Book Review: Mastering Bitcoin
I just finished reading Mastering Bitcoin by Andreas M.Antonopoulos and it does a great job at explaining many technical aspects of the most popular decentralized digital currency (and what these fancy words even mean). It’s a rather technical book, and it assumes that the reader is familiar with basic math, programming and cryptography but it also touches many philosophical and political issues.
It’s hard to find anyone whose unaware of Bitcoin but very few people can explain what it actually is. People often say that it’s some kind of money but what do we know about money and what’s the difference between the national currencies and bitcoins?
Table of Contents
What is Money?
All the modern national currencies are similar. They have a set of common properties, such as:
- They’re used as a medium of exchange
- They’re used as a store of value
- They’re used as a unit of account
That’s the essence of the commodity theory of money. If you’re in the mood for some philosophy, check out this great article from Stanford to get a more nuanced understanding of what is money and how it works (at least, how we think it works).
Bitcoins have all of those “commodity” properties, but they also have a lot of new and unique features which, in my opinion, leave us no choice but to recognize decentralized currencies as a completely new asset class.
Are bitcoins just like national currencies? Obviously not, because all the national currencies are centralized and have an unpredictable supply. We can try to think of bitcoins as of shares of some kind of company but there is no company that issues bitcoins or gives your any right on its future profits so bitcoins aren’t stocks nor bonds and there are no existing asset classes where decentralized currencies would fit reasonably well.
Money as a Software
The days of physical money are long gone, and most of the current money supply exists in a purely digital form without any peg to gold or other physical things. That’s also true for bitcoins.
Most of the people have a good intuitive guess on how traditional currencies work. The central banks issue their own money and then the liquidity spreads through the banking system. People don’t care much about the details because they know that they’ll get a certain amount of money in exchange for their work, and they’ll be able to use this money to buy various goods and services. Here comes the difference: Bitcoin is just a computer program, an algorithm which refuses to take instructions from any central authority. It’s hard to believe that it’s possible, at least without diving into cryptography, but the fact that Bitcoin didn’t cease to exist tells us that this idea is not science fiction. It that regard, bitcoins are closer to gold than to national currencies. You simply can’t print them, even if you’re a central banker.
This book is intended for developers and tech entrepreneurs who want to understand Bitcoin on a more technical level. The main point of this book is that Bitcoin isn’t just money. It can be used as money, of course, but it’s like having a laptop which can show only pictures. Bitcoin network can execute a set of instructions and people can mix them in order to add new and powerful features, many of them are still to be discovered.
Mr. Antonopoulos tried to emphasize that the real innovation isn’t in Bitcoin as a currency but in the blockchain technology which underpins it. The blockchain is the key tool that makes Bitcoin possible and Bitcoin is just the first widely adopted application of this technology. Strictly speaking, blockchain and Bitcoin are kind of inseparable and there is no point in trying to figure out what’s more important. The important thing is that they form a new framework that enables the development of a completely new set of services.
A blockchain is a special kind of database, and it can store pretty much anything. The trick is that it’s unforgeable: once something goes there, it stays there forever. Anyone can read it or to add new data, but it’s impossible to alter the information that’s already here. The blockchain that’s used by Bitcoin records financial interactions, mostly, but it’s not only account balances that matter. Most companies keep an eye on the credit history of their customers in one way or another, and they have their reasons. Credit history helps us to build trust and trust is one of the most valuable assets in any society. Wouldn’t it be nice for a company to be able to check if a potential customer can be trusted and how much trust he deserves? Having the means of presenting provable facts improves our society because it introduces more incentives to honor our contracts and discourages bad behavior. That’s a bit controversial because sharing your transaction history with everyone is pretty dangerous, and it’s not completely solved in Bitcoin, but I like the idea of selective sharing (probably as an one-time thing to prove something), and I think that it might have a future.
The author insists that it’s not only the tech that matters and Bitcoin had created whole set of philosophical and ethical issues which we need to resolve. Can we agree on what is money? How should it work? Should it be anonymous or not? Is it good to have less national sovereignty? We’ll definitely face those hard questions with the rise of Bitcoin. Do the advantages of using this technology overcome its potential risks? One of the first adopters of bitcoins was an online drug marketplace. Drugs are legal in some countries but there are plenty of countries where you can be executed for selling or even using drugs. Bitcoin is a truly global currency, so it cannot be regulated on a national level. It’s the same thing with capital control laws. Bitcoin just cannot enforce local regulations, and it was made this way on purpose.
It’s not a surprise that for some people the first impression of Bitcoin wasn’t quite nice. It was considered a shadow instrument for illegal activities such as a drug trade and tax evasion, but it seems like that status quo have started to change. Now we can find a lot of blockchain research teams and Bitcoin specific courses in the world’s best universities. The banks have started to include cryptocurrency research in their R&D budgets. It’s quite easy to find a job in one of the world’s biggest banks if you understand crypto currencies but the banks face tough competition from hundreds of startups which use Bitcoin as a payment network to introduce cheap alternatives to traditional financial institutions.
Being in Control
Another interesting example of Bitcoin usefulness is risk management. People are too dependent on the credit cards now. What would happen if you lose your credit card during a vacation or a business trip? What if someone steals it? That would put you in a difficult and unpleasant situation because it’s quite hard to withdraw funds, especially if you are outside your bank’s country. We can also imagine a situation when someone needs to make a payment, and a bank refuses to make that payment for some reason. It could be a technical issue or even an account suspension, but it’s not a problem anymore, thanks to Bitcoin. There are more than 450 bitcoin ATMs in the world. Chances are, any big city you might visit already has one. So, if someone has lost his card or for any other reason is unable to use the banking system, he may just go to the nearest ATM and exchange some bitcoins for a local currency.
The possibilities of blockchain and Bitcoin are endless and seeing it as just another currency is like seeing a tip of the iceberg. I think that the author had done well promoting this idea to the readers, but he also warns them that Bitcoin is just an experiment, so it’s unwise to put the money you can’t afford to lose in bitcoins.