WBD631 Audio Transcription
Beginners Guide Part 2/3 - What is Bitcoin? With Harry Sudock
Release date: Tuesday 14th March
Note: the following is a transcription of my interview with Harry Sudock. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Harry Sudock is Chief Strategy Officer at Griid. In this interview, we discuss what Bitcoin is: specifically, on what ideological foundation was it developed, what problem was it designed to solve, how it solves that problem, and why is it the best technical solution for solving that problem. It’s a tl;dr of the basic technical features underpinning Bitcoin.
“Bitcoin is beautifully simple: from a mind-virus perspective there are only 21 million, what you own, you own, it’s yours, you’re in control. It puts the burden and the responsibility back on the individual, and therefore the opportunity rests on the individual, and so Bitcoin is money for people who are ready to take responsibility for their lives.”
— Harry Sudock
Interview Transcription
Peter McCormack: What is Bitcoin?
Harry Sudock: I think Bitcoin's a lot of things to a lot of people, but the common denominator is that Bitcoin is just better money.
Peter McCormack: What makes Bitcoin better money?
Harry Sudock: Bitcoin is better money because it's available to everyone on a fair and equal basis. You don't need to rely on any counterparty, any trust in third party. It's money for literally everyone.
Peter McCormack: What is the Bitcoin ledger?
Harry Sudock: The Bitcoin ledger is just the entire history of all the transactions that have ever been processed on the Bitcoin blockchain. It's like, if you were to open up the books and records of all of the people who've ever used this thing, it's the database that stores all of those accounting entries.
Peter McCormack: What is the blockchain?
Harry Sudock: A blockchain is just one type of database. It's a database that prioritises security and the quality of the entries, rather than the speed of the database or the amount of the entries that you can put into it at any one time. It's a database that makes different trade-offs.
Peter McCormack: What is the problem that Bitcoin needed to solve?
Harry Sudock: Bitcoin needed to solve several problems. The most important is that trusted third parties govern the world around us, and Bitcoin is the most credible attempt to remove those trusted third parties. They insert themselves in the form of inflation, they insert themselves in the form of asset forfeiture and seizure, they insert themselves in the form of capital controls as a means to control a population. Until you remove the trusted third parties from money, you can never truly be free.
Once you take this baseline fact to be true, which is that the trusted third parties need to be removed, the question is how; and what Bitcoin did is it put together the Lego blocks of trust-third-party removal through a process called decentralisation, in order to allow the money to transact freely and independently. So, what that decentralisation means is that there are hundreds of thousands of nodes all over the world now that are checking the validity of every, single transaction; there are hundreds, if not thousands of miners, contributing hash power to process the transactions; and there are millions and millions of users who view Bitcoin as a savings' tool, as a new technology to change their financial future. And so, because we've distributed this tool across these different levers into hundreds of thousands, tens of thousands and millions of hands, the ability to continue to have a system that no longer and never will rely on a trusted third party is secure.
Peter McCormack: Why is decentralisation so important?
Harry Sudock: Decentralisation is so important because it is the whole reason the system works. If I had to describe Bitcoin as doing one single thing, it's the certainty that the Bitcoin I own is mine, so long as I use the software as intended. That means that over 10 or 50 or 100 years, the Bitcoin I have is under my control no matter what, and that means that there is no counterparty who's moving a balance, there's no counterparty who's in charge of the supply. And because there's no third party involved in those steps and processes, we take on a wisdom of the crowd, or a wisdom of the masses to replace that third party. So, the system is able to function in this disintermediated way, and the only thing that replaces an intermediary is a decentralised mass.
Peter McCormack: Where did Bitcoin come from?
Harry Sudock: There's a long history in America and frankly elsewhere of people trying to make non-government money, non-fiat issued, non-centrally issued, and one of those movements really dovetails with the cypherpunk movement, where you see the early Bitcoin contributors. If you go to the Bitcoin Whitepaper, all those citations, those are cypherpunks.
