# Bitcoin - A Monetary Vision. By [Crypto Risk Office](https://paragraph.com/@crypto-risk-office) · 2023-05-11 --- **The Internet’s new Value Layer** - Bitcoin and the technologies behind Crypto / Digital Assets have delivered a Value Layer to the internet, this is the new bit, which has empowered the beginnings of a revolution for the internet, where the e-commerce models of Web2 will be inevitably replaced by the oncoming train of the Web3, Blockchain & Crypto enabled ‘Stakeholder Economy\*’. The new Value Layer enables true disintermediated transfer of value, peer-to-peer, for every... thing. Importantly, digital money / assets are also programmable! This also brings new dimensions and possibilities for financial risk management. The **Crypto Risk Office** has several goals, one is to help ‘Bridge-in’ the crypto curious, especially TradFi professionals, to the Web3 Digital Asset Risk Landscape. To comprehend the Risks, we must understand the underlying products in the new economy. This article starts at the very beginning! Bitcoin. **Famous Digital Love Child** - Bitcoin, the Genesis Product for Web3, the famed love child of Satoshi Nakamoto and the [Cypherpunks](https://nakamoto.com/the-cypherpunks/) - yes, they were essential to get it going, no one could do it alone, by design... Bitcoin was the first digital native currency to succeed, solving many challenges including the critical Byzantine Generals problem / double spend challenge of previously proposed digital currencies. **Critics** say Bitcoin is just a mathematical equation with no intrinsic value and by extension, no utility. To anyone who has spent time considering Bitcoin, this is a limited and unthoughtful view. **Utility** – as the old adage goes, when we use a product, we don’t necessarily want the product itself, we want what it can deliver for us. Reference the well-versed marketing refrain ‘We don’t want a drill; we want a hole in the wall’.  As with Gold – does the market really want gold, or does it want its properties? Does the physical object matter as much as its economic properties? Certainly, much of Gold’s economic properties stem from its physical properties, but what if these properties can be delivered another way…  **Intrinsic Value** - Gold is incredible, it is timeless and makes an amazing product to act as a store of value, as it is literally indestructible. However, as with everything that is a human requirement, that value is assigned by people, as is the value of Bitcoin. The intrinsic value of something is derived from the essence of its character. An outline of the many valuable characteristics / properties of Bitcoin follows.  Properties of Bitcoin The critical view of Bitcoin fails to credit these impressive characteristics with any value. 1. Stateless – it is not managed or controlled in any way, by any State, or any centralised entity. 2. Permissionless – Bitcoin is blind, as justice should be, and anyone can use it. No permission is required. _Bitcoin is a social justice warrior and a libertarian protector all at once, it is blind to borders, nationality, race, class, gender etc… It does not discriminate against the under-privileged, nor recognise or confer any benefit of privilege, for anyone…_ 3. Trustless – Its function does not depend on trust in any centralised entity. 4. Safe from Counterparty Risk - Like Gold, _Bitcoin cannot default_. It is nobody’s liability. It has zero credit risk. 4. Decentralised – Management of the network is highly distributed, conducted by Hundreds of Thousands of miners, Tens of Thousands of reachable nodes and across hundreds of countries. 5. Incorruptible – it cannot be edited, altered or counterfeited. 6. Uncensorable – your transactions & addresses cannot be censored, frozen, or closed on-chain. 7. Immutable – incapable of change, it can be relied on as the ultimate source of truth, as the final record of account for all transactions within its monetary system. 8. Sound – Bitcoin cannot be debased, or printed at will, by a small cadre of bureaucrats, or anyone. 9. Transferability – it is a simple easy to use payments system – a form of money that comes with its own ‘rails’. Physical forms of money, paper, gold etc… need huge infrastructure like the current financial system to intermediate to transfer value to your neighbour or internationally. 10. Work - It’s even called ‘Proof-of-Work’. Miners and Nodes on the network are like an army of accountants working tirelessly to ensure a perfectly maintained decentralised ledger which is verified and validated. Think constant Balance Sheet Substantiation of an entire monetary system, suitable to serve the entire world. 11. Money Good – in addition to its properties above, BTC ticks all the traditional boxes for money: * **Fungible** **& Divisible** - 1 BTC is divisible into 100m Satoshi’s, and is as good as any other BTC on the bitcoin chain. * **Durable** – 100% performance - zero downtime in the last 10 years. No breaks, not stopped by anything, including country bans, e.g. when China banned bitcoin mining and the network lost 50% of its hash rate, as miners packed up and moved.  * **Portable / Convenient** - Bitcoin can be easily ported in time and geographically, BTC can be transferred in minutes (secs with the Lightning\* network) to anyone, anywhere in the world. It can be stored securely and used for transactions in decades and probably centuries. And memory of your private key can enable transport of Billions of $ of value, effortlessly. _(\*The Lightning Network reportedly can manage > 1 million transactions per second.)