must sacrifice privacy and freedom. They remain subject to extrajudicial censorship of their transactions.
• Bitcoin's open architecture provides an alternative that can help enable open access to finance and freedom from censorship for all. But its shape and structure must be protected to achieve this potential.
The key ideas are that the design of systems determines outcomes; bitcoin provides open and neutral network architecture as an alternative to the restrictive and fragmented current financial system; and this open network model can empower access and freedom if protected. But overall architecture and shape are most significant, not any individual components.
Bitcoin is censorship-resistant and surveillance-resistant. Governments cannot control or monitor Bitcoin transactions.
Privacy is a human right, but secrecy is a privilege of power. Bitcoin gives individuals privacy while reducing secrecy for the powerful.
Bitcoin enables financial inclusion for billions of unbanked people by allowing them to access financial services through their mobile phones.
Bitcoin has been repeatedly declared "dead" but continues to survive, like a "zombie." It threatens the financial establishment, which spreads fear about Bitcoin. But Bitcoin wins by continuing to survive.
Currencies evolve based on their environment. Bitcoin evolves in response to attacks, becoming more private, decentralized, and resilient. Attacking Bitcoin only makes it stronger.
Network systems like the Internet and Bitcoin adapt and build immunity in response to attacks. Although governments have attacked and tried to regulate Bitcoin, Bitcoin has evolved and thrived.
In summary, Bitcoin reduces the power and secrecy of governments and banks while empowering individuals. Although the powerful will continue to attack Bitcoin, Bitcoin will evolve to defend itself and become more resistant. Bitcoin represents the future of finance.
Here's a summary:
Bitcoin is a resilient system that is constantly under attack from hackers but continues to strengthen.
Bitcoin is like a "honeypot" - an attractive target for hackers with a big reward, but it has not been successfully hacked yet despite constant attempts.
Bitcoin is not just a currency, it's a new way to organize society using network-centric, decentralized systems instead of old hierarchical systems. Currency is just the first application.
Bitcoin succeeds because it's an elegant technology, even though it seems unlikely to work in theory. Like Wikipedia, Linux and the Internet, it was created by outsiders and misfits.
New technologies like cars, electricity and Bitcoin are often feared and mocked at first. Cars and electricity were seen as dangerous, and only for the rich, before becoming mainstream. Similarly, Bitcoin is seen by some as only for criminals, misfits and degenerates, but that perception is wrong.
New technologies are often first used by criminals, as they have high incentives and risk tolerance. But the technologies themselves are neutral.
Fear and misunderstanding caused England to hamper the car industry with the "Red Flag Act," losing them the chance to lead the new industry. We must be careful not to make the same mistake with Bitcoin.
Famous last words of leaders doubting new technologies like electricity ("a fad that will be forgotten") and computing ("no more than 5 computers needed") look ridiculous now. Similarly, many doubters of Bitcoin may be proven wrong.
In summary, Bitcoin should not be feared or dismissed. Like the car and electricity, although new and seemingly dangerous or pointless, it could transform society in a positive way if given a chance. The biggest risk is being like those who hampered progress in the past due to fear and misunderstanding.
Criminals adopt cutting-edge technology first because they operate in high-risk, high-profit environments where competition is fierce. Using advanced technology provides them an advantage and the high risks mean adopting new tech is not a big deal. Mainstream society eventually adopts the tech criminals pioneer.
Bitcoin is past the early criminal-dominated stage and is now mainstream. It was never really criminal-focused to begin with, despite media claims. Bitcoin is poised to disrupt banking like cars disrupted horses, oil disrupted whaling, and electricity disrupted wood-burning stoves.
Established industries first ignore, then mock, then try to co-opt disruptive innovations. By the time they realize the threat, it's too late. Bitcoin will defeat banking because it's open, and open systems spur innovation.
Bitcoin's security relies on incentives and rewards, not access control like traditional finance. Anyone can participate and build new services and products. This openness, like Wikipedia's, fosters chaos and innovation.
Bitcoin isn't a currency; it's the internet of money. Currency is just the first application. An open financial network enables open access to financial services.
Bitcoin doesn't depend on keeping bad actors out. It works because aligning incentives makes following the rules preferable to cheating. The system has no center or core, it's decentralized.
In summary, bitcoin represents an open, decentralized disruptive technology that the mainstream will eventually adopt, like previous technologies pioneered by criminals. Its openness spurs innovation in finance.
