Here comes a cAPSLOCK Saturday LONG POST. Maybe too long? So long it took 2 extra days and 3 extra pots of coffee:
A Tale of Two Networks Our generation has the unique honor to be alive to witness the formation of an important new global network. Counter-intuitively this network may be more important than some of the world changing technologies that are required for it to exist. The Bitcoin network can be considered a child of the Internet, and even though the Internet is the primary domain of the Bitcoin network, I believe the latter may have a significantly deeper impact on the direction of humanity. This is because money is such a fundamental and important idea. And sound, fair money is not something the world has really seen for most of our lifetimes. I would propose the last discovery that humankind has made with this level of impact might have been the electric power grid which brought us, light, warmth, and the energy to do countless things that were either impossible or difficult before.
Power to the People Yep... I called the worldwide electric power grid a “discovery”. The reason I say we discovered this is because all the constituent parts used to become this network existed before we built it. Electrons, copper wire, transformers, alternating current are all prior discoveries that we combined into a novel whole we could benefit from. We take it from granted now. But the choices and tradeoffs made as it was established and evolved are necessary for it to operate as it does today.
The relationship between Nikola Tesla and Thomas Edison around the dawn of the 20th century is well known. The two brilliant men fought “The War of Currents” in which each argued a different fundamental choice for the way electricity would be transmitted. This topic is a wonderful story all it’s own, but the bottom line is Tesla's more complex, but efficient system ended up winning against Edison's simpler, but less feasible system. And nearly the entire world now works the way Nikola Tesla envisioned. We take it for granted now, but this decision for the world’s power grids to be built using an AC system took several years and was hard fought in the public arena. The tradeoffs in Tesla's vision were superior to those in Edison’s.
Similarly, we are living through the time in which the world’s monetary transmission system is being built. And the fog is only beginning to clear in the arena of ideas. But IMPORTANT choices for certain tradeoffs have been made without which we would not have the properties we need to build something that will someday be as large and influential on the prosperity of the world as the power grid has been.
A Square Deal 
I still hold a peculiar delight around an idea I learned as a child. In elementary geometry I learned what a rectangle is. It is an object with four straight sides and four 90° angles. A square is a special kind of rectangle with all 4 sides being equal lengths. We can consider a square to be a specific sort of rectangle. There is a hierarchy of ideas. The phrase that stuck with me is:
A square is always a rectangle, but a rectangle is not necessarily a square.
In the realm of ideas, we have learned to classify things, and there is an order in which it works. This is because there is an order in which the universe works. We do not create the order, but discover it.
All of this is sort of arbitrary in that we are talking about abstractions describing the nature of the universe. And the grand archetype of the square, and it’s ancestor, the rectangle existed before mankind. And our descriptions and names for the ideas do not change them at all but allow us to understand them. Is Pluto a planet, or not? I would submit Pluto does not give a shit.
Which Way, Young Bitcoin? Satoshi did not invent any of the constituent parts of the Bitcoin network except possibly blockchain, and even that was posited earlier by David Chaum. Cryptographic primitives, proof of work, and networking were all parts he combined to make Bitcoin. The COMBINATION is novel, not the parts. Even the concept of blockchain is just a combination of ideas that previously existed. Databases, time stamping, and cryptographic functions.
Bitcoin contains two great novel discoveries in the arrangement of its preexisting pieces and parts: A way to implement digital scarcity, and a way to agree on a record without a central authority.
Number nine? Number nine? The first part is groundbreaking all on it’s own. An interesting issue with the digital space bounded by computers is the fact that any data can be effortlessly copied. This has been a nightmare for the music industry. How can you restrict people from copying an idea that is owned by someone else when that idea can be represented by just a long number? As much as I am tempted to go on a sidetrack on the idea of “intellectual property”, I will not... too much!
Bitcoin is the first digital good that cannot be copied. Here is a very basic description of the way this works. We pick a secret number from a set of numbers. Addresses are derived from that secret number. Importantly, no one can use those addresses to reverse engineer our secret number. Bitcoin can be moved around between the public addresses by signing transactions with the secret number.
The reason you cannot copy a bitcoin is the same reason you cannot copy the number NINE. There is only one number 9. Satoshi used existing cryptography for us to move value around between public addresses that are controlled by a single individual number. That is how it works. It works on the universal principle that there is only one of each number.