So, we've seen that privacy on the internet and freedom on the internet and money on the internet are two ideas that are really closely related. So, if you look to Adam Back and his invention of proof of work and Hashcash, if you look to Wei Dai and you look to E-gold and these different kinds of historical projects, these were attempts at putting together the pieces that govern money on the internet on a decentralised basis. But all of those projects failed because they had failed to achieve adequate decentralisation.
It was really Satoshi who first came up with a way to assemble those pieces of the puzzle in an adequately decentralised way. This means that it was futureproofed against central points of failure, futureproofed against governments and against companies trying to come in and debase this idea that is really centred around proof of work, centred around a 21 million hard cap, centred around the individual owning the asset on a totally unassailable basis.
Peter McCormack: What are the four pillars of Bitcoin that make it work?
Harry Sudock: So, these are what I think the four pillars of Bitcoin are; I'm sure there are people who will argue with me. But when I think about what are the foundational Schelling points of the Bitcoin software that if they changed, Bitcoin would cease to be Bitcoin, for me it's the 21 million supply hard cap; it's proof of work plus the difficulty adjustment; it's full backwards-compatible auditability; and from a design perspective, it's prioritising decentralisation over other design constraints.
The reason that fourth one is subtle and important is that there are other projects that check the first three boxes within Bitcoin's history of forks, but none of them have chosen the fourth path, which is getting full nodes into as many people's hands as possible is the foundational priority, because without that auditability layer, we're just trading tokens.
Peter McCormack: What is the Bitcoin monetary policy?
Harry Sudock: The Bitcoin monetary policy is dead simple and was set from day one: there will only ever be 21 million Bitcoin in existence and the issuance schedule has been set the entire time, it has been proven with each of the last halvings.
Peter McCormack: What is a halving?
Harry Sudock: So, a halving means that every four years, the amount of Bitcoin issued or minted per block gets cut in half.
Peter McCormack: Why is the 21 million hard cap so important?
Harry Sudock: Because Bitcoin foundationally provides certainty. So, when I send 1 Bitcoin to Pete, he knows that he now has it and there's no other authority within the system who can spend that Bitcoin; the same way that he knows that that 1 Bitcoin is 1 out of 21 million that will ever exist. And so, the ability to have certainty in the system without trusting anyone else is the value proposition of a hard cap supply money.
Peter McCormack: How many Bitcoin have been issued so far?
Harry Sudock: So far, there have been about 91.5% of the total Bitcoin that will ever exist issued, so somewhere above 19 million.
Peter McCormack: And, when will the last Bitcoin be issued?
Harry Sudock: So, the date exactly is not certain, but the last Bitcoin will be issued approximately in the year 2140. Every halving, you get half as much and so over 12, 16, 20, 24 years, the amount that gets issued per block becomes exponentially smaller, or I guess logarithmically smaller for the maths nerds, each time, and so we're going to trend asymptotically to zero and then hit zero in 2140.
Peter McCormack: What is auditability and why is that important?
Harry Sudock: If you ask a different bitcoiner, it's one of their favourites. So, Pierre Rochard is a hardcore auditability guy, and so what he taught me many years ago is that Bitcoin node software has the ability to check how many Bitcoin have been issued in total, and the process of downloading the historical software and running your own Bitcoin node is in and of itself an auditing process, because the way that Bitcoin's cryptography works is that the cryptography of the first block informs the second block, and the cryptography of the second block informs the third block. Therefore, if you were to change anything in the entire history of every singly transaction that has ever happened on the Bitcoin blockchain, you would ruin the ability to run your own current node.
That's why having hundreds of thousands of nodes all over the world running the same software, validating all the transactions, is required because if any node tried to steal 1 million Bitcoin for themselves, it would completely change what happens on the software and they would be out of sync, they would be out of compatibility and they would lose the ability to spend those Bitcoin, because every other node would reject them. And so, there's this universe of audits that are constantly happening, making sure that every transaction is valid, every transaction is truthful and that the process by which I am able to use my Bitcoin's purchasing power is mine and mine alone, ad infinitum.
Peter McCormack: Are Bitcoin transactions private?
