Bitcoin’s First Principles Made Easy: Did PayPal Add Support For Cows?

In a chaotic market and social environment, it can be useful to think about Bitcoin from a first principles perspective. 

Viewing things from a first principles perspective we can look at what’s possible and what’s impossible, based on core constraints such as the laws of physics or logic, and builds from there. 

Elon Musk said it best when he stated: “I think it’s important to reason from first principles rather than by analogy. The normal way we conduct our lives is reasoning by analogy. We do this because it’s like something else that was done, or it is like what other people are doing. [With first principles] you boil things down to the most fundamental truths… and then reason up from there.” 

When it comes to Bitcoin, we don’t have to reinvent the wheel. From the very beginning, starting with the Bitcoin Whitepaper and early communications involving Satoshi Nakamoto, discussions have revolved around first principles. 

Towards A Global Currency 

It’s not helpful to cite Bitcoin’s volatility as the reason why it could never be a global currency. All adoption curves go through periods of volatility, until they don’t.  

So instead, let us look objectively at what money is and what would be required for something to be suitable as a global currency. 

Money essentially is a tool that enables us to exchange value and store value for future exchange. Money in itself does not have intrinsic value, but some money is better suited than other forms of money to to hold, communicate and transfer value. 

Money needs to be:

  • Durable 
  • Portable
  • Divisible 
  • Uniform 
  • Finite 
  • Accepted
  • Reliable

We’ll take a few different forms of money and compare.

We will compare Bitcoin to:

  • Gold (has acted as a currency and reserve asset for hundreds of years)
  • Cigarettes (widely used as a currency in prison) 
  • Cows (in some places still used as a currency and form of dowry) 
  • Oh and US dollars (…how can we forget?) 

Is Bitcoin durable? 

Cows die when you don’t feed them. In that sense, gold is better as it doesn’t rust. Cigarettes last for quite some time, but not as long as gold. Dollar bills can decay, sure, but electronic dollars in a computer last as long as the internet/computers will. The caveat is that dollars experience inflation meaning every year the dollar is less valuable than it was the year before. 

But the risk of dollars is that the market collapses all at once typically once every 50–100 years, and well, then the dollar does not exist anymore.  

Bitcoin is code and will forever exist in cyberspace, especially in a decentralized network and with Bitcoin nodes set to go to space. A solar flare that knocks out all electricity on Earth could knock out Bitcoin for a while, but unless the earth and all digital traces of it are destroyed, it is likely that Bitcoin will exist forever. 

As the Bitcoin total supply cannot grow beyond 21 million, over time as more people and entities enter the network, it has the potential to be an extremely solid store of value. 

Is Bitcoin portable? 

Transporting cows around the world to pay bills is unethical and not efficient. Fiat bills are easier to carry around, although there is a limit to how much you can carry around without having to declare it at customs. Sending money across borders, including paying for stuff with credit cards, takes days to reach final settlement and is expensive. 

Gold is easy to carry around in small quantities but it’s not easy at all to send physical gold around the world and while gold could be custodied and tokenized, there are high fees involved in such custody and in the form of tokens you may feel unsafe during war as you’re trying to trade your tokens for some bread or water or an escape route out of your zone of terror.

Cigarettes as a global currency is an awful idea. Sending cigrattes around the world to pay for your Netflix subscription is inefficient. 

Bitcoin sits on the Bitcoin Network and wherever you have access to an internet connection, you are able to access your Bitcoin and on top of the Lightning Network you can send this to anyone, anywhere for minimal to no cost. 

Is Bitcoin divisible?

Would you like to buy a Tesla? That’ll be 12 cow legs and one eye ball please. 

Logically, in places such as Kenya, the bride price is always in whole cows — 11 cows or 12 cows but never 11.5 cows. 

Cigarettes are divisible down to about 1/20th of a pack (assuming a 20 cigarette pack). But once you divide the pack, the durability of cigarettes starts to be affected as you would have opened the pack. 

Dollars are divisible down to cents which is more than enough for day to day transactions, but sometimes for electricity prices it might be 11.5 cents/kWh and as the value of the dollar goes down over time, cents become pretty meaningless as well. Gold is divisible down to the atomic level which is sufficient, but difficult for the ordinary human to work with. 

Each Bitcoin can be divided into 100 million cents, or satoshis (SAT), and in theory on higher layers could even see a higher divisibility in the future. As Bitcoin rises in value, thinking in SATs becomes more and more logical.

For this reason, AAX is the first exchange to make the switch to satoshi-denomated markets. The exchange recently added the function to switch your overall balance to satoshi and will offer SAT/USDT as the first SAT-denominated market

Is Bitcoin uniform?

Some cows are fat, others are skinny. Some of strong, some are weak. Cigarettes differ per brand in quality, strength, taste and age. Dollar bills and digits are pretty uniform, although some bills may be too ragged to be accepted, and some might be counterfeited. Gold is gold everywhere, except in the form or jewelry when it may carry a premium.

1 Bitcoin is 1 Bitcoin and it is all on the same network. There is no difference between different Bitcoin digits and if an address were to be blacklisted, it is possible to clean a Bitcoin so that it no longer carries a negative history associated with previous holders and transactions. This is no different from how we don’t know where a hundred dollar bill or a coin may have been prior to us holding it. 

Is Bitcoin finite?

Cows are definitely finite. There could be a disaster and leave only a few valuable cows behind. Good luck 🙂 

Cigarettes are more scarce than dollars. Dollars can be printed on demand. Gold is not proven to be finite. There might be asteroids full of gold, planets made of gold and we might figure out technologies to create gold. 

Bitcoin is capped at 21 million and already more than 3.5 million has been permanently lost due to passwords being lost that grant access. Bitcoin is finite and in a thousand years while some people might live on golden planets surrounded by tobacco fields with cows grazing everywhere, there is still only that finite supply of Bitcoin. 

Is Bitcoin accepted?

Cigarettes beyond prison and war zones are seldom used as a currency. PayPal has not added support for payment in cows. Gold is seldom used as currency and has not been used to back fiat currency since 1971. 

Dollars are generally accepted and if not it is quite easy to convert dollars to major currencies. In places like Iran, dollars may sell at a premium.

Bitcoin can be accepted by anyone with an internet connection. It has seen rapid adoption and is being added as a payment option more and more by merchants and e-commerce platforms. You can pay your tax in Bitcoin in Switzerland and after just 12 years since its launch, it’s been declared legal tender in El Salvador

Is Bitcoin intrinsically valuable?

Let’s agree that life has value. In order to live, we need water, air, food and shelter. If these things are within reach and generally available, we tend to value them less as when we are in dire need. 

Other than that, gold, cigarettes, cows as a currency, even Bitcoin, none of these hold intrinsic value. If you had to choose between 100 Bitcoin or a gasp of air while you’re stuck on a sinking ship, you would choose air. 

Thinking about Bitcoin from a first principles perspective can be helpful to see with a clear vision. ]

You might be interested to read: Going down the crypto rabbit hole


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