THE PRINCIPLES OF BITCOIN
The search for foundations
The purpose of a search for the principles of Bitcoin is in my mind a necessity for any movement. It is of the utmost importance to at a minimum loosely define itself with positive goals to be achieved and not merely by what it opposes.
The failure of conservativism can be seen using this failed strategy of negative achievement. Michael Malice, author and political commentator wrote that “conservativism is progressivism driving the speed limit” which is the hallmark of a movement defining itself not by it’s aspirations but by what it opposes’. A movement that does this then eventually adopt their oppositions policies in small pieces over time as their own, calling them victories, never gaining the momentum or upper hand.
Bitcoin by only pointing out the flaws in the current system, the issues of trust in finance and the corruption of central bank policies doesn’t lay the foundation for a movement aiming to shift the culture & make no mistake Bitcoin is about culture not technology. No matter how sufficiently advanced a technology is or what it can offer, a immature or hostile culture will never full embrace it or walk the road to achieve its full potential.
Principles, whether highly defined or more nebulous provide a stable foundation to build upon. Without them compromise becomes an easy crutch to lean upon to create short term solutions that only end up betraying long term goals. Rigid principles are not however, without their own tradeoffs as they can easily lead to excessive dogmatism in the face of failing outcomes & an inability to adapt to changing market conditions. The tradeoffs, in my opinion, are worth it as movements more often fail from inside due to flagging consistency and less so from outside conditions (or at least do so before their cultural relevancy has ended).
To discover Bitcoins principles its necessary to look beyond the technical aspects of Proof of Work as a technology or the more broader governance model and discover the WHY of Bitcoin vs the HOW.
Why the need for principles?
Principles are often born out of need, whether a need for social cohesion, individual mental consistency or other factors, but the need creates the incentive for the principles necessary to manifest themselves in reality . From that point another need is created, that is the need for tools to shape conditions necessary to make those principles prosper or at least not negatively impacted. For example if one of the principles you live by is to live a healthy, sober life, you may attempt to ask a local bar owner to move to a new location given your need to remove temptations from your life. If that bar owner refuses your need to avoid temptations that conflict with your principle may compel you to move to a new location, practice meditation or other forms of mental discipline to remove the temptation itself. Your need to stay consistent with the principle drives your actions. Principle begets need, need begets opportunity, opportunity begets creation.
In Bitcoins case if the principle sought was equality of outcome, or 100% equal distribution of wealth then Bitcoin would never have been created in its current form as its cannot ever (nor could any functioning economic system) exist with that as the guiding principle its serving. Another case to illustrate this would be high efficiency. Efficiency is laudable as a trait and a goal to strive to however the tradeoffs of high efficiency are not conducive towards a secure money such as Bitcoin as the tradeoffs conflict entirely with the need for decentralization; thus we have decided that elimination of political risk is more desireable and necessary than high efficency to serve the principle that underpins Bitcoin.
From these examples we can see there are most definitely principles that if held as foundational would negate the very possibility of Bitcoins existence. This is by no means definitive proof of the existence of the principles of Bitcoin, it is merely pointing out that certain principles do not fit within Bitcoin.
The primary principle
My concept of the Principles of Bitcoin is one primary overarching principle (A) necessitating the need for Bitcoins existence and with that a sub set of principles (B) that make Bitcoin not only possible but workable
The Primary Principle in Bitcoin has always been something very simple in concept, yet almost completely elusive to humanity for its entire history save for individual statistical outliers, that being sovereignty.
Sovereign comes from the Latin word super, to mean above, which became “soverain” in old french and later combined with the middel english word “reign” to mean in the 14th century “that which has authority or to rule over”. After 1715 the term evolved to no longer regard a monarchical figure with divine right, but an independent state. Its important to note that while we have become accustomed to the idea of independent states, these are an aberration in the historical context. It wasn’t until the independent states of Europe began to form that concepts such as individual liberty truly came to fruition. This follows the natural progression of the concept of subsidiarity in western thought as a principle of governance.