Bitcoin is growing faster than major tech companies like Twitter and Facebook did in their early years. In 2014, bitcoin startups received over $250 million in investments.
Bitcoin enables innovation without permission. Developers around the world can build new financial applications on top of bitcoin without asking anyone for permission. This is leading to many new and innovative products in areas like banking, shopping, and escrow services.
The traditional banking system requires permission for everything and stifles innovation. Bitcoin, on the other hand, is an opt-in system where users choose which applications and services to use. This focus on user choice and open innovation will drive bitcoin's success.
Bitcoin can provide access to financial services for billions of underbanked people around the world. People in developing countries can use simple phones to access banking, remittances, loans, and more via bitcoin. This can connect many people to the global economy for the first time.
Bitcoin can significantly reduce the cost of international remittances. Services built on top of bitcoin can send remittances around the world for a flat fee of 5 cents instead of the average 9% charged by companies like Western Union. This can greatly help immigrants who send money to their families in other countries.
The underlying technology behind bitcoin—a decentralized digital currency with no central authority—will change the world. Just like the early internet and Linux, bitcoin's potential is not fully realized yet but in time will transform our systems of finance and money.
In summary, bitcoin enables open innovation, expands access to financial services, reduces costs, and has the potential to significantly impact the world. The key to bitcoin's success is that it's a "dumb network" that gives users choice and control.
Here's a summary:
Bitcoin is a currency, a network, and a technology, and you can't separate these aspects. It combines a participatory consensus network and a global digital currency.
Bitcoin is a "dumb" network that supports "smart" devices. It simply moves data from point A to point B, without knowing or caring what the data is. This is in contrast to "smart" networks like the traditional phone network, where intelligence and features are built into the network itself. Dumb networks allow for innovation at the edge, without needing to upgrade the entire network. This enables permissionless innovation.
Bitcoin pushes intelligence to the edge devices, so you can build new applications on top of it without asking anyone's permission. This is unlike the traditional banking system, which has tight controls and only allows certain specific applications. Bitcoin can be used for any financial purpose.
Bitcoin avoids the "tragedy of the commons" that plagues most financial networks. With open financial networks, any innovation benefits only the innovator. But with Bitcoin, anyone can build on the open protocol, and those innovations benefit the whole network. This creates a "festival of the commons" where the network gets better the more it's used.
Examples of this include multisig (which only required a small protocol change but enabled many new services) and HD wallets (which didn't need any protocol change but made wallets much more useful). Companies building on Bitcoin benefit themselves but also enrich the whole network.
In summary, Bitcoin combines an open participatory network with a global digital currency. Its dumb, open nature and festival of the commons allow for permissionless innovation that benefits the whole ecosystem.
New technologies initially have to use the infrastructure of the older technologies they aim to replace. This results in a messy, imperfect experience at first.
Bitcoin and other decentralized networks are new technologies that currently have to use the existing banking infrastructure, which creates difficulties and opportunities for criticism.
Historically, disruptive new technologies are first greeted with resistance and skepticism. Visionaries who persist eventually prove their value.
When automobiles were first introduced, they had to drive on roads designed for horses. They got stuck in the mud and lacked the infrastructure cars needed, like gas stations. Critics said cars would never work.
Eventually, infrastructure is built for the new technology (like paved roads for cars), and the old technology (like horses) can still use it. This "infrastructure inversion" also enables further new technologies (like scooters and skateboards).
Similarly, when electricity was first introduced, there was no infrastructure for it. People had to put what seemed like "lightning in your walls." Natural gas provided a transitional infrastructure for early electrical use.
The infrastructure for new technologies is built over time based on what people actually want and need, not what visionaries first propose. Infrastructure follows use, not the other way around.
Bitcoin and decentralized networks will go through a similar transition, with initial difficulties and criticisms giving way to mainstream infrastructure and use over time based on what people find most useful.
In summary, new technologies have a messy start, but infrastructure and adoption follow use, not vision. Bitcoin and decentralized networks will likely go through a similar transition from resistance and difficulties to mainstream infrastructure and adoption.
In the early days of electrification, newspapers reported on houses burning down due to improper electrical installations. At the time, most infrastructure was designed for gas lighting and heating. Gas infrastructure could not be used for electricity.
Initially, the main use of electricity was in factories. Electricity allowed direct distribution of power to equipment instead of using gas engines and belts. Home use of electricity was limited since gas already provided lighting and heating and there was no infrastructure for electricity.
