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'Proof-of-Work' is more than just a consensus mechanism, it applies to all aspects of our lives
The last of couple of weeks have been pretty wild, haven’t they? If your head is still spinning, don’t worry. You’re not alone.
We witnessed the attempted assassination of former president Donald Trump. And then just a week later we saw him on stage at a Bitcoin conference delivering a keynote alongside other presidential candidates and senators.
Not crazy enough?
Other speakers at Bitcoin 2024 included American exile Edward Snowden and an ‘anon’ dressed as a character from a popular animated TV show.
That’s what you call an eclectic line up!
Meanwhile, back at the White House, it doesn’t seem to be crystal clear who exactly the current President of the United States is. Is it Joe? Or is it Kamala now? And how exactly does that all work?
We appear to have reached a moment in history where truth really is stranger than fiction. If you’d written this course of events down as a screenplay and pitched it to movie directors, they would kick you out of their office for having a storyline too implausible for any audience to accept. And yet, here we are…
Please don’t take this to be a judgemental take on American politics. Writing this from the UK, I can assure you that things are no less insane and unpredictable on this side of the Atlantic. It’s enough to make you wonder if Elon is right about us living inside a simulation.
Thankfully, the news cycle this week seems to be giving us some slight reprieve.
So, for the moment, whilst we find ourselves in the eye of the storm, let’s shift our focus back toward the lighthouse. Let’s take the time to luxuriate in the exploration of something that is the definition of stability and predictability. Let’s put our focus squarely back upon Bitcoin.
This week let’s discuss how Bitcoin’s Proof-Of-Work algorithm is far more than just a consensus mechanism. Let’s look at how the concept of Proof-of-Work, when you fully grasp its significance, can be seen as a pervasive principle across all aspects of our lives.
Many of you will have an intimate understanding of Bitcoin’s Proof-of-Work by now, but let’s recap why it acts as such an integral piece of Bitcoin’s design.
First and foremost, Bitcoin’s ‘Proof-of-Work’ mechanism is essential in ensuring that Bitcoin remains decentralised. Rather than centralised agencies like the Federal Reserve being in control of minting new units of currency, Bitcoin decentralises the process and allows anyone to participate via Bitcoin mining.
This design makes sense when you consider that history shows that any central authority with control over currency issuance will eventually succumb to the temptation of printing money to enrich themselves at your expense. People with access to a money printer will inevitably steal from you via inflation.
But it’s crucial to understand that Bitcoin isn’t about allowing ANYONE to freely issue new currency. Instead, it’s about making sure that NO-ONE can. If you want to be the one who mines the next Bitcoin block to earn some freshly minted Bitcoin, you can only do so by providing hash rate to help secure the network.
So, in stark contrast to fiat money, nobody can produce Bitcoin for free. Instead, Bitcoin pays miners in freshly minted BTC to secure its network. In many respects, Bitcoin hires them. And like any job, if they want to get paid, they need to put in the work.
Satoshi’s application of ‘Proof-of-Work’ is integral to making Bitcoin a fair and distributed system. What’s particularly fascinating is that by requiring computational work to create new bitcoin, it anchors the issuance of money to the natural laws of thermodynamics.
The first law states that energy cannot be created or destroyed, only altered in form. By expending energy to perform computational work, Bitcoin miners are not just wasting energy. Instead, they are using it to secure the Bitcoin network and transforming it into stored economic energy in the form of Bitcoin.
This is fundamentally different from how fiat money isissued. In contrast to Bitcoin, it’s a process completely untethered from the laws of the natural world. People with access to the money printer can create economic energy for themselves without providing any work or energy as an input.
But of course, the money printers haven’t succeeded in creating a system that can operate outside these natural laws. That would be impossible. They have just engineered a system whereby these natural laws don’t apply to them; they only apply to you.
The potential economic energy created through money printing must come from somewhere. And that ‘somewhere’ is you. Money printers can’t magic new economic energy into existence from nothing. All that monetary debasement does is steal economic energy from you.
It’s clear then that the application of ‘Proof-of-Work’ results in a fairer system when it comes to money creation. The more work applied by miners to secure the network, the more they are rewarded.
