Stone Ridge Founder: Understanding Bitcoin, My Four Personal Aha Moments
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom), published with permission.
Chain News ChainNews (ID: chainnewscom)
Compiler: Perry Wang
Chain News ChainNews (ID: chainnewscom)
By Ross L. Stevens, founder and CEO of Stone Ridge Asset Management, a $15 billion asset manager
Compiler: Perry Wang
Bitcoin is a journey, not a destination, and everyone is on their own path. Every morning, as I research Bitcoin, I find myself more in awe because of the power and potential of its unstructured simplicity that brings me humility. The more I learn about Bitcoin, the clearer it becomes to me how much there is to learn and how much I want to know.
There is beauty in Bitcoin.
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The one on the right is Ross L. Stevens
I study Bitcoin by standing on the shoulders of the giants who preceded me in exploring the knowledge of Bitcoin and illuminating the path. Every morning for the past eight years, there have been as many as dozens of moments where I have had to put down the book, or pause the podcast, after reading or hearing something that I felt would instantly and forever change my worldview. stay for a while. If you take a serious look at Bitcoin with humility and keep in mind Wallace's wise words that sometimes "the most obvious and important realities are the hardest to see" then you'll see a lot that you can't ignore. Of course I did. Here are some of the biggest aha moments from my past Bitcoin rituals.
The list is very long and I tried to squeeze it down to four.
Salability over time
Gold has been a reliable store of value due to its scarcity and historical supply growth rate of only 1-2% per year. There has never been a "gold hyperinflation". Indeed, gold has held its value for hundreds of years, while hundreds of other currencies have come and gone to nothing. But the supply of gold cannot sustain its demand. If hypothetically tomorrow the price of gold hits $100,000/oz (more than 50 times overnight), we can be sure that vast amounts of resources will immediately be transferred to the gold mining industry, and miners will find some way to accelerate their supply growth, and its value will follow decline.
In contrast, Bitcoin's supply cap will always be only 21 million. Bitcoin's annual supply growth will gradually approach zero over time, and the current annual supply growth rate has dropped to about 1%, which is in line with the historical annual growth rate of gold supply.
While this is a far from perfect metaphor, gold is the closest real-world analog to Bitcoin. The ultimate supply of Bitcoin is fundamentally limited by the design of the protocol itself, and cannot be increased regardless of its value or level of demand. Bitcoin is the first store of value in history whose supply is completely unaffected by an increase in demand.
From this perspective, Bitcoin is more like gold than gold — Bitcoin is more marketable across time.
cross-spatial saleability
When human beings have crossed the historical stage of walking and horseback travel, the stage of rapid development of high-quality and cheap commercial air travel, and especially the stage of explosive growth of Internet power like the Cambrian, even the most enthusiastic investment gold "fans" It is also impossible to ignore the serious flaw of gold's own low cross-spatial salability.
Gold is difficult to transport. The U.S. government fiat currency outperforms gold by a large margin on this level. Although the characteristics of fiat currencies such as periodicity and artificially induced hyperinflation have greatly reduced their salability across time, their salability across space has made a huge leap.
Contrary to common misconceptions, Bitcoin moves through space much faster than fiat currencies, allowing long-distance international settlement capacity to increase to about 500,000 transactions per day, and settlement can be completed in about an hour, rather than The current international fiat currency settlement takes 3-5 days or even longer.
Bitcoin’s protocol and network topology make national borders irrelevant, a force that is especially powerful for those in the most vulnerable and most fiat-inflated parts of the world today (think Venezuela, Turkey, and Lebanon today).
Even in a country like the US, please don't confuse the speed at which you pay with Visa with the speed at which it will eventually settle. When you buy coffee at Starbucks, no final, actual settlement occurs. Instead, your bank and the bank where the Starbucks account is held will usually take 2-3 days before final settlement, each bank taking credit risk to the other in the process, sometimes with catastrophic results, although the exact amount may be less , but does exist.
Bitcoin can be settled in almost an hour, and as a bearer instrument, there is no credit risk. From this perspective, Bitcoin is more like legal currency than legal currency—Bitcoin has stronger cross-spatial salability than legal currency, and it does not form liabilities like legal currency, so there is no credit risk.
Mining Adjustment Difficulty
Nothing Satoshi Nakamoto used to create Bitcoin was original except for the difficulty of mining adjustments—his genius was the insight into how a set of previously solved solutions to a particular problem could be combined to solve a certain problem. some unresolved issues.
In my opinion, "Mining Difficulty Adjustment" is completely original by Satoshi Nakamoto, the most underrated breakthrough contribution of Satoshi Nakamoto, a truly genius application of game theory, and the fundamental reason why the Bitcoin network is always safe.
What is Mining Adjustment Difficulty?
Suppose the price of Bitcoin rises, thereby incentivizing more Bitcoin miners to invest in Bitcoin mining (remember that successful mining generates rewards in Bitcoin, so the relationship between the price of Bitcoin and the total incentive to mine globally There is a continuing connection). In this case, the Bitcoin protocol will automatically increase the difficulty of mining so that the creation of new bitcoins and the verification of transactions will not be shorter than its preset timetable (about one bitcoin is mined every 10 minutes). In the same way, assuming that the price of Bitcoin falls, Bitcoin miners with higher marginal costs will rationally shut down their mining machines. The Bitcoin protocol will automatically reduce the difficulty of mining so that the creation of new Bitcoins and the verification of transactions will not be shorter than its preset timetable.