Subsidiarity is a teaching of the Catholic church, the dominant force in western spirituality for many centuries and influenced those religious and secular philosophers who came after even if later they seperated theologically and politically. Subsidiarity can be briefly described as the best form of governance is at the lowest level possible, starting with the family unit and working its way up to larger groups if its prohibitive to provide the good (as virtue not economic) necessary for proper funcitoning. For example it would describe courts to arbitrate disputes as being better suited for perhaps a community/town vs each each individual family as each familys “judge’ would be less objective in arbitrating disputes BETWEEN familys than one outside of both social circles.
This article is not making value judgements on subsidiarity as a tradition or philosophical end goal, but merely describing it for a better understanding of the historical context of the principle for the reader.
The Catholic concept of the family unit being the most supreme unit of governance organization is only one small step away from the concept of individual sovereignty, and the principle of sovereignty as a good. Without getting into the weeds of the rights of children vs rights of parents it would be natural to deduce that if sovereignty is seen as a good, the individual is an apriori starting point for that concept.
Individual Sovereignty
If a man wakes up naked and alone in the woods, one does not need any prior experience to understand he has control of the faculties at his disposal, that he has a right to self-preservation against attack, that he should control the fruits of his labor he alone creates, etc. If that man fashions clothes from animal skins, builds a home, stores away food for winter, only he has a proper claim to that property. If another man wakes up naked near the cabin and walks to it, he has no claim based on an imaginary social contract the first man never agreed to, to take a portion of the animal skins and food, to live in the cabin or to attack the first man to attain those things. There is no unjust distribution or claim to partial or whole ownership of the other man’s property or bodily autonomy.
If the first man woke up the same time as 100 others scattered across the wilderness did and made his claim on the land and property he created for himself others cannot claim higher levels of authority in the name of community or state merely because he exists in boundaries they create. The a priori deduction of sovereignty always rests with the individual and not any larger cohesive unit. All claims of social contract over the individual in all its forms throughout history have been the result of expediency in the group whether it was for survival, growth or power.
The concept or principle of sovereignty is not one that is itself debated as to whether it exists or is it proper, the debate surrounds the question of at what level should sovereignty exist, begin & end, i.e. individual, family, group, nation, etc. Even communists the most pervasive and dangerous incarnation of collectivism wouldn’t argue that there are elements of sovereignty within their system. The supposed end result of international communism would be a stateless society, no longer functioning as a soviet style nation but a horizontal system where coal miners would collectively have sovereignty over their equipment, the nearby agricultural workers couldn’t arbitrarily take a shovel from the mine for use in the fields. Personal property such as your toothbrush, bed or shirt would be respected, one could not walk up and take someone’s jacket from a coat rack.
In this, we see that sovereignty is understood but the “a posteriori” of sovereignty is embraced (on false and dangerous conclusions) while the a priori is ignored. the expediency for bringing about a false conception of “equality” is what drives the collectivist to ignore the inevitable conclusion that individual sovereignty is the logical end result from even a brief reduction of the concept of sovereignty to its foundation. If you recognize that sovereignty is a good, as they do albeit in small doses, then once must recognize that it is necessary to start from the root of where sovereignty lies, that being the individual and then build from there. At this point one cannot come to any rational conclusion other than only through consensual, voluntary choices based on one’s individual sovereignty does any system have moral or ethical legitimacy.
It’s important to note that all of the major political ideologies ignore this whether its communism or democracy, they all attempt to subjugate the individual for the expediency of achieving the a posteori end result they conceive as just. It is a strange and hypocritical case of self-inflicted blinders to basic morality to prioritize any good over the sovereignty of the individual while claiming to be striving for the common good of the “people” that are made of the same individuals who it is self-evident have a right to self-ownership over the preferential outcome desired by one or more others in society. Communism prefers the outcome of “just distribution” while democracy prefers the outcome of “majority” both claiming the “good of the people” as their mandate while ignoring the individual who is a base part of “the people” as having agency over their choices and circumstances.