There was an "infrastructure inversion" as electricity infrastructure was built. Once in place, it enabled not just new uses of electricity but also the old uses of gas like lighting and heating, often more effectively. This opened the door for many new electrical appliances and technologies in homes.
A similar infrastructure inversion happened with the telephone system. Originally designed just for human voice calls, the system was adapted to carry data using modems. Phone companies opposed this at first but eventually the entire phone infrastructure was upgraded to digital and came to rely on the Internet. Now almost all phone calls are carried over the Internet.
Pushing data through the narrow phone infrastructure designed for voice was hard, but carrying voice over a broadband data infrastructure was easy. The data infrastructure was generic while the phone system was highly specialized.
An ironic example is "comfort noise generation" where artificial static is added to digital phone calls so people don't think the call has been dropped when there is silence, since people had become accustomed to the noise on analog phone lines.
In both cases, new generic infrastructures enabled new capabilities as well as the old functions of the specialized legacy infrastructures they replaced. This drove tremendous technological and social change.
The key insight is that specialized infrastructures constrain capabilities to their intended purpose, but new generic infrastructures can not only take over that purpose but also enable entirely new possibilities, fueling innovation and progress. Building these new infrastructures despite opposition from those invested in the status quo is key to technological revolutions.
Companies that once said high-quality voice calls over the internet were impossible are now adding noise to voice calls to simulate the poor quality of old phone networks. This shows a complete inversion of infrastructure.
Similarly, the banking system is stuck in the 1970s but new technologies like Bitcoin point to thousands of new applications. Over the next 15-20 years, there will be an infrastructure inversion in finance. Banks will first resist, then adopt digital currencies, and finally run all traditional banking on top of blockchains. Simulating old banking on new technology will be easy.
This infrastructure inversion will allow us to run traditional banking on blockchains while enabling new applications. These new applications will be as different from today's banking as Segways are from horse carriages. Enabling the future on legacy systems is hard, but simulating the past on new technology is easy.
We are now in the early stages of the greatest infrastructure inversion the world has ever seen in the future of money.
Traditionally, we have not chosen our currencies; they have been imposed on us by nation-states based on geography. Cryptocurrencies allow for choice and expression. Any individual can now create a currency.
Money is a language to express value. Even children invent currencies to trade things they value. Now anyone can create a currency, just like anyone can start a blog. Asking how many currencies will exist is like asking how many bloggers there will be. The answer is everyone.
If everyone can create a currency, how does any individual currency gain value? The answer is the network effect - the more people use a currency, the more valuable it becomes. Cryptocurrencies also gain value from the applications built on top of them, like Bitcoin.
Different cryptocurrencies have different purposes. Bitcoin is designed as an alternative payments network, while Ethereum enables smart contracts and distributed applications. Cryptocurrencies can co-exist and even complement each other. They expand the scope of choice and opportunity, rather than compete in a zero-sum game.
The future will have both open global cryptocurrencies and smaller niche cryptocurrencies. Some may even become valuable due to the networks and applications built on top of them. Cryptocurrencies represent choice and opportunity rather than a "winner take all" competition.
e refers to the Greek letter epsilon which is often used to represent a small, arbitrarily small number. In this context, Andreas is using it to signify that there will be a very large number of cryptocurrencies or altcoins, on the order of hundreds of thousands or millions.
There are different types of altcoins serving different purposes:
Currency as an expression of popularity or desire: Like fans creating AmirCoin to support their favorite teen idol. Mostly silly and lacking real utility.
Currency as a meme or fad: Altcoins created to capitalize on internet memes and fads. Also generally lacking real utility and value.
Currency as a brand: Some companies may create branded altcoins, though Andreas thinks most would be silly.
To determine which altcoins have value, we have to look at who is using them and for what purpose, not who created them. Authority comes from utility and adoption, not the issuer.
We have to get used to valuing currencies based on their use and adoption, not their issuer. Currencies that gain widespread use and adoption will have value, even if their origins are unknown. The key is whether they have purchasing power and are useful as money.
There will be many coexisting cryptocurrencies serving different needs - microtransactions, larger transactions, smart contracts, naming, etc. We need interfaces that allow us to use many currencies seamlessly, moving between them as needed, just like we do with communication tools (text, audio, video, email, etc.).
We have to start thinking of currencies as applications that serve different needs. With technologies like sidechains and decentralized exchanges, we'll be able to move between currencies easily. Our wallets will choose the appropriate currency for a transaction based on our needs.
