Most people who understand Bitcoin know that there are two types of Bitcoin. The first is Bitcoin, an asset that has a fixed and highly volatile supply, and the second type of Bitcoin, a network and protocol that maintains an immutable ledger that has never been hacked and is bulletproof, bombproof, and tankproof. In my opinion, too much emphasis is placed on assets and not enough on the network, protocol and immutable ledger.
While listening to Peter McCormack's recent podcast with Dhruv Bansal, they discussed network and protocol in a new way.
I really liked Dhruv's formulation of how to view the fixed supply of Bitcoin. The two versions can be simplified as follows:
Version 1: The common point of view
The 21 million will be issued over 131 years from 2009 to 2140. Not all bitcoins have been issued or created yet. This opinion finds that as of March 2024, approximately 19,659,000 Bitcoins have been issued or created which represents 93.62% of the total supply. In the current era, the way you describe this is “about 6.25 Bitcoins are created every ten minutes.”
Version 2: Dhruv's point of view
The entire 21 million were created via the network, consensus mechanisms, algorithms, and protocol on January 3, 2009, and as of that date, its monetary policy and thus the supply issue for those 21 million were determined on that date. All 21,000,000 already exist but haven't been released or unlocked yet. Dhruv used the term “issued” to refer to the number of bitcoins released every ten minutes. I will use the term “open” for the balance of this article to further amplify the brilliance of Dhruv’s framing. Bitcoin users are already familiar with time-locked Bitcoin, and in a sense, Dhruv's framework extends the idea of time-locked Bitcoin to its logical conclusion. The first epoch timelock schedule ran for 210,000 blocks. The next lock table for epoch 2 ran for 210,000 blocks and so on.
What is the importance of Dhruv's framing?
By framing mining as buying Coins instead Create Coins help us understand the ever-increasing difficulty. How do we protect this fixed supply of 21 million coins and prevent human fraud for 131 years?
If the miners Create bitcoins, they seem to use more resources to create fewer coins over time. This makes Bitcoin appear to be suffering from an “inefficiency of scale” – as Bitcoin adoption grows, more resources are used in mining, and the cost of producing Bitcoin *increases* rather than decreases, as we would expect in any other industry. This is part of the reason (Dhruv suspects) so many people outwardly object to Bitcoin mining – it seems stupid and wasteful because it works that way!
Conversely, if we think of Bitcoin miners as *buying*Bitcoins from current supply [paid for in computations] The increased resources used by miners therefore makes sense – as Bitcoin adoption grows, Bitcoins become more valuable, the security of the network increases and the network adjusts the price of newly issued Bitcoins upwards. Dhruv believes this framework could help mitigate some people's negative initial impressions of the mining market.
Note: The reason this framework makes sense is because Satoshi created a completely new way of telling time using distributed systems. I don't think we give him/her/them enough credit for this! As Gigi points out in his book Bitcoin is Time, in the absence of a central authority, Satoshi had to invent a new way for a group of decentralized computers to tell time. Satoshi chose ten minutes as a target time and executed it via auction. Humans are closely linked to time as we understood it before Bitcoin, so some of us will have trouble seeing it as Dhruv suggests.
The base layer of Bitcoin has two markets
Dhruv assumes that there are two markets operating for Bitcoin at all times that constitute the base layer of Bitcoin. Class zero and class one.
Layer zero is what I call the security layer and monetary policy layer and is enabled by mathematics and code in an auction that occurs in every block and takes an average of 10 minutes. Since January 3, 2009, each block on the Bitcoin network has held an auction with a fixed asking price [measured in computations] Who sells the next tranche of Bitcoin that already exist For the entire global Bitcoin mining industry. An example of a mega collaboration if ever there was one! When it was just Satoshi and Hal Finney, there was no global Bitcoin mining industry, but you get the gist.
Today I think the global Bitcoin mining industry is better and more accurate as the security layer of the Bitcoin network, but that is a topic for another article. “This is a two-sided auction where you get this many coins for this many accounts,” Dhruv points out. The entire industry of Bitcoin miners [timestamp servers] I paid the mathematical price collective for that block. There are so many coins [depending on the epoch] For these many accounts, the network waits to open the next batch of coins until a lucky miner comes along who meets the minimum computational price.