If Sovereignty is a good, then individual sovereignty is the “greatest good” to be achieved within that good. The concept of “the greatest good for the greatest number” inherently violates the greatest good of the individual and likely then for almost, if not ALL individuals. If the greatest good is individual sovereignty then all manners in which an individual conducts themselves to maintain it is a moral good and there should be no impediment to using tools that help the individual achieve that good.
It is important that readers understand that individual sovereignty is not synonymous with the uninhibited pursuit of wants, I can want a soda but I must either create it myself or produce enough value to be able to exchange that value directly for the good or service I desire. My individual sovereignty does not extend to the point where it violates another’s sovereignty, as Sovereignty is about a claim on yourself and your property, it is a right, a moral claim AGAINST violation by ANY OTHER regardless of ANY magical prescription for a claim above your own.
Positive rights, ones ascribing the immoral concept of ownership over something you have no claim to cannot coexist with negative rights, claims against coercion by others. For example the positive right of universal access to healthcare claims you have ownership over a healthcare provider’s services, your demand supersedes their sovereignty to choose who they do business with and how they conduct their services. One cannot simultaneously believe in sovereignty in its truest form while supporting any positive rights concepts. The popularity of positive rights in any culture or society is a very clear signal to its animosity towards true sovereignty.
Individual sovereignty is also not synonymous with the benedict option of sequestering oneself from society or the services of others. In a society that held sovereignty as the greatest good individuals would have the choice to delegate subsets of rights, such as defense, health, food, etc to others as they saw fit in a coercive free exchange. You may choose to not shoulder the entire burden of your safety and security and pay for protective services or delivery of food. Sovereignty is not about every man is an island but every man is a destination whose roads to and from are open to any form of exchange that they accent to and deem necessary for their survival or happiness.
I also wish to clarify as a point that in our discussion we are speaking in individualist terms as being a sovereign individual which should not be confused with the sovereign citizen movement which no correlation with Bitcoin or the concepts of sovereignty we are discussing. Many will see this as an unnecessary aside, but I have seen these two conflated at times.
Sovereignty in Bitcoin
This long and digressive explanation of sovereignty may seem tedious to some, wondering at what point we will see the place Bitcoin has in it, but I could not make an argument regarding Bitcoin’s principles without first doing a cursory overview of the founding principle itself.
Moving forward one does not necessarily need to agree that individual sovereignty is either the greatest good or that it is the natural reduction of the minimal recognition & existence sovereignty in your own ideological predilection, however, it is necessary to understand the argument for it, to understand my argument for Bitcoin’s existence and my conception of the principle that Bitcoin embodies and sub principles it creates.
No one would argue that sovereignty didn’t exist prior to Bitcoin, it certainly has in the aforementioned statistical outliers of individuals who have achieved it or as merely a philosophical concept. Ludwig Von Mises made a case for it in his 1949 tome “Human Action”, while Oscar Wilde even defended the concept of self-ownership (individual sovereignty) in his 1891 essay “The Soul of Man under Socialism”.
All successful ideas are organisms unto themselves, a mind virus that either spreads from one to another and thrives or languishes, slowly dying until its last host passes from this life taking the virus with him to the eternal void of forgotten knowledge.
Sovereignty is an organism, a belief system, religion if you will that like all viruses must when confronted with a threat to its survival mutate & adapt or die. Viruses constantly mutate, the majority of the iterations dying out due to lack of incentive responses in their prospective hosts that allow them to multiply. A small number do however survive and thrive creating a continuous line from the past to the future of that virus.
Sovereignty as an organism has devised many tools to ensure its survival and defense throughout history, from mere items allowing for equalization in combat like the spear & firearm to proliferation to other hosts through the printed word and the internet. My contention is that the latest iteration, the most recent mutation is present in Bitcoin. Bitcoin while an organism and emergent religion itself is not an a priori concept of truth in itself but a manifestation of a deeper truth a deeper principle, individual sovereignty.