So in summary, Andreas foresees an explosion of altcoins for various purposes, but believes the ones that are actually adopted and used as money will be the ones that survive and have value. New technologies will allow these many currencies to coexist and interoperate, with the appropriate currency being used for each transaction based on the needs and use case.
Currency can be viewed as an application that allows a unified currency experience across many different currencies. This can enable using the most suitable currency for any given transaction.
There is a possibility of an index currency that represents an aggregation of the values of various cryptocurrencies. This can be used to price transactions and provide a stable point of reference, similar to how the S&P 500 and LIBOR work for stocks and interest rates.
The choice of currency also represents aligning with a community. Adopting a currency means joining the community of others who have also chosen that currency. This can represent a political choice.
Cryptocurrencies enable new forms of sovereignty and governance at a global, transnational level. After 2008, currency itself can create sovereignty by enabling new forms of economic freedom and expression that transcend national borders.
Bitcoin is a new technology that builds on the very old technology of money. Money is a tool for communicating value, similar to a language.
The history of money goes back at least 5,000 years. Early forms of money include shells, feathers, beads, and accounting ledgers. Money enabled specialization of labor and acted as a store of value to enable deferred transactions.
Key principles in the design of bitcoin include: digital scarcity, decentralization, peer-to-peer transactions, borderless, open access, transparency, neutrality, and fungibility. These principles were designed to enable bitcoin to function as sound money.
Bitcoin's properties of scarcity, decentralization, and borderlessness could enable it to act as a "lifeboat" for people living in countries with unstable currencies or strict capital controls. Bitcoin may provide more freedom and opportunity.
There are still many open questions and unknowns with cryptocurrencies. Lots of experimentation is happening, and there may be future applications of blockchain technology we can't foresee right now. But the core principles of decentralization and peer-to-peer transactions are very powerful.
Money is an ancient technology that has existed for hundreds of thousands of years, not just 5,000 years.
Highly intelligent animals like primates, crows, and dolphins have forms of tokens they use to represent value and exchange with each other. They can also learn to use money quickly.
Money has certain characteristics: It must be rare, portable, hard to counterfeit, fungible (interchangeable), and an abstraction (not useful itself).
Money is a shared cultural hallucination or delusion. We assign value to otherwise worthless objects because we believe others will accept them.
Bitcoin is just the latest abstraction of money. Like previous abstractions (e.g. coins, paper money), people initially freaked out because they didn't believe it was real money. But it becomes real if enough people use and accept it.
Design metaphors are powerful but can be dangerous if misapplied. The metaphors for Bitcoin are all wrong and misleading:
"Wallets" don't actually store money; they store keys. They should be called "keychains." You can copy keychains but not wallets.
There are no "coins" in Bitcoin. Miners create ledger entries, not coins. Bitcoin is an abstract form of money, unlike physical coins.
The Bitcoin brand is misleading. Bitcoin is the most abstract form of money but was named after the most physical form (coins).
In summary, the terminology and metaphors surrounding Bitcoin are inaccurate and misleading. Bitcoin represents a highly abstract form of money with no physical instantiation. The metaphors imply a much more physical and tangible system than actually exists.
Bitcoin is not actually comprised of "coins." It refers to blockchain network outputs that are accessed using keys. There are no actual balances or accounts in bitcoin. These metaphors misinform expectations.
Skeuomorphic design, like representations of physical coins, further misleads people about bitcoin. The gold coin images often seen in articles about bitcoin have nothing to do with how the system actually works.
It is difficult to design good metaphors for bitcoin because it has no parallel. As a disruptive technology, it represents a radical break from the past. Traditional understandings of money do not apply.
We cannot predict the future applications of technologies like bitcoin that enable radically new capabilities. They depend on many components coming together, and the interesting applications emerge from those new possibilities.
Bitcoin could enable billions of unbanked or underbanked people to access financial services through a basic cell phone. This possibility, to transform lives at a global scale, is part of why bitcoin may be unstoppable.
We are limited to incremental extensions of the familiar when envisioning new technologies. Bitcoin enables a vast array of possibilities that we cannot currently imagine because of those limitations. The applications that fully utilize its potential will only emerge once it reaches sufficient scale.
The key ideas are that 1) bitcoin radically differs from traditional money and finance, 2) we are constrained from understanding radically new technologies by reliance on familiar metaphors, 3) the transformative potential of bitcoin lies in enabling new capabilities at a global scale, and 4) its most powerful future applications cannot currently be envisioned or predicted due to those conceptual constraints. But they will emerge as the foundational technology develops.