Once you get your head around this, the first question that comes to mind is: Well, would it not then be possible for two people to pick the same secret number? And the answer is YES it is 100% possible. But it is also practically impossible. The reason for this is we are working with a set of numbers SO LARGE that the chances of two people picking the same number are too small to be practically possible in our lifetimes, even using computers. See
http://keys.lol for a delightful demonstration of this principle.
So, Satoshi figured out a way to use existing cryptography to create digital ownership of certain numbers. BOOM! Digital scarcity.
The Mexican Standoff 
The second discovery was a way to arrange technology to allow for multiple individuals, even possibly adversarial parties to agree on a shared ledger. For this to be achieved the ledger had to be distributed. If this database was controlled by a single party, or even a small number of parties then the system would not work any differently than what we use today when it comes to money. We would need a single bank, or a federation of banks and would have to trust those parties to always give us the correct data, and never change it.
This is where the design of bitcoin reminds me of “The war of the currents”, and my special rectangle, the square.
This time the argument has been how to use bitcoin’s database the blockchain. The choice the users of Bitcoin have made is to use the blockchain as sparingly as possible so that as many people as possible will continue to run a full node, thereby safeguarding the trust minimization and decentralization needed for Satoshi’s invention to work. Other projects, notably Ethereum as well as certain Bitcoin forks, have made a different trade off, and chosen to use the blockchain to store as much data as the network wants to throw at it.
This is a One Way Street Many pieces have been written about why a small blockchain is central to the vision of bitcoin surviving. And it is not my purpose here to rehash (haha) that argument. And many of the ideas presented by large block projects are interesting, and even worth implementation. But because of trust, a monetary BASE layer is not one of them. I want to point something out that proves the small block and decentralized tradeoff is worth the trouble.
In a way reminiscent of my geometry lesson certain things can only work in one direction. You CAN build centralized layers of blockchain on top of a decentralized base. But you CANNOT build a decentralized layer on top of a trusted base. At least not effectively. Because you will always have trust at the base layer.
A system like Ethereum can be built on a layer atop of Bitcoin, and that database can be anchored cryptographically to the Bitcoin base layer. Then we get the benefits of the centralizing tradeoffs but still retain the benefits of the trust minimized base! All the big blocker’s arguments vanish in a puff of universal logic once you realize we can build exactly what they want on top of a sufficiently decentralized base layer.
The Microsoft Digital ID project is a perfect example. If I understand it correctly it will use a centralized or possibly centralizing database anchored to Bitcoin (although it is built agnostic as to which blockchain and could use Ethereum for example). So not everyone has to keep a full copy of its database, but the project can still inherit the trust minimized advantages of the chain on which it is based.
The liquid network is another great example. It uses a federated model of block verifiers to gain several advantages such as lower fees and privacy but is again rooted in the DECENTRALIZED base layer of Bitcoin.
And even decentralized layers can be added such as the Lightning network which use a vastly different model for transactions which provides several advantages, but the reason it is decentralized is not only thanks to
its design, but also the design of the base layer where it roots the smart contracts (called HTLCs) on which it is founded.
It would do you less good to build a lightning network on top of a centralized and trusted base layer. Sure, the actions on the second layer could attempt the same exact advantages and even be trust minimized, but the third parties controlling the base layer could still censor the HTLCs thereby wrecking the whole thing.
The Birth of a Network Only 100 years ago power grids were coming up across the US, and the rest of the world. People did not need to know how they worked to benefit from light, air conditioning, machines, and all sorts of other inventions that were plugged into the base layer of the power grid. And the decisions needed for all this to work were made correctly. These decisions power the computers the bitcoin network runs on. They power the ham radios that can broadcast a transmission. The decision to use AC instead of DC enables us to send vast amounts of power over long distances safely, and it is hard to imagine it working another way.
Our children will one day live in a world where they take the base monetary layer for granted. They might not even know that their digital wallets use something called the BOLT protocol to transmit value with the least amount of trust possible. And they will take it for granted that the choice for the system to be built on the simplest, most efficient base layer possible was as obvious as it was necessary.
A rectangle is not always a square, and a trust minimized system cannot be effectively run atop a centralized base.
We discover that the universe works certain ways. We can change the names and classifications of things all we want, but Pluto will keep spinning around out there in the darkness no matter what we call it. There will only ever be one number nine. And the bitcoin network, if it is successful, will always be decentralized.
What an exciting time to be alive! As history is written the people witnessing the world change have an entirely different vantage than the generations that come after and can piece it all together neatly and succinctly. But they will call us lucky.
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