Submitted by QTR's Fringe Finance
When I think about the key concepts that I’ve learned about Bitcoin over the last month or two, there wasn’t one that pushed me over the line to be a believer more than the function of the network's redundancy.
I mean, sure, almost everybody that knows me knows that ideologically, I’m a huge proponent of Austrian economics and an enormous gold bull, so obviously, that’s a great foundation to come from if you want to start learning about, and then believing in, Bitcoin.
But a lot of my uncertainty about Bitcoin over the last few years was a result of not understanding what it was or how it worked with definitive clarity. Those who watched my interview last month with Peter McCormack know that in the first half hour, I was challenging him to give me a one-sentence description of what you’re buying when you buy Bitcoin. I am still thirsty to be able to simplify the concepts of Bitcoin, thereby making it more digestible not only for myself to understand and explain, but for others.
For the record, if I had to answer that question now, I would simply describe buying Bitcoin as exchanging one currency for another. The price represents the exchange rate. I know there is more to it than this, including the potential for more adoption and a broader technological use for the network, among other things, but to simplify it, I’d just say it is the world's first digital currency, accessible worldwide, and the price is its exchange rate. It’s a digital unicode for money.
And you don’t really need to know the down and dirty details of how it works, only that it does work, and that, as it grows, it becomes more secure. For those unfamiliar with how the proof of work security works, here’s an easy analogy that computer nerds will get mad about because its not accurate enough. Think of a four digit combination lock you use to lock up your bike in the city. Now, imagine if every time you used the lock, one digit was added to the lock and the combination reset to a new number. The last user gives you the 4 digit code to unlock the bike lock so you can use it. After your use, instead of having four digit lock with 1000 possible answers, you now have an all new, five digit combination, with 10x as many possible combinations. You give that combination to the next user so they can use it. Now, multiply that transaction by all of the times someone has used your lock, and you’ll see very quickly that whatever the combination is today, its very long — and nobody is going to be able to guess it. And, as more people use it, the lock becomes even more secure.
Now, imagine you have 20,000 people all using that same lock to lock up their bikes, non-stop for 13 years.
Understanding bitcoin’s security is one of the simple and profound realizations that I had that offered me permission to start to believe in it. I’ve said in an article I wrote earlier this year that Bitcoin is the digital manifestation of the phrase “there’s safety in numbers.”
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But there isn’t just safety, there’s also strength and power. Once this concept becomes understood in the context of how Bitcoin's network operates, and you look at a chart of nodes or hash rate, it simply becomes very difficult to suggest that the network is going to fail in some way – at least anytime soon.
For me, it was the understanding that 20,000 nodes globally in dozens of countries, countless jurisdictions, run by all different types of people with all different types of lifestyles, are constantly running a system of checks and balances to ensure the integrity of the network. I like the idea that if somebody goes to try to change the code, the nodes will puke it back out at them. I like the idea that there is a robust amount of computing power necessary to consistently verify the blockchain, much to the chagrin of climate alarmists like Elizabeth Warren. And finally, I love the idea that, as it grows, it becomes exponentially more difficult to stop.
I went to take a shower about an hour before I wrote this article and had a series of interactions that inspired me to think about redundancy as a concept.
First, I had just come back from traveling and had put away my travel toiletries bag. That bag is a duplicate copy of everything that I have at home: nail clippers, scissors, shampoo, first aid kit, deodorant, and other items. I chose to make a second duplicate bag for my travels so that I don’t have to pack and unpack my starting lineup of toiletries all the time; I only have to move my whole travel bag from one place to another. At the same time, my travel bag also serves as a backup for all the items that I have at home if something runs out before I can go to the store. My travel bag represents redundancy for my toiletries.
I got into the shower and noticed I had run out of soap. I reached out to a box of soap that I keep near the shower — but that was empty, so I went into the closet and opened up a new box. I keep lots of extras of the things that I use all the time because I don’t ever want to run out. The first box represents redundancy, and the second one in my closet represented an extra step of redundancy. It was an Irish Spring network consisting of three nodes — the shower, the first box, and the closet.
After I got dressed, I went to go put on my favorite winter hat, which I was able to do even though I had just dropped the same winter hat off at the laundromat. I bought several of these hats specifically so I could have one to use while one was in the laundry. This is winter hat redundancy.
I was wearing a T-shirt today that I have at least 12 duplicates of because it is the only T-shirt that fits me the way I like. Several T-shirts were in the laundry, but I still had several clean ones because of the fact that I had bought extra. This is T-shirt redundancy.
Then I walked out to make myself a coffee and realized that my Nespresso pod holder on the counter was empty. So, I reached into the closet, grabbed another box, opened it up, and refilled it. I keep the closet stocked with extras in case the pod holder runs out. This is Nespresso redundancy.
Finally, I walked out to a restaurant after my shower and walked past a giant set of Generac generators next to my neighbor’s house. I thought to myself: those are placed to create power redundancy in case the electricity goes out. There’s power safety in generator redundancy for my neighbor.
This may seem like a series of totally trivial and meaningless statements, but for the last 20 years, since I’ve been living on my own, I have always tried to keep extras of all the things that I use on hand at all times. If I find something that I like, I buy several of them if I can. I have multiple backups for nearly every single product that I use daily at the house.
If you go to your linen closet right now, do you have one towel or a half dozen? You’ve likely got some towel redundancy.
So today it just made sense to me why I liked the idea of Bitcoin's redundancy so much. I loved the idea of the safety net of having 20,000 nodes spread out all over the world. This is what gave me the confidence to arrive at the idea that the network and Bitcoin are going to work if the people want it to work. As more developers and miners come online and adoption grows further, the network is going to go from “extremely secure” to “ironclad”. When additional nation-states get involved, they will see to it that the computing power necessary to secure the network is ready and available. I haven’t been following Bitcoin closely long enough to know whether or not we have truly reached the escape velocity in terms of the network securing itself for the foreseeable future, but it feels like we have already passed it.
I’ve only been diligent in my research about Bitcoin for a couple months, but it seems the analogies and real-world examples that help understand it further are occurring all day every day.
And so, forgive me if I’m pontificating about things that many of you already understand, or if I’m repeating myself. We’ll just chalk it up to the safety of redundancy.
QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.