Almost 3 billion people have cell phones but lack access to safe drinking water. Cell phones are more widespread than access to water.
The vision of bitcoin is not to bank the unbanked, but to unbank everyone. Banking is just an app.
Innovation happens in the gaps where existing systems cannot function. New technologies can change basic assumptions by reducing costs. The internet reduced the cost of transmitting information, enabling new applications. Bitcoin reduces the cost of transactions and recording information in an immutable way.
Bitcoin removes counterparty risk by allowing network participants to validate transactions without trusting any single entity. This could disrupt institutions like Western Union.
Bitcoin reduces the "Coase coefficient", the overhead of organizing and coordinating large groups. The bitcoin network can coordinate at a large scale at low cost.
Bitcoin enables new concepts like software agents owning and controlling money autonomously, without human intervention. Combining bitcoin, self-driving cars, and ride-sharing could enable "self-owning cars" that earn and spend money autonomously.
The bitcoin community is not designing for this potential. For example, bitcoin ATMs try to mimic traditional ATMs but have a totally different use case, introducing bitcoin to new users who lack understanding. This poor user experience is not conducive to building a loyal user base.
In summary, the key ideas are:
New technologies like bitcoin can enable radical changes by reducing costs.
Bitcoin's counterparty-free network allows low-overhead coordination and validation at large scale.
This could enable new concepts like software agents autonomously owning and controlling money.
The bitcoin community needs to improve its user experience and design choices to realize this potential.
- You expressed frustration with using a bitcoin ATM that only allowed a quick transaction without providing education or guidance. You suggested several improvements for a bitcoin ATM:
Target Spanish-speaking users and focus on remittances to Mexico.
Have a "Talk to a Human" button to allow video customer service and education about bitcoin.
Appeal to younger users by providing an introduction to finance and economics through bitcoin.
You noted that many young people's first experience with finance will be through bitcoin, not traditional banks. Using familiar bank terms like "checking account" is misguided.
You shared an anecdote about the difficulties of international wire transfers to illustrate the problems with traditional banking. Bitcoin could solve many of these issues.
However, you said bitcoin needs better design. It was created by engineers and is hard to understand. But new technologies have gone mainstream before after improved design, like the internet.
You compared the early days of the internet, which required technical skills, to today's user-friendly internet and devices like the iPad. Improved user experience allowed the internet to become mainstream.
Bitcoin could follow a similar path to mainstream adoption with improved design and user experience. But it needs to avoid mimicking traditional banking terms and interfaces. It needs to create a new user experience suited to bitcoin's unique properties.
Overall, you presented a case for improving the design of bitcoin products and services to drive mainstream adoption, especially by younger and underserved populations. But this needs to be done in a way that avoids misrepresenting bitcoin as just another banking product. With the right approach, bitcoin's design and user experience could fuel rapid growth, much like the modern internet.
The internet and technology were originally designed by engineers and were difficult for the average person to understand. Over time, the technology improved and became more user-friendly. At the same time, society adapted and learned the necessary skills to use the technology.
The same thing is happening with Bitcoin. While the technology is complex, younger generations are learning how to use it. The author predicts there will be thousands of digital coins and currencies created, just like there are many bloggers on the internet.
Bitcoin has turned money into a type of content that can be transmitted independently of any network. Bitcoin transactions just contain digital signatures and references to where the money is coming from and going to. They do not contain any sensitive information and can be transmitted over any medium without risk of compromise.
In contrast, credit card transactions contain secret keys and account numbers and must be heavily encrypted to protect this sensitive data. However, credit card systems are still frequently hacked because it is nearly impossible to perfectly protect this information. Bitcoin's design avoids this issue by not including any sensitive data in transactions.
Bitcoin transactions can be transmitted over any medium, even unsecured wifi, smoke signals or carrier pigeons. The transactions just need to reach one node on the network that can relay them to miners to be included in the blockchain. Once a transaction is in the network, it is very likely to eventually be added to the blockchain.
It is essentially impossible for governments to block bitcoin transactions because the transactions themselves contain no sensitive data and can be transmitted in any number of ways, even hidden in things like Skype emojis or radio transmissions. As long as a single node receives the transaction, it will likely make its way into the blockchain. Bitcoin's design makes stopping these transactions very difficult.