There is a constant guessing game using proof of work that takes place between all the timestamp servers connected to the Bitcoin network. This is what gives the Bitcoin network such amazing security. Eventually, one of these timestamp servers “wins the auction” using the Dhruv framework and earns the block reward. Each timestamp server for the 10-minute period serves the purpose of making the network highly secure but only one timestamp server wins the block reward. Technically, this timestamp server often runs in a mining pool but that doesn't matter for the purposes of this article. If the network paid too many or too few calculations, the time it took to fulfill that offer was different from 10 minutes.
The network protocol and software track the 2016 auctions during the 2016 block period and note the times for each block. “Each of those times in itself can be considered a show,” he says. The entire industry submits these bids sequentially and the network pauses and says, “What are the most recent bids in time?” The price you pay to the miners (security forces) is adjusted so that the bidding time matches the target time.
The big idea is that Bitcoin Layer Zero is a market among the entire network of users And The entire network of Bitcoin miners which forms the security layer of the network. This market acts as an active force field protecting the network every moment of every day since 2009. Why do we call it a market? Dhruv believes that all decentralized systems must be markets in order to work. [In this case Layer zero is a collective market that involves computations for the timed release or unlock of bitcoin. And, additionally this collective market provides security services for the timechain.]
What is basic trading on layer zero?
What is the basic trade on Tier Zero? “It's a Bitcoin account,” says Bansal. Layer 0 is a “market between two groups”. It is a market among the entire Bitcoin network [who want security] And the entire Bitcoin mining industry who want security and block rewards. There are only two “participants” in this layer. This market is closely related to another market [Layer 1] It is a block space market. Bob Burnett has also said this in a different way by pointing out that there are two types of scarcity in Bitcoin. We can call the first layer the final settlement and transaction layer of Bitcoin.
The zero layer solves the problem of how to release or open a fixed supply of currency for trading fairly Secure the network until 2140 using proof of work.
The first layer market is How can I get transactions to achieve end and change ownership in an immutable ledger? Every market has artificial and purposeful restrictions. Tier 0 is the fixed number of coins issued or unlocked over the course of 131 years. The first layer is the block size or block area. The first layer is the market between individuals. How much is an individual user willing to pay to include this transaction in the block?
Sometimes there are blocks that have been mined that do not contain any transactions. For those who think “how wasteful,” think again. These blocks prove the value and existence of the security layer. Any blocks that are mined without transactions in them prove the existence of the layer 0 market and ignore the layer 1 market. [It also reinforces Dhruv’s point that there are two markets.] Over time, as all Bitcoins are released into circulation, the zero-tier market disappears. It is no longer needed. At this point, the only market left for the base layer will be the first layer. Most Bitcoin users believe that transaction fees alone will be enough to continue securing the Bitcoin network long into the future. In theory, the first-tier market would take over and secure the immutable ledger to make sure no one cheats.
There are those who believe that transaction costs will not provide enough incentive for miners to continue mining, but there are two markets, and the first market still has a long way to go to reach the zero layer.
The incentives for me are already very strong [there are something like 20 publicly traded companies] These incentives are getting stronger day by day. I know many Bitcoin users who are currently running miners for the heat they provide, and thus have a strong incentive to continue even after the zero-layer market has served its purpose. There are entrepreneurs looking to build businesses around these timestamp servers that will heat swimming pools, heat hot water, heat rooms, heat homes, heat buildings, and will provide electricity to people in the world who don't have electricity. In fact, I expect that in the next few years there will be devices designed for the heat they produce.
In addition, miners around the world are constantly looking for places where there is free energy, trapped energy, wasted energy, methane dilution, and even waste tires that they can use as a fuel source. There are also nation states that mine Bitcoin. Anyone with a large amount of Bitcoin will have a high incentive to continue mining as long as the value of the network continues to grow and nation-states continue to devalue their currency to zero. In addition, there is a new form of energy technology called OTEC which I suspect will become a great form of energy that will be proven viable near the equator due to Bitcoin mining.
Bitcoin is a layer of markets. These first two markets operate separately from each other. There is a second layer that has emerged and is still being created that provides fast settlement and payments. Layer zero is the security layer and the view unlock layer. Layer 1 is the store of value layer and the final settlement layer. The second layer is an intermediate layer for fast exchange and settlement.
For those who find these ideas strange or difficult to understand, feel free to ignore them or let us know where our thinking gaps. Take solace in the idea that free markets and mathematics secure your bitcoin [instead of central bankers] It will do so for the foreseeable future.
Special thanks to Dhruv Bansal for making constructive contribution to this article.
This is a guest post by Mark Maria. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
