As we struggle to fathom how a decentralized uncontrolled currency may be part of tomorrow’s real world economy there is a paradigm shift in how we perceive money with the onset of blockchain and the bitcoin in banking today. What’s baffling is that the entire control and intelligence lies embedded in an algorithm created by someone who remains unknown , unquestionable and now somewhat invincible.
Relying on algorithmic decisioning of how much currency should exist in the economy
The algorithm releases rewards for maintenance of the general distributed ledger. Every time one uncovers a new block , bitcoins come into being. The rate of block creation is adjusted every 2016 blocks to aim for a constant two week adjustment period (equivalent to 6 per hour.) For every 210,000 blocks mined the rewards get halved. In other words , the number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately four years. If the four- year reward halving continues, the value reaches zero for rewards once 21 million .The decreasing supply algorithm was chosen because it approximates the rate at which gold is mined. There is also the theory that the total mined Satoshis (Smallest unit of a Bitcoin or 0.00000001 BTC) will reach the maximum length of a 64 bit floating point number and hence the limit,
These miner rewards are an amazing way to ensure the chain goes on. “Why would anyone sit and solve complex problems on the chain” , asked a friend long ago even before the bitcoin prices soared ? If I told you, all the produce on the farm is yours if you water the farm , you would weigh the value of the produce vs your time , effort and resources involved and make a profitable decision. Miners across the world today , are doing just that !
Controlled supply of currency with complete transparency and decentralization in the economy
These finite 21 million bitcoins may not be in circulation at the same time or be spendable units . There may exist a case where we lose bitcoins on the blockchain due to a loss of private key getting corrupted on a device or one losing the private key address altogether. So just like you risk losing physical currency from a wallet today , losing a node could very much mean that we have lost money and it went out of circulation for good.
In the real world someone may find the lost wallet and the money may still be in circulation and in no way can an individual be powerful enough to take money out of the economy. He can of course hoard and keep undeclared amounts of it in his Swiss account. Where money lies, is always transparent on the blockchain .
Also, some bitcoins in circulation can be used to hold programmable assets that are not of the nature of a currency of exchange i.e., it could hold a unit of energy not money or any other. Being able to differentiate within the public distributed ledger, the actual amount of embedded money in these bitcoins may be difficult to monitor unless someone already has a solution that. The currency that comes into circulation is entirely agnostic to the hands that exchange value or the turn of trade – demand and supply.
Dilution of Power Equations through Logarithmic Equations
The block chain , in a way also dilutes roles of power. Imagine , a kingdom of yore long before the printing press , where gold coins were the only medium of exchange. Some of the gold , they decide to use as ornaments or to worship the gods and this holds value but cannot be traded and some they use for trade. The king’s treasury takes a consensus how it wants to spend each unit – for warfare or welfare. In this case will gold behavior be inflationary or deflationary?
People say Satoshi conceptualized the Bitcoin as a deflationary currency to control the problem of consensual spend or beat insipid taxation. No money when being conceptualized would be designed to be deflationary. And , there is a huge debate on whether it is actually is. However , I am no authority to comment on that entire chain of thought , yet. Satoshi , probably never conceptualized the blockchain or bitcoin as money. This was probably the first use case to be adopted that leveraged the unending possibilities of crypto transmission.
The possibilities on the blockchain are endless. Its how you perceive and implement. It’s a bit like religion , you know. You try to incarnate it into its most tangible existence or you adopt it in principle as a way of doing things that we will all eventually align to.