The author describes how bitcoin transactions can be transmitted through various communication channels like Skype, Facebook, TripAdvisor, Wikipedia, and even radio. Once transactions are encoded into a digital format, they can be transmitted through any digital medium.
The key idea is that money has become "disconnected information content." Transactions are detached from any particular medium and can move anywhere in the world through a variety of communication networks. There is no way to stop the flow of information.
The author gives the example of transmitting bitcoin transactions over shortwave radio. With the right equipment, transactions can be broadcast over long distances and received by anyone with a radio receiver. This shows how difficult it would be to stop the transmission of bitcoin transactions.
The author discusses the relationship between the medium and the message. Traditionally, the medium shapes and constrains the message. The value of the message is often assumed to match the cost of producing content for a particular medium. For example, TV shows are expensive to produce, so they are assumed to be high in value.
New technologies like YouTube, Twitter, and bitcoin have separated the message from the medium by drastically reducing the cost of producing and distributing content. The value of the message is now determined by its usefulness to consumers, not its cost of production.
Many people wrongly assume that if something is cheap or free to produce, it must be trivial or worthless. But reducing the cost of production expands the range of expression and allows both trivial and profoundly important messages to spread. Quality is not determined by the cost or control of the medium.
The author gives the example of tweets being used to spread news during the Egyptian revolution. Though tweets seem trivial, they were a valuable way to transmit information from the ground during an important world event. In the future, collections of tweets may be studied as historical records, much like the Federalist Papers today.
In summary, the key idea is that new technologies have separated the message from the medium by lowering costs of production and distribution. This enables both trivial and important messages to spread, and the value of information depends on its usefulness, not how much it costs to produce. The medium is not the message.
Every new medium is initially criticized as trivial by the gatekeepers of the older medium. They mistake the medium for the message and see the wider access as cheapening the content.
But new mediums allow for a broader range of expression. At first, the new expressions seem trivial but then become more serious and impactful. The new medium becomes the source of quality content.
Money has now been separated from the medium that carried it. It is now a content type that can be transmitted instantly at near-zero cost. This allows for a whole range of transactions from tiny to enormous.
Although the first uses may seem trivial, the new model will eventually be used for much larger and more significant transactions. The potential range is from small tips on Twitter to governments settling large debts.
New technologies go through an arc:
Early on, they are only accessible to a few and used to produce masterpieces.
As they spread, gatekeepers cling to the old model and engage in grandstanding to appear elite.
Finally, the technology is mainstream but still clung to by grandparents as the source of quality or authority. The grandiosity is gone.
The gatekeepers of traditional banking and payment networks will cling to the notion that they represent quality and authority. But they are really just protecting their own control and censorship abilities.
Money has been unleashed from those gatekeepers. It is now a content type that allows for a huge range of transactions and expressions that were never before possible. We can never go back.
The key message is that new technologies open access and allow creativity to flourish in ways that gatekeepers do not foresee or understand. Although they attempt to portray themselves as representing quality, they are really just trying to protect their own control. But the forces of open access cannot be stopped, and whole new possibilities arise as a result.
• Bitcoin has an atomic structure with basic elements like transactions, scripts, and cryptography. What you see on the surface, like transactions, are constructs built on top of these elements.
• Bitcoin is a platform, not just a currency or payment network. It provides trust functions that allow you to build many applications.
• Bitcoin is like Lego blocks or cooking ingredients. It gives you the tools to build creative applications, not just a predetermined result.
• Examples of creative applications built on bitcoin include crowdfunding, payment channels, and Lightning Network. These recombine bitcoin's elements in new ways.
• Traditional finance companies miss the point by focusing on specific metrics like transaction costs or speed. Bitcoin unleashes creativity by providing the building blocks to construct many new financial applications.
• Bitcoin allows "focus-group economies" where users determine the applications, not companies. The possibilities are endless when people have the tools to build what they need.
• Bitcoin continues to surprise, with new layers unfolding over years of study. It has an atomic nature that isn't obvious at first.
• There are no actual senders, receivers, balances, or accounts in bitcoin. These are illusions created by the way people have built applications on top of bitcoin's basic elements. The source code shows it's a different kind of system underneath.
In 1989, Usenet was popular but slow on the mostly dial-up internet. As it grew more popular, experts predicted it would collapse the internet because it couldn't scale. They worried the alternative Usenet groups in particular would destroy the internet if carried.
A few years later, email started replacing Usenet. Again, experts worried email and then email attachments would destroy the internet because it couldn't scale.