Bitcoin can be used to buy items, store value, connect people, enable meaning in life, but these are all really third-order manifestations. Bitcoin is at its core a tool for individual sovereignty unlike anything we have seen, its magnitude barely understood even today.
All of human history we have witnessed that those closest to moneys creation have prospered above and beyond their fellow man on the outside in a given society. It is precisely why it has always been the domain of chieftains, shamans, kings, and states; private money has existed at times but it is short-lived and, in the context of history, rapidly quashed. Only those systems that augment the power of the sovereign, which strengthens the money they control, are allowed to survive; Credit, derivatives, loans, bearer bonds, etc.
Bitcoin requires no sovereign, it requires no centralized authority that can be persuaded or coerced to abide by dictates of the sovereign. It is a system that promotes the individual sovereignty of its participants.
Bitcoin was not divinely created, people may make the claim that Bitcoin or other ideas, tools, etc were inspired by God, for the purposes of this discussion I am not agreeing or disagreeing with that concept.
We do however all agree that Satoshi was not God in the proper context of a prime mover, omnipotent creator or divine being. Bitcoin was created to solve a problem, that problem being the inability of individuals to attain greater sovereignty over themselves when the system that facilitated the very ability for them acquire items necessary for survival and thriving was dependent on the goodwill of those who controlled it. One could be cut out from the system, the fruits of their labor confiscated with no ability to appeal unjust acquisition by that authority.
The sub-principles of Bitcoin
For Bitcoin to operate as a tool for individual sovereignty it had to adopt the subset of principles that it did, those being money (value transfer) and decentralization. If Bitcoin was centralized its inherent weakness to threats of coercion, greed or persuasion to acquiesce to powers working against individual sovereignty would render it useless.
Liberty dollar was a project to create private money in the form of precious metal rounds and certificates that were good for the redemption of face value in said precious metals upon proper receipt. It was a mutation of the sovereignty mind virus attempting to thrive for new generations, but its centralization allowed it to be coerced, killing the mutated virus, proving its design as being flawed. Egold was another example of a mind virus mutation whose centralization made it vulnerable
Decentralization:
The first sub principle of Bitcoin is decentralization. If sovereignty is the overarching principle that created the need, the incentive for Bitcoin to exist, there needed to be principles of Bitcoin that facilitate it to be a useful tool to achieve its end result. As we have seen throughout this discussion, centralization is a tradeoff that creates a weakness in any tool that attempts to manifest sovereignty for the individual utilizing it.
Bitcoin uses decentralization, the lack of overt authoritative leadership, to its advantage in that if one company that touches the network is coerced, persuaded, destroyed (killed) or falls to greed/ignorance, while it would have effects on the value of the network for a short period of time (MT GOX), it would not “destroy” the network itself. All Bitcoin truly needs is one or more persons to run nodes to ensure its survival, the “breeding” pairs of the network waiting in dormancy for the right conditions to arise once again.
There is, however, no sufficient description of what exactly decentralization “is”. Was it Hal Finney and Satoshi, was it the first 100 nodes or users, the first 10,000, the first million? The best explanation I can give is not X is decentralized but X is DECENTRALIZED ENOUGH when it reaches the point that the network becomes large enough to sustain itself against the attack and/or corruption by one or multiple entities.
Under this definition, I would venture to say we have not achieved a network that is “decentralized enough”. Bitcoin has been publicly attacked by politicians & it has been attacked by those within who have a faulty view of what Bitcoin is (and regardless of your specific denomination or viewpoint, each denomination views the other denominations as a type of attack on Bitcoin whether they say it or not).
Bitcoin has not, however, experienced a concerted attack by a nation-state in the form of being forced into a fully black market network through illegalization and more importantly a major nation-state has not attempted, that we know of, to gather enough hash power to manifest the only attack that truly matters, the 51% attack on the consensus mechanism. We have definitely not seen the ultimate test of its strength in how it can resist a well-coordinated attack by a large or multiple major state actors.
