Chapter 02 · The Bitcoin breakthrough

The block that contained a message

9 min

Chap.········

Progress

# block 0001

In January 2009, an anonymous developer launched a piece of software and engraved a newspaper headline into its very first block. A reference to the UK bank bailouts, on that very day. Fifteen years later, that software is worth over a trillion dollars, and no one knows who wrote it. Before understanding how Bitcoin works, you need to understand why someone thought it had to be written in the first place.

Bitcoin, you've seen what it is: a piece of software, a network, a currency. The real question remains:

Why does Bitcoin exist? What problem does it solve?

# block 0002

Take a look at this chart.

Source : Federal Reserve (FRED) - fred.stlouisfed.org/series/M2SL

Quiz

What do you think this chart represents?

# block 0003

Source : Federal Reserve (FRED) - fred.stlouisfed.org/series/M2SL

Notice the acceleration.

For decades, the curve climbs gradually.
Then, starting in 2008 (subprime crisis), the slope steepens.
And in 2020 (Covid crisis), it becomes a vertical wall.

In less than two years, roughly 6 trillion dollars were injected into the system, mostly through asset purchases by the Fed⁠(opens in a new tab). Sure, it's not paper coming out of a printer. But the result is exactly the same: a flood of new dollars in circulation, for the same amount of goods and services.

# block 0004

This creation doesn't match any wealth actually produced. It's pure dilution: more bills for the same amount of goods and services.

Some of that creation ended up in the prices you pay every day. Not all of it, not immediately, not in the same proportion everywhere. But you don't need a Nobel Prize to figure out that: when you multiply the dollars in circulation by 1.4 in 18 months, sooner or later it shows up in the real economy and creates inflation. You have to be acting in seriously bad faith - or be Jerome Powell calling it "transitory" - to act surprised when prices start moving.

That's how the system normally works: a small group of decision-makers can create money without limit and without consent, to bail out banks and keep the financial system afloat.

# block 0005

The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
—Satoshi Nakamoto·Bitcoin White Paper, 2008

Bitcoin tackles exactly that problem. On January 3, 2009, an anonymous developer using the pseudonym Satoshi Nakamoto⁠(opens in a new tab) launched the Bitcoin network (see the white paper⁠(opens in a new tab)). And in the very first block of the blockchain, he inscribed a message:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

A headline from The Times. The British chancellor was about to bail out the banks for the second time. This message is no accident. It's a statement of intent cast into block zero.

# block 0006

Bitcoin was designed to solve, at the same time, the problems of hardness and centralization covered in the two previous modules.

A fixed supply, hard-coded into the protocol

To address the hardness problem, Bitcoin enforces an absolute maximum supply of 21 million bitcoins, not one more.

This cap is written in the code and verified by every node on the network. It's not a political promise: it's a mathematical rule.

Since no one can print bitcoins at will, the interest rate stops being the instrument of a central authority. It goes back to being what it should always have been: the price at which people agree to lend or borrow. Not a lever someone pulls in an office.

Bitcoin, a protocol with no board of directors

To address the centralization problem, Bitcoin runs without a central authority. The network can be pictured as a swarm of bees where information is shared collectively. No central authority can impose a rule. Just developers, miners, and nodes, each with some influence, but none deciding for everyone else.

# block 0007

What happens when you try to bend the rules? Compare a traditional monetary system with Bitcoin.

0/2 explored

State of trust

Fiat moneyRests on trust. Yours, right here.

BitcoinAsks for no trust. Go ahead and try.

# block 0008

Bitcoin isn't just one more piece of tech. The Austrian school made real: a money cap that can't be moved, and no one who can print more.

But understanding the intention isn't enough. The real question is whether this promise holds up in practice. How is scarcity actually protected? How does the network run without a conductor?

That's what we'll look at next!