But for many Bitcoiners, ‘Proof-of-Work’ has come to represent much more than simply a well-designed consensus mechanism used to secure Bitcoin and keep it decentralised. Many Bitcoiners have realised that the application of these fundamental natural laws and applied hard work can improve almost any aspect oftheir lives.
Are you fit, strong and healthy? Well by and large that’s an example of ‘Proof-of-Work’. Sourcing and preparing healthy meals and exercising regularly require you to expend more energy than simply ordering junk food on Uber Eats and sitting on the couch. A fit and healthy body is itself ‘Proof-of-Work’.
Perhaps you’re happily married. If so, then you’ll know that building a long and happy marriage is another example of ‘Proof-of-Work’. Fostering relationships of any kind requires you to invest time, commitment and energy. If instead you neglect to put any work into your relationships, you are likely to see them deteriorate.
And the parallels you can draw between ‘Proof-of-Work’ and leading a successful life are practically limitless.
You get the idea. And I’m sure you can come up with all manner of examples from your own lives. Whenever you achieve something of value, if you reflect on it, you’ll almost certainly realise that it was the byproduct of focussed attention and energy. Your rewards are your ‘Proof-of-Work’.
Now I realise that these concepts are hardly new. We’re all taught from a young age that to get the things you want out of life you must work hard. The problem is that the last 50 years of wanton money printing has distorted these basic principles. Try telling someone from Gen Z that they would be able to afford a reasonably sized family home if only they worked hard enough.
The societal impacts of distorting these incentives is huge. When hard work is no longer properly rewarded, and these important incentives are removed, the result is a nihilistic population that focuses only on immediate pleasure and is incentivised to minimise the amount of unrewarded hard work they have to do.
Seeing people discover Bitcoin can be an almost spiritual experience. When people realise that they now have a tool to accrue value through applied effort, you suddenly see a huge resurgence in their drive, energy and optimism. Removing the incentives to work hard had profound and dire consequences for society. Reinstating them will result in equally profound but wonderful outcomes.
There is however a wrinkle to applying the principle of ‘Proof-of-Work’.
Hard work is not enough on its own. You’re unlikely to achieve great results by simply applying work haphazardly and without purpose. It’s easy to be a ‘busy fool’.
For example, I could work hard to prepare you a pizza and really take my time over it. But just because I spent an hour preparing it doesn’t mean I could charge you 6 times more than someone else who can prepare it in ten minutes. Work is rewarded, inefficiency is not.
And this rings true in Bitcoin mining as well. If you don’t run an efficient mining operation, you can very easily find yourself in a position where the cost in energy and time you put into the endeavour outweighs the potential economic energy you receive in block rewards. Bitcoin’s history is littered with examples of failed Bitcoin mining companies that couldn’t find a way to make their work profitable.
We think the same principles apply when it comes to securing your freedom and becoming self-sovereign.
A lot of people get stuck at the point of simply buying Bitcoin to get exposure to its price appreciation. It requires very little work to achieve this. You can simply sign up to a Bitcoin exchange, deposit some fiat funds and hit the 'buy' button.
But what the principles of ‘Proof-of-Work’ should teach us, is that applying such a small amount of effort is unlikely to result in a large reward.
And the principle holds true. If you simply buy Bitcoin and leave it on an exchange you don’t receive anywhere near as much benefit as you could by learning how to use Bitcoin properly. By leaving your Bitcoin on an exchange or by taking the easy route and buying the Bitcoin ETF you preclude yourself from some of Bitcoin’s most valuable rewards:
If you don’t put the work in, you will never achieve the true freedom that Bitcoin can offer.
If you are looking to use Bitcoin as a tool for you and your family to achieve maximum freedom and sovereignty, then you’ll already know that this is going to require some hard work.
The Bitcoin Way is here to make sure you do that work as efficiently as possible.
Our clients don’t spend hours researching the right hardware and software just to make decisions that they aren’t even 100% sure they got right. We have done this curation process for you. Instead, our clients get straight to learning how to harness and use Bitcoin to its maximum potential.
We help our clients climb the Bitcoin learning curve extremely quickly.
If you’re interested in how we can maximise your efforts and accelerate your journey to financial freedom, then you should get in touch.
The type of person who understands ‘Proof-of-Work’ is the same type of person who would take action and waste no time in booking a free consultation.
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