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Tuesday, June 23rd 2020 - Issue #765

We are still so so early

Here's a great thread from our friend Vijay Boyapati that does an incredible job of putting into perspective how nascent Bitcoin is as a global communications protocol and articulating why the network's focus on changing very little gives it the potential to be a global reserve asset in the future. Anyone reading this rag today is alive during a period of confusion in regards Bitcoin, what it is and how it will most likely be utilized in the future. Since a very small number of people currently use Bitcoin when compared to other global networks, the protocol has accommodated certain use cases that it probably won't be able to accommodate when a critical mass of people adopt Bitcoin. Mainly, the ability to send transactions with very low fees.

Unfortunately, the narrative of cheap transactions gained a lot of traction in the early years of Bitcoin because it was a use case that was enabled by the lack of adoption and higher block subsidies that existed throughout Bitcoin's first decade of operation. As three block subsidy halvings have occurred and has Bitcoin has garnered more attention and adoption, it is becoming obvious that the main use case at the protocol level will be a digital store of value that enables peer-to-peer cash that acts as a reserve currency. Many will claim that Bitcoiners have shifted the narrative from "fast and cheap" transactions to a base-layer store of value, but this couldn't be further from the truth. There were plenty of people who realized that Bitcoin's base layer would fulfill the use case of digital store of value,
including Hal Finney. Who described Bitcoin banks on Bitcointalk.org in 2010. The individuals pumping the "fast and cheap" narrative were simply louder than the Hal's of the world at the time.

As more individuals turn to Bitcoin, it is becoming more and more obvious that Hal and his like were very prescient and will likely be proven prophetic in the long-run. The nature of Bitcoin is such that it cannot allow "fast and cheap" transactions if it wants to remain sufficiently distributed in the long-run. The notion that transactions would ever be "fast" in the sense that you could instantly pay for coffee with UTXOs is simply asinine when you understand the dynamics of mining. With a block time target of 10-minutes, the dream of instant purchases with UTXOs is a non-starter. However, Bitcoin is fast when compared to other reserve assets and their final settlement, which takes days to weeks to months depending on the particular reserve in question. Bitcoin cuts that down to about an hour if you subscribe to the idea that one should wait for six confirmations before considering a transaction sufficiently secure. It would be really hard/expensive to reorg six blocks at today's hash rate.

If Bitcoin is to be a dominant reserve asset in the world at some point in the future, individuals must be able to have confidence that the underlying rules of the protocol won't change. Most importantly, that there will never be more than 21,000,000 bitcoins in circulation. If this parameter can be easily tweaked, no on can have confidence in Bitcoin's store of value proposition in the long-term. If the monetary policy is tweaked once, what's to stop if from being tweaked a second, third, fourth or fifth time? Slippery slopes exist. Bitcoin is attempting to avoid the slippery slope by hardcoding the supply cap into the protocol from the onset. Many will attempt to FUD the hard cap, but
your Uncle Marty is confident a sufficient fee market will develop to satiate miners.

Compare this to a network like Ethereum, which has
no respect for property rights and has tweaked its monetary policy many times over the course of its short lifetime. There are many people who like Ethereum at the moment and many who pretend that it competes with Bitcoin. Unfortunately for them, the centralized nature of Ethereum has created a number of precedents that will prevent anyone from having any confidence that the protocol will respect a monetary policy or property rights into the future. They are flying down the slippery slope and they are already soaked with inconsistency.

There is beauty in Bitcoin's simplicity. Part of "fixing the money" is fixing the supply and making sure precedents that change monetary policy aren't set.  
Final thought...

Moving is my least favorite activity in the world. I've moved way too many times in my life. It's time to settle down. Lay some roots.
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