_ * **Stable Supply** - Bitcoin’s supply is limited to 21 million BTC and mining / minting of new Bitcoin is highly predictable. _(Unlike the supply of fiat money… which is why we experience so much inflation - mostly in asset prices, but more and more in staples now)._ * **Accepted** – Bitcoin is widely accepted globally with more than 200 million wallets and thousands of exchanges ready to trade BTC. * **Value** – money should possess value itself. Bitcoin has value and utility due to the properties listed here and that value is freely assigned by the market. * **Store of Value** -  money must carry value over time, BTC certainly is carrying value over time. The bitcoin network is today storing and carrying approximately $500 Billion USD of value - albeit with some volatility, it is down in USD terms from its high of $1.2 Trillion at the end of 2021. However, in terms of many currencies which have also fallen against the USD, it is not down so much. _(see comment on volatility following)._ ### Challenges & Opportunities Nothing is perfect and there are some challenges with Bitcoin also, a few are summarised here:  **Efficiency** – Another common critique of Bitcoin is the cost in terms of energy of the Bitcoin network. Today's state managed fiat monetary system employs the US Dollar as the world's reserve currency. The Fed (Federal reserve system) alone requires 23,000 highly educated and very expensive employees to manage its affairs. Additionally, this system requires millions of bank staff at thousands of banks to facilitate people to use this fiat currency as a record of account and medium of exchange. JP Morgan alone requires 271,000 staff to facilitate its customers to transact with today's fiat currency system and associated financial products. There is an enormous amount of resources required for today's fiat system to operate effectively. To be honest, the resource consumption by today’s banking system boggles the mind... the energy consumption required by all these institutions and people to run the current monetary system is also immense. Mike Novogratz and Galaxy Digital have addressed this before - [Banking system consumes two times more energy than Bitcoin: Research (cointelegraph.com)](https://cointelegraph.com/news/banking-system-consumes-two-times-more-energy-than-bitcoin-research) **NFTs** - The Ordinals protocol has recently leveraged the SegWit\* & Taproot\*\* functions to enable NFTs up to 4mb to be managed by the Bitcoin blockchain. It is a recent development (Jan 2023) and there has been some concern in the community, however it is an ‘indexed’ solution, the base block integrity remains sound. For further details, [Bankless](https://www.youtube.com/watch?v=ktL77zEWcEc&t=15s) reviewed it in some depth. _notes_ _\*SegWit- Segregated Witness - upgraded efficiency & separation of Signature data (witness) from the base transaction block, enabling lighter core blocks._ _\*\*Taproot- privacy & efficiency upgrade, keeping necessary execution data on the base block and allowing the removal of pre-execution data._ _Tech details of these are well described an many major libraries e.g. Kraken, Binance, Coinbase etc…_ **Volatility** - critics often decry the volatility of Bitcoin and it is true, it is more volatile than established, developed world currencies, gold and other comparables. There are a few reasons for this: * the supply side of Bitcoin is inelastic, it is limited to 21,000,000\* Bitcoin and the minting / issuance of new BTC in the mining process is limited, predictable and known.  * Bitcoin's Current Market Cap is approx $500Bn. This is still relatively small compared to other comparable assets, like Gold, which is approximately $13 Trillion. * Crypto Markets are attracting significant capital looking for ‘the next big thing’ and when the market throws relatively material amounts of _freshly printed and leveraged hot fiat currency_ at a relatively small asset, with an inelastic supply, we get volatility. However, volatility is reducing and when Bitcoin is a $20 Trillion Market Cap asset  - the volatility will be much lower, it will be much more stable. **Custody** - one of the great opportunities for Bitcoin and digital assets in general, is that we can self-custody our assets simply and securely, in our own wallet. We don’t need a bank to keep our funds safe. However, today in the event of death, loved ones and beneficiaries may not be able to obtain access to our digital assets, unless we have taken steps to ensure the control of the wallets is passed to the beneficiaries, or the funds are automatically transferred to the beneficiaries. Custodial wallets have recourse to the custodian and should will be able to cover this, but this may not be always suit the individual. We still need a better choice of solutions, e.g. self-custody wallets with a dead man's switch, to either send funds or access to your chosen beneficiaries. **Scaling solutions** - The _Lightning Network (LN)_ is a scaling network (reportedly > 1 million transactions per second) operating off the Bitcoin base layer. Think of it like a network of sub-ledgers, which are pre-funded, so when you use it, you will technically have performance exposure outside the Bitcoin blockchain, to LN smart contracts. It can deliver some impressive benefits (speed, cost and more) but there is some additional risk to transacting, compared to just transacting on the Bitcoin blockchain. Good news is, LN exposure is only what you put in, your BTC balance remaining on the Bitcoin chain remains as secure as the Bitcoin chain, i.e. Good as Gold. **Islam and Bitcoin** - being based in Dubai, coined 'Crypto Oasis' by the leading Web3 community here, there is reportedly division among scholars as to whether Bitcoin is Halal or Haram, hopefully the properties and virtues of Bitcoin outlined in this article can help clarify the Halal view. Bitcoin is a product of work, human ingenuity, collaboration and energy. It has very real and incredibly useful properties. ### The People’s Money Bitcoin is an indisputable record of account and given access to the internet, it is an undeniable store of value. Bitcoin is nothing short of _a transparently sound monetary system_.  It is truly the people's money - it is a Stateless, Permissionless, Trustless, Incorruptible, Uncensorable, Immutable record of account. It is Sound money, which cannot be Printed or Debased and like Gold, _Bitcoin cannot default_, it is nobody’s liability. Bitcoin is created from energy, ingenuity, network collaboration and work. It is global, and it doesn’t respect borders.  Bitcoin has the strongest monetary system qualities ever seen\*. 'It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop ever…"\* Block, after Block, after Block…   [Subscribe](null) --- *Originally published on [Crypto Risk Office](https://paragraph.com/@crypto-risk-office/bitcoin-a-monetary-vision)*