This will come at some point in the future, and that will be the true test and verification of whether Bitcoin is “decentralized enough”
Money:
Money is the next sub principle of Bitcoin although I refer to Bitcoin as a information or value transfer network. Even those who claim that you can own a Bitcoin-only claim that ownership is specifically that of the private key, a 256-bit number that is a specific angle of a very precise line in an elliptical curve (in the future using schnorr) cryptography scheme. They do not claim however that you own the utxo set, which is what people will refer to as “bitcoin” and what you transfer to others or transfer to you. The utxo set is only something YOU control for PERIOD of time through knowledge of the private key.
Ownership in Bitcoin
Ownership implies something akin to actual property such as a home, land, car, firearm or orange. These are items that reside in the physical world that can be touched, built & grown.
Ownership requires a few prerequisites of which I draw on “Self Ownership” by Vin Armani. These prerequisites are knowledge of existence, ability to interact with and finally ability to defend. It is not necessary to define these concepts in detail as it is already masterfully done in the book. In short, one must be aware of the existence of something to own it, it is self-evident that one cannot own the unknown. One must be able to interact with the object, you cannot own something you cannot touch, see, hear or feel. You must finally be able to defend that claim whether its physically or with evidence to the contrary of a rival claim.
The concept of courts, arbitration both civil or private, developed precisely because those items that reside on our person or property can be taken unjustly by those without proper claim. These courts are meant to adjudicate competing claims on property. You cannot, unlike a private key, control the knowledge of an orange and occult it in a way no one can ever take it. With enough guile and precision, one can break into the safe that you keep it in an take it. Resulting in a dispute.
Math, numbers, on the other hand, represent the universe and existed prior to ours and humanity’s existence.
You cannot copyright the pi equation as it exists in nature, transcendent, the equation just being a symbolic representation of that which already exists. The numbers that make up private keys exist throughout the universe but in your private key they are assembled into a string that will unlock utxo’s, but you cannot own math or the number 5, 56, 5602 and so on. No matter how many digits you affix to it, you have no more ownership of it than a reduction of that number to anyone or more parts.
Another way to look at ownership in Bitcoin is to consider the concept of Intellectual Property, which as you might rightly point out IS protected under law. This is in my mind not an argument that Bitcoin is property since it more resembles IP than land or oranges but a further argument against IP in general as a concept. If I come up with the idea of the electronic book when I was 8 and draw out schematics for it, but never produce it, or even perhaps I do, does this mean because I had an idea and a concept of implementation no one else should be able to produce portable digital books in perpetuity?
Why is 15 or 20 years considered reasonable but 100,1000 or eternity is ridiculous? The answer is that its not, its a subjective assessment with no moral backing that was instituted, as described earlier, for the expediency of perceived “common good”. Why is me having an idea & declaring it or producing a prototype on YouTube publically not enough for a claim but blueprints and filing fees considered morally correct via the legal process? The answer is the same as before, its not, its merely expediency masquerading as virtue, superseding the right of an individual’s sovereignty.
Arguments for IP law usually boil down to subjective terms such as fairness or the need to promote innovation, which is no basis for a moral foundation of a society. My lack of proper housing does not necessitate a need on your part to provide me yours, Your lack of ability to come to market faster than myself with innovation doesn’t necessitate a need on my part to wait decades to do so. You would not consider it moral for me to claim ownership of the idea of germination, precluding you from growing tomatoes why is a bendable screen for a smartphone any different. The ability to occult the knowledge of trade secrets rests with the companies and individuals creating them not of the participants in the market to forget what they already know.
If I created a perpetual motion machine or cold fusion, able to provide endless power but OCCULTED that knowledge to myself, told no one, I would have claim over that prototype sitting in my home. But would I have a claim to challenge another persons ability who came to the same conclusion as me at the same time or years later? If I create a new religion that people are drawn to can I stop them from practicing it personally or together across the globe? Of course not. These are merely ideas. Ideas can (often not) lead to creation but you have no more claim on the IDEA of X than you do the idea of hunting for food or gathering rain in a barrel. Once pronounced to the world, they are like dandelion seeds caught in the wind and they will travel over great distances, and once landing you do not have a claim to the property they inhabit or the fruits they create only because they originated where you reside or spilled from your mouth.
