Misunderstanding Bitcoin

By RealSociology | Retire by 50 | 23 Oct 2023

I’ve been reading The Internet of Money by Andreas Antonopoulos recently.

In the most recent chapter: Bitcoin Design Principles he makes some interesting points about how Metaphors for Bitcoin (such as 'wallets') are probably mislead people about what Bitcoin is!

You can buy the book here, it’s based on his lectures from a few years ago now!



What is Bitcoin?

Bitcoin is digital money. But that doesn’t really capture it. It’s more like the internet of money.

A more complex definition of Bitcoin is: ‘it’s a consensus decentralized network based on blockchain technology and a proof-of-work algorithm that allows a digital token to act as a reward system for a game-theoretical competition between miners who validate transactions.’

But by now we are already getting really complex, and even after years you’ll find you are still learning about Bitcoin.

This is because Bitcoin is a very new and disruptive technology, but it also is an abstraction on a technology that is really old: money.

The History of Money

Money has probably been in use for 500 000 years, it certainly predates writing and civilisation. Some animals such as primates and even dolphins use it.

Money is ancient, and yet most humans cannot explain how it works, they do not understand it.

The Characteristics of Money

Money should be…

Difficult to forge

Money is an abstraction, it has no value in itself, it represents the value of something else. Money is thus a shared cultural hallucination, a shared delusion.

It’s also a shared social transaction based on trust - I accept a dollar from you today and trust I'll be able to give it someone else tomorrow and that someone else will accept that it still has the same value.

BITCOIN is just the latest abstraction of money. People don’t accept it as money because the shared cultural hallucination has yet to take hold.This happened when paper money took over from gold, it took a while for people to trust the paper money.

I personally think people need to be reminded of this over and over: that money has no value, and that it really is just a shared illusion: it maintains its value only in so far as people trust it.

Of course bankers and especially governments know this! Which is probably why Bitcoin terrifies them so much - it is money that actually has a function outside of all of the above too!

Bitcoin and design

Design metaphors are powerful tools, and hence dangerous when miss applied. The problem with Bitcoin is that most design metaphors don’t work.

Wallets are not wallets - wallets are something which store money, but not with Bitcoin, the coins in a BTC ‘wallet’ are on the network. The wallet contains the keys, so it’s not a wallet, it’s a keychain.

A keychain is a better metaphor because it describes better what a ‘wallet’ does - you can copy your keys and give them to someone else and thus give them permission to unlock access to your Bitcoin on the Network.

The coin aspect of Bitcoin is another terrible metaphor, there are no coins in BitCOIN - coins are tangible, Bitcoin is not.

When miners mine, they don’t create coins; they create ledger entries. Those ledger entries do not enumerate coins. They have outputs - transaction outputs - which are chunks of value that are infinitely divisible and recombinable. Coins don’t do that. You can’t track a coin in bitcoin because there are no coins.

There’s also no such thing as a balance of an address. An address controls outputs, and if you trawl through the blockchain and add up all of the outputs, you can figure out some notional balance. Whether that’s actually spendable or not, how much it is, is actually quite difficult to determine. There is no “balance.” You have no “account” in bitcoin.

In short the metaphors that surround Bitcoin are terrible and they lay the ground for MASSIVE misunderstanding.

The most misleading design element are the pictures of Bitcoin with the gold letter B written on them we see everywhere: they take the most misleading part of the name ‘coin’ and then make a visual representation which makes Bitcoin look like a physical coin, when in reality all this does is mislead us!

This is something I’d never really thought about, but so very true, we need to maybe change our language around Bitcoin!

Innovative design

Bitcoin is such a radical break from the past, old metaphors are of no use in helping us understand it.

Bitcoin is so radical, such a departure that we cannot even think about the kind of apps that are going to be built on it - it’s a technology that offers a complete break with the past and allows us to do things which we cannot imagine today - it is going to be far more than just something that allows from low-fee cross border transactions between peers.

One place Bitcoin will go to isn’t banking the unbanked, but to unbank all of us, that’s how radical it is.

That’s just the beginning. The really interesting things in bitcoin happen in what I call “interstitial innovation”—the innovation in the gaps, the places where today’s systems cannot go.

What does it do to commerce, to transactions? We can understand what it does to banking. We can understand that Western Union is going down hard this decade. You charge 30 percent on the poorest people in the world, you deserve to go down by disruptive technology.

But Bitcoin also allows us to evaluate rules and risks, all in a decentralised, trustless way, so this could disrupt many other industries too. It could potentially disrupt anything that involves teamwork.
It even challenges the notion of personhood, because it is not only people who can control Bitcoin, unlike with money.

While all of this is true, it’s interesting to note that eight years on from this there hasn’t really been any major blockchain inroads to other industries at a global level, yet. Take blockchain gaming, for example, it hasn’t even begun to make a dent in mainstream gaming, it’s still a very minor thing

The ridiculousness of Bitcoin ATMs

Regular bank ATMs were designed for people who already have an existing relationship with a bank and who understand how FIAT money works. Because of this, the ATM makes sense - the ATM’s main function is for you to be able to get money quickly, fine.

Bitcoin ATMs modelled on the same principle are ridiculous, if they are being used by people who have no prior experience of Bitcoin. It’s useless to be able to get BTC in 1 minute, what you want is links to humans on Zoom who can explain what BTC is and to places where you can use it, the first interaction should be 2 hours, a learning experience.

Kids using Bitcoin is a great thing, because by the time they get to opening their first bank account at age 16 they will compare to BTC and see the inherent weaknesses in the banking system.

The best thing for Bitcoin is for forward facing apps to act like they ARE NOT banks - Coinbase is a great example of a company that does just the opposite of this, which obscures people’s understanding of Bitcoin.

Another problem with treating BTC like a bank is that you can’t reverse transactions with BTC, you can’t get a refund if you lose your keys, so it doesn’t have any of the ‘good features’, to make people think it is like a bank, can potentially create false expectations.

_Again, something I’d never really considered. Although these days BTC ATMs seem like a dinosaur, in the U.K. at least they’ve been regulated out of existence near enough.

Final thoughts

We need to create the right design metaphors to better explain what Bitcoin is to people!

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Blogging about Sociology and Extreme Early Retirement

Retire by 50
Retire by 50

In the summer of 2014, when I turned 41, I set myself the goal of retiring from paid-work by the age of 52. This blog charts my own strategy and progress, and explores different theories of financial independence and 'extreme early retirement'. It also provides the odd tip on how you might also retire early!

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