This chapter builds on the ones before it. You can read it now, but it will not count towards your progress until the earlier chapters are done.
Block
# 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?
Take a look at this chart.
# block 0002
Source : Federal Reserve (FRED) - fred.stlouisfed.org/series/M2SL
Quiz
What do you think this chart represents?
# block 0003
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.
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 0004
“
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 0005
Bitcoin was designed to solve, at the same time, the problems of hardness and centralization covered in the two previous modules.
# block 0006
0/2 explored
Fiat Currency
We're trusting you not to click either of the buttons below.
Bitcoin
No need to trust you here. But go ahead and try.
# block 0007
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?