Harry Sudock: No, Bitcoin transactions are not private, they're published to the blockchain, which is literally a huge public database. There are ways to engage in transacting privately, but the actual movement of the Bitcoin on the ledger is public.
Peter McCormack: What is proof of work?
Harry Sudock: So, you may have heard something called "mining", or Bitcoin mining; proof of work is the computing process that Bitcoin miners engage in to (1) make Bitcoin useful by adding new blocks of transactions to the blockchain, but (2) it's also the way that they generate revenue, because they get paid for their work in order to do this.
So, what proof of work does or is, is it's the replacement for banks. It replaces the bank teller inputting your cheque and moving a number in their database. What proof of work does is it creates a fair and open process, by which it becomes a free market for Bitcoin transactions to be added to the blockchain. So, proof of work is one of the necessary components to keeping Bitcoin decentralised.
Peter McCormack: What are miners doing during this process?
Harry Sudock: There's a process by which miners are looking to find an approvable block. And so, the metaphor I use most often for this is actually a puzzle. So, what miners are doing is they're taking a 10,000-piece jigsaw puzzle and they're putting it together as fast as they possibly can. And if anybody's done a big jigsaw puzzle, it takes bloody forever! But once you finish it, everybody who looks at that puzzle knows if it's done or not.
So, what the miners do is they assemble this massively difficult 20,000-piece jigsaw puzzle, and then they hold up the puzzle in front of all the different nodes, and the nodes are able to do the very easy task of deciding if the puzzle is complete or not. So, it's very easy for nodes to check; it's very hard for miners to finish the puzzle; and therefore, the security and the unhackability of Bitcoin is extremely, extremely secure, just based on the way that this process functions.
Peter McCormack: Why is so much computational power required for the Bitcoin Network?
Harry Sudock: The short answer is there's not that much computational power needed for the Bitcoin Network. You could run the whole Bitcoin Network with one computer. But what's happened in the free market around Bitcoin is that Bitcoin is an enormously valuable thing, both one individually at, whatever, $23,000; and also, in aggregate. The economic power of Bitcoin, the system, is also enormous. And so, because the market has told the world that Bitcoin is enormously valuable, there's a huge competition for miners to go get the Bitcoin available to them in exchange for providing their computing power.
Peter McCormack: Does Bitcoin mining have a negative impact on the environment?
Harry Sudock: Absolutely not. Bitcoin mining is one of the most powerful new economic signals that's being shown to power markets globally, and the implications of this are (1) enormous rises in electric system efficiency; (2) enormous expansion in the lowest-cost form of electric generation, which we know that the marginal cost for wind, solar, nuclear and hydro are all the lowest on a single kilowatt-hour basis; and (3) the existing assets and infrastructure get to be utilised in an enormously more beneficial way, the downstream implications of which are hugely positive sum for humanity, both environmentally and at a business level.
Peter McCormack: What is the difficulty adjustment?
Harry Sudock: So, the difficulty adjustment is my favourite part of Bitcoin. It's the part of the system by which proof of work is governed. So, you're a car guy; if you've ever tried to drive 150 mph in a car that just came off the factory lot, there's a governor on the engine. So, what proof of work is, is it's the natural governor for Bitcoin's supply schedule. And so, the reason that you can't issue Bitcoin ahead of schedule is because every 2 weeks, or 2,016 blocks, the Bitcoin system recalibrates around how much computing power is on the network over that previous period of time.
This is this incredibly powerful concept that sounds simple, but it makes Bitcoin's monetary policy self-referential. Bitcoin doesn't have an oracle problem the same way that lots of these other crypto technologies do, because there's nothing for its oracle to reference. It's self-referential and so therefore, there's no need for a trusted third party along another vector. You don't need market data, you don't need third-party information. Bitcoin is, and that is enough.
Peter McCormack: Harry, Bitcoin sounds really complicated and I'm new to this. What do I really need to know?
Harry Sudock: Yeah, Bitcoin is beautifully simple from a mind-virus perspective. There are only 21 million; what you own, you own, it's yours, you're in control. It puts the burden and the responsibility back on the individual, and therefore the opportunity rests on the individual. So, Bitcoin is money for people who are ready to take responsibility for their lives.