A private key is like this. If you keep that dandelion full of seeds, hidden away from view, from all knowledge of its existence you control the fruits it can unlock. If however, you bring it into public knowledge and those seeds blow away out of your control you no longer have a claim to them. If today I posted on Twitter, Facebook, Snapchat, or TikTok the private key to my Bitcoin utxo sets I Iose control of them, whoever is able to occult that knowledge the best after I do this gains control of what I once had.
For these reasons I do not believe Bitcoin is money by traditional definition, money implies ownership with certain legal rights that in Bitcoin cannot be enforced.
If you gain control of my private keys and I bring you before a judge he can request you hand them back over, he can threaten you with punishment but he cannot put a lien on your Bitcoin the same as he can with your house, retirement or other property to ensure restitution. Bitcoin is a de facto bankruptcy first settlement system when disputes arise. If I owe you 100,000 for a unfinished job, I took your money and then declare bankruptcy there is no restitution for you. If I take your bitcoin there is no restitution outside of my consent to use or give the private keys that control the utxo sets you once did. If I send your utxo sets to a burner address, NO one in the world can ever recover them for you. You may say that the as described civil proceedings could recover those assets in the forms of liens, but this is extra network, state augmented arbitration restitution. Civil authorities can go after your out of network wealth but never the wealth held in the network. There is no mechanism for in-network on-chain dispute resolution, this is because Bitcoin cannot be censored or controlled, it has no centralized authority. Centralized authority is inherently necessary for such an act to even be possible.
Bitcoin is at its most basic an information transfer network that has become a value transfer network. The information on the Bitcoin network has only the value that the participants in the system give it. In 2009 when Bitcoin was released it transferred information from the network to Satoshi as a miner, it then transferred information to Hal Finney when he joined the network. When Satoshi sent Hal the first transaction it sent information to the network that then updated the ledger state to reflect the information that Hal now had 10 more Bitcoin in his wallet. You can argue that at this point Bitcoin did begin to have value, as they began to send transactions to build the network and test functionality, which if they had no value they wouldn’t have done it.
Bitcoin, however, was not MONEY by ANY definition of the word at that time or for a very long time after. It was not until Laszlo bought those two famous pizzas for Hundreds of thousands of Bitcoins did Bitcoin have its first data point in price discovery. Until that time it had ZERO value as money, but it had immense value to people participating as information as well as providing meaning.
As an aside, this is where I diverge from Nick Szabo and what apparently earned me a block by him. He argued that fiat was a collective fiction while bitcoin, gold, etc were not, they were money based on their merits. While I agree that Bitcoin and gold have more merit than fiat, money is still an abstraction and requires a collective agreement, a “fiction” if you will, to earn consensus as having the merit of value. Iridium and Ruthenium are slightly less rare than gold but more rare than silver so why can you not find individuals who find the merit in those metals as money but ones with gold & silver? Because it required a collective consensus, a cultural agreement that these had the merits of rarity, difficulty to attain, mine and mint. All value, whether money, religion or technology is derived from at its most basic an agreement between people. The larger the consensus the more value it has.
If Bitcoin was at its inception not money, but was information and later acquired value, then we cannot consider what it is used for today or in the future as being what its prime essence is; Bitcoin has acquired or is acquiring as one of its uses the aspects of money, but at its core, it’s information and the network is recording the transfer and current status of that information.
In conclusion principle A, sovereignty, begets a need for something like Bitcoin, Bitcoin begets a need for sub principles or traits B, decentralization & money and these sub principles or traits beget the need for tools to accomplish it. These tools have already been mentioned, the integration of proof of work, miner incentives, etc. In reverse, these tools facilitate the functioning of B which facilitates Bitcoin providing for the need set by Principle A, Sovereignty. Sovereignty has always been the principle that Bitcoin serves and enable & proof of work has always been the mechanism that creates value in humanity.