In both cases, the networks failed to scale for years but succeeded anyway because infrastructure improved, technology got better, and users optimized the systems. The networks failed to scale gracefully for a long time, but that's why they succeeded.
The summary paints a picture of experts frequently predicting new technologies would destroy the internet by not scaling, but in reality the networks fail to scale for a long time in a graceful manner and end up succeeding. Infrastructure, technology and user adaptations help them scale over time.
The internet has a history of failing to scale for new applications and innovations, but it has always solved these scaling issues over time. Initially, the internet failed to scale for email, then for email attachments and multimedia messages. It then failed to scale for the world wide web, for voice over IP, for online video and streaming, and now for blockchain applications like Bitcoin.
Scaling is a moving target - it represents the current capabilities and limitations of a network. As capabilities increase, the demands on the network also increase. Bitcoin is currently failing to scale, but if it can continue failing to scale gracefully over time, like the internet has, it will continue to grow stronger and more robust.
When there are spikes in Bitcoin network activity and transactions, some users experience delays in transaction confirmation times or have to pay higher transaction fees to get priority. This often leads to claims that "Bitcoin is dead". But Bitcoin survives these scaling challenges, and the network and supporting infrastructure (like wallets) get stronger as a result. Developers improve wallets and fee estimation algorithms, and users gain a better understanding of how fees work.
The issue of "spam" vs. "legitimate" vs. "illegitimate" transactions is complex. All transactions that follow the rules of the Bitcoin protocol are technically legitimate, but some argue that very small value transactions are "spammy" if they clog up the network. However, for some use cases like micropayments, small value transactions are critical. There is no easy way to differentiate transactions, so the network remains open and permissionless. The solution is to continue improving scaling and efficiency.
So in summary, scaling challenges are inevitable as new use cases emerge, but they often strengthen networks and protocols over time through gradual improvements. Censorship-resistant networks like Bitcoin must remain open to all transactions, so the focus is on improving efficiency and scalability rather than restricting certain types of usage. If Bitcoin continues to fail gracefully, it will ultimately scale to meet increasing demands, just as the internet has over decades.
- An illegitimate transaction is one that is deemed undesirable or inappropriate according to some criteria. There are two approaches to determining illegitimate transactions:
A paternalistic approach that establishes rules about what is allowed and not allowed. This limits Bitcoin's capability for permissionless innovation and net neutrality. As long as the proper fee is paid, any transaction should be allowed.
Using the market to determine appropriate fees and set a minimum fee threshold. Transactions that pay the minimum fee are considered legitimate. There is no such thing as an illegitimate transaction, just transactions that did not include a high enough fee to be mined.
Andreas argues that Bitcoin should follow the second approach. Bitcoin should have a "dumb network" that does not make judgements about transaction legitimacy. As long as the proper fee is paid, any transaction should be allowed. This allows for permissionless innovation.
Bitcoin will likely spend decades "failing to scale" as new applications are developed that push the limits of Bitcoin's capabilities. But as long as Bitcoin continues functioning, it is not dead. The Internet has spent 25 years failing to scale gracefully, yet it persists. Bitcoin should follow the same model.
In summary, Bitcoin should have a neutral network that does not discriminate between transactions as long as the proper fee is paid. This allows for permissionless innovation and the development of new, unforeseen applications. While scaling to meet increasing demand will be an ongoing challenge, as long as Bitcoin continues functioning it will prevail. Failing to scale gracefully does not mean the system has failed.
The key takeaway is that Bitcoin's network should remain "dumb" and neutral, not making judgements about transaction legitimacy or desirability. This is the only way to allow for true permissionless innovation.
Born into Currency: We are born into an existing currency paradigm and monetary system. Currencies evolve over time based on how they are used and valued within a community.
Characteristics of Money: Money is an abstraction that represents value and allows for the exchange of goods and services. The characteristics of money include: fungible, durable, portable, divisible, scarce, and accepted.
Currency as Means of Expression: Currency can be viewed as a means of expressing value and communicating with others in a community. The evolution of currency follows the evolution of communication technologies.
Elements of Trust: Unleashing Creativity: The chemistry of money and what gives it value comes down to elements of trust, which allow for cooperation and unleash human creativity.
How Old is Money: Money has been used by humans for at least 3,000 years in various forms (precious metals, paper money, etc.). Some animals, like chimps, also use forms of money.