Why does the Bitcoin protocol make such an adjustment? If I tell you that the product of two prime numbers is a specific three-digit number, and then ask you to guess two prime numbers (I will also remind you that a property of prime numbers is that the product of two prime numbers is unique, any other two prime numbers multiplication will not equal it). My question doesn't have a closed solution, it just means you have to guess randomly until you find the answer. Since I told you that the product of these two primes has only three digits, you can probably guess the two primes fairly quickly. But suppose I tell you that the product is five digits, ten digits? What about twenty digits? You understand that it's going to get harder, and then random guessing gets harder.
Mining adjustment difficulty is similar to adjusting the number of digits in the product of prime numbers and is a function of online mining capacity at any given time. The more miners, the larger the number of digits of the prime number product. Fewer miners, fewer bits, and even if all commercially-operated Bitcoin miners and their pools of supercomputing power suddenly go offline overnight, amateurs mining with laptops in Starbucks can protect the entire world The security of the Bitcoin network remains the same.
Brief summary: Mining adjustment difficulty is a "legacy" of decentralized digital currency attempts over the past few decades. The mining difficulty adjustment ensures that the Bitcoin network rewards the generation of a new Bitcoin block every 10 minutes, with accurate and constant verification of all transactions during that time.
It is the above-mentioned factors that drive the saleability of bitcoins over time: even in periods of surges in demand for bitcoins, bitcoin miners cannot mine bitcoins faster, and if the number of bitcoins generated surges, it will cause unexpected inflation. And this design ensures that such inflation will never occur.
Adhering to Satoshi Nakamoto's consistent low-key style, the mining difficulty adjustment is described in only two sentences in his original Bitcoin white paper: "Mining difficulty is determined by the moving average of the average number of blocks produced per hour. If They spawn too quickly and the difficulty increases."
By the way, "mining difficulty adjustment" can also limit the waste of mining energy, further incentivizing miners to mine, but this benefit pales in comparison to the effect of making Bitcoin resistant to inflation.
Mining difficulty adjustments have now been tested for twelve years in a row, and the total power level of the global network has grown from a few laptops at the beginning to consume as much energy as the power supply of New York City. The overall power level of the network fluctuates wildly. The fluctuation of the total network power requires the Bitcoin protocol to continuously adjust the difficulty of mining, similar to continuously adjusting the number of digits of the product of two prime numbers. And the amazing thing is that, as Satoshi Nakamoto designed it, the Bitcoin network keeps validating a new block every 10 minutes...every 10 minutes...every 10 minutes, regardless of changes in global mining power or its variability.
When it comes to energy...
Bitcoin Energy Consumption
Bitcoin's energy consumption is the sum of the energy consumed by all the mining machines that secure the Bitcoin network. Although the exact figure is difficult to determine, a more reliable estimate is that Bitcoin's global energy consumption is equivalent to the energy consumption of 8-10 million people. Really huge numbers. In the age of global warming, can this be a good thing?
First, the principle: Bitcoin is a better technology for performing central banking functions than the current government monopoly on central banking. Cars consume far more energy than the bicycles and horse-drawn carriages they replace, electric lights replace candles, central heating replaces chimneys, computers replace typewriters, and bitcoin is a far superior monetary system, albeit one that consumes less energy than the current central banking system. There is much more energy. Throughout history, energy use has grown as long as free people make free choices that the new technologies they want are worth the extra energy price. With 24/7 non-stop bitcoin mining today, bitcoiners around the world agree that the price of energy usage in bitcoin is a price worth paying because bitcoin is a better monetary technology.
Second, practice: Bitcoin mining is the only profitable use of energy in human history that does not need to operate near human gathering places. In the long run, this will quietly change the world in full view.
Before Bitcoin, the energy aspect was never about scarcity, but simply the need to direct it to where it was most needed geographically. Before the birth of Bitcoin mining, the main destination of energy was the place where human beings lived. The energy consumed by Bitcoin mining requires solving a completely different problem. Bitcoin mining can be run anywhere thanks to satellite and wireless internet connections.
For example, remote barren regions with abundant water sources can monetize their natural resources by producing clean hydropower and using it for Bitcoin mining. Thus, Bitcoin can monetize isolated sources of energy (such as waterfalls, flowing rivers, or buildable dams) around the world that are currently undeveloped because they are expensive to develop and cannot be accessed far from populated areas. Or a grid close enough to the industrial area.
In this way, Bitcoin could fundamentally change the energy economy by introducing location-independent, highly profitable electricity. There has never been a case of profitable energy utilization that is not limited by location in the world. It can be a reality now. And since fossil fuels are already too expensive to be a profitable source of energy for bitcoin mining, I believe the only long-term profitable bitcoin mining operation will rely on hydropower.
Imagine a future of unsubsidized bitcoin mining in uninhabited areas - imagine waterfalls in sparsely populated areas in abjectly poor African countries - easy access to the bitcoin network, a well-established energy infrastructure, and local of clean energy is used to generate electricity to support Bitcoin mining. Once this industrial-scale capability, profitable infrastructure is in place, it can be produced at scale. Let's build roads and housing, schools, hospitals. Human settlements were born out of nowhere.
The end result could be people congregating and settling around new, bitcoin-powered hydroelectric infrastructure, with more and more of humanity clustered around cheap, clean energy. Historically, our energy challenge has been getting energy to people. With Bitcoin, we can send people closer to energy.