Peter McCormack: Do I need to care about all these technologies and these inventions in the background that have made it work?
Harry Sudock: I think that people who find Bitcoin most of the time are pretty curious people and so they may find an interest in some of these topics, but it's not necessary at all. Bitcoin's been working flawlessly for 14-plus years at this point, it's going to continue working.
Peter McCormack: There are thousands of cryptocurrencies. Why are you so confident that Bitcoin is the one that will win out?
Harry Sudock: Over a very long period of human history, 10,000-plus years, this idea of monetary premium, of money, has accrued to one single winner. It's been the US dollar for the past 60, 70 years, depending on who you ask; it's been other currencies before that. It's been gold, it's been Roman sesterce, it's been Yap stones, it's been shells. But what's been true in all of those economies is that there's been just one winner, because money is half of every single transaction. You want one that everybody uses in order to satisfy store of value, medium of exchange and most importantly for this answer is unit of account. We all want to use the same yardstick.
Peter McCormack: Why do people say Bitcoin is freedom, when Bitcoin is just money?
Harry Sudock: Because money is freedom. The ability to engage in your own life on your own terms with the tools of your own choosing is freedom. And if you cannot sustain your Maslow's Hierarchy of Needs, how do you get food, water, shelter? You pay for it. You pay for it with labour and you pay for it with money and if you can't control your ability to sustain yourself, you are not free.
The misconception we have is that money is actually freedom and Bitcoin is money and money is freedom; and the money we have today doesn't make us free, and there's a lot of ways to talk about this, but one of them is that your money today isn't really money. It's not a bearer instrument, it's a claim. And so, there's somebody else who wrote you that IOU, you may never have met them, but your bank facilitated them finding their way into your wallet. And if they don't hit their IOU, that's not money.
They have the ability to freeze your accounts, they have the ability to steal your identify and therefore steal your credit card. These are all mechanisms by which our current stack of monetary technologies don't make you free at all, and that's just in the US. We get the benefit of only having 5% to 10% inflation. God forbid we lived somewhere else that just hit 99.5% inflation. So, this idea that we are not all victims of rampant monetary theft all over the world in different ways every single day just means that our frog got boiled too slowly.
What Bitcoin does is it removes counterparty risk. The difference between 99.9% sure that I have my money and 100% sure is infinity. I'm infinitely more sure than you 99.9%er. I've chosen Bitcoin because I care about that last piece of certainty that makes my assets unimpeachably mine.
Peter McCormack: What is the most important lesson that you've learned in your time since being a bitcoiner?
Harry Sudock: Proof of work is so much more than something that matters to the Bitcoin blockchain. Proof of work is the most transcendent metaphor for the way to engage in your life.
Peter McCormack: What do you know now that you wish you knew when you first discovered Bitcoin?
Harry Sudock: Time is too short to be scared. It's an opportunity to be bold, it's an opportunity to be decisive, it's an opportunity to stretch yourself and to learn on such an accelerated timescale. There's a joke amongst the Bitcoin community that time in Bitcoin moves at some multiple of normal time, and that's because the world is changing very, very rapidly as it relates to Bitcoin. So, have a really deep sense of urgency and once you get curious and interested, just keep going; there's more under there than you think there is.
Peter McCormack: And if someone's feeling a bit overwhelmed right now, what would you say to them?
Harry Sudock: Take your time. It's okay, it's complicated, a lot of these ideas might feel new, the economics might feel new, the technology might feel new, the history might feel new. But the good news is that Bitcoin's not going anywhere and it will be available to you by the time you've had the opportunity to digest this information more deeply.
Peter McCormack: Do you have any parting statements for anyone who's been watching this?
Harry Sudock: Yeah, I think that we've fallen into the trap really broadly that pessimism makes you look smart, and I think a lot of people think that being doomerish makes them look intelligent and I think that's terrible and not the way to live. For yourself, I think that radical optimism is actually the path to maximal prosperity, and I think that the optimists are the ones who get paid.