Money as Content Type: Money itself is the message being communicated, separate from the medium that carries it. New mediums allow the message (money) to spread further and faster.
Network-Centric Money: Money is evolving to become network-centric, built on open protocols and master-slave architecture rather than physical objects (cash, gold, etc.). Bitcoin is an example of network-centric money built on an open protocol.
Technological Evolution of Money: The technology behind money has evolved over time to allow it to become more abstract, secure, portable and globally connected.
Asking Permission: Established organizations and regulators are slow to recognize disruptive innovations that emerge without asking for permission. Permissionless innovation should be embraced.
Criticism and Crime: New disruptive technologies like automobiles, electricity and Bitcoin are often criticized as tools for criminal behavior when first introduced. The benefits of the technologies far outweigh the risks from criminal use.
Designing for Innovation: Truly disruptive tech starts with a design for openness, permissionlessness and inclusiveness. Those attributes allow for new and unexpected uses of the technology to emerge. Incremental improvements to existing tech are not disruptive.
Disruptive vs Incremental: Disruptive technologies significantly change the status quo, while incremental technologies make minor improvements. Disruptive tech starts with an open design, allowing new uses to emerge that the creators did not envision.
Infrastructure Inversion: New infrastructures emerge to support disruptive innovations, inverting and replacing existing infrastructures over time. This process is often slow, as established organizations resist change and new infrastructures take time to develop. But it is inevitable.
Interstitial Innovation: Disruptive tech often emerges in the spaces between established tech and infrastructures. These interstitial spaces allow for open experimentation without control or oversight.
Recognizing Innovation: Established organizations have trouble recognizing disruptive innovations, as they think incrementally based on existing business models and infrastructure. Outside innovators are needed to see opportunities for disruption.
Bitcoin and Design: Bitcoin was designed as an open protocol for network-centric money with no centralized control. This open design has allowed for new and unexpected uses of Bitcoin to emerge, from micropayments to global remittances.
Bitcoin’s Atomic Structure: Bitcoin can be broken down into basic building blocks (transactions, blocks, mining, wallets, etc.) that come together to form a network for exchanging digital money with no central authority. -Building Blocks of Bitcoin: Some of the core building blocks of Bitcoin include: transactions, blocks, mining, consensus, wallets, addresses, and the Lightning Network as a second layer solution.
Choosing Currencies and Communities: People can choose which currencies and communities they want to participate in based on their needs and values. Bitcoin and Ethereum represent different communities with different goals.
Here are summaries of the topics:
ipe: Building Blocks of Cooking discusses how recipes and cooking techniques serve as building blocks for creating meals.
regulation: The Dangers of Automobiles, Electricity, and Bitcoin covers how new technologies are often overregulated due to fears about their dangers, even though regulation often lags behind innovation. Bitcoin is used as an example.
Predicting the Future considers how difficult it is to predict the impacts of new technologies like Bitcoin. Many past predictions about technologies destroying industries or the Internet have been wrong.
remittances: Money of the People, Including 6.5 Billion People in a Global Economy and Remittances, Impacting Lives around the World look at how remittances, or money sent overseas by migrants, provide economic value to many developing nations and families. New technologies like Bitcoin could make remittances faster, cheaper, and more accessible.
scaling: Attacks Build Resistance discusses how scaling Bitcoin and other technologies often reveals vulnerabilities that are then patched, making the systems stronger. Arguments that various technologies like Bitcoin, email, Netflix, etc. will destroy infrastructure often do not account for this ability to scale and adapt.
secrecy: Sousveillance, Not Surveillance argues that transparency and monitoring of the powerful (sousveillance) is better than mass surveillance of citizens. Bitcoin provides more financial transparency than the traditional system.
security: Master-Slave Architecture, Attacks Build Resistance, Open Innovation and Opt-In Systems, and Money as a Content Type cover how Bitcoin's security model with no single point of control is superior to the traditional master-slave architecture of the financial system. Bitcoin also builds security through open-source development and opt-in adoption.
self-owning cars looks at how innovations like autonomous vehicles could emerge from grassroots tinkering rather than being imposed by large companies. Bitcoin is another example of this "interstitial innovation."
The remaining topics cover Bitcoin transaction fees, smart networks, source code, spam transactions, systems architecture, technology trends, the experience of using Bitcoin, time-lock transactions, the "tragedy of the commons," transaction transparency, trust, the unbanked, Usenet, user experience, and the different types of value that determine a currency's worth.
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