Bitcoin mining is often simplified to the point where the definition is basically meaningless. I will try to explain it as simply as possible but first we need to unlearn some unhelpful things.

The goal of Bitcoin mining is NOT to earn bitcoin

If we start with the premise that the goal of mining is to earn bitcoin, it makes everything 100x harder to explain. It's a nuanced point however, miners DO mine to earn bitcoin, but in the grand scheme of things, the main goal of mining is not to create or earn bitcoin.

I like to think of Bitcoin as a complex clock or watch, there are many small moving parts all coming together to keep the system working flawlessly. Take out one small part and the whole thing might fall apart. The goal of mining is to provide "immutability" and "finality" to all the events that occur on the Bitcoin network.

Understanding the anatomy of Bitcoin

Before we can understand the purpose of Bitcoin mining, we must first understand a little about the anatomy of Bitcoin and some of the properties it must uphold to be useful.

Consider your bank account; there is a balance associated with your name, but what gives that data integrity? Usually it is the fact that the data is coming from an authoritative source, a trusted third party. If I could get a copy of the bank's database, would you trust that the same data sourced from my machine was correct? Could I have modified the records before showing it to you?

Bitcoin does not rely on any authority. This is a very important part of its design and it is what allows Bitcoin to remain independent of any company or government. To achieve this, it relies on checks and balances to be embedded within the data that it contains. Bitcoin is fully transparent in order to ensure that anyone can audit its data. The most important thing to check, of course, is that the books are balanced, but beyond that, Bitcoin introduced personal digital signatures to ensure that records are authorised by individuals directly, and it introduced an ordering system.

Digital signatures not only prove that a record was created by the owner of the bitcoin being spent, but if the record is ever altered, the signature no longer matches; this means that we don't need to trust anyone to execute our requests faithfully.

Order is important to ensure that everybody can agree with which payments are valid and which are not. Imagine I write two identical cheques to give all of my bank balance to two different people. One will settle, the other will bounce. With a traditional bank, one banker will decide which came first and will decide which settles and which bounces. In a decentralised (not centralised) system like Bitcoin, we need to be able to introduce a robust and reliable ordering system that does not rely on a trusted authority. Beyond just ordering, there also needs to be some integrity to the data so that not only an order can be agreed upon, but also there can be no re-ordering. Determining an order without preventing re-ordering is basically useless.

Ordering records

You may have heard of the "blockchain". This technology is just a data format, but Bitcoin uses this technology to help lock in an order into the record system. In a blockchain, records are grouped into blocks, and each block must have a link back to its previous block, creating a chain of blocks; pretty self explanatory in hindsight.

Imagine somebody deciding to become part of the Bitcoin network, they wish to get a copy of all the bitcoin records, but there is a problem:

1. One person shows a series of records that fully balances, has all the other checks and balances, and it shows a payment from me to you.
2. Another person provides a similar series of records that also fully balances but it does not show that payment from me to you, it shows a payment from me to me in its place.

Which one is correct? Both pass all checks, but if I choose the first set of records, then the payment from me to me becomes invalid because it attempts to spend money that has already been spent, while if I take the second set of records, the inverse becomes true.

The blockchain allows us to declare an order, but we still need a way to lock that order in, such that if someone provides an alternative set of records with a different order of events, we can all use some robust and reliable set of rules to choose the same record set without needing to coordinate with one another or rely on some trusted authoritative source.

This solution also needs to be resistant to being gamed; one elephant in the room is the idea of relying on dates and times, but computers are terrible at agreeing on time and although data can travel at the speed of electrons, there are still bottlenecks that can lead to data arriving in a different order between different computers.

Using a game of chance to prevent changes

The most fair way to make an arbitrary decision such as this, where there is no real right or wrong answer (remember "date sent" can be gamed, so we can't base any decisions on that), but a decision still needs to be made is by introducing something that is statistically hard to undo.

You may know the game of Boggle. This is a game where you have a set of dice inside a tray with letters on the sides instead of numbers; you place a box cover over it, shake it, and then allow the dice to fall into a mould at the bottom so that they are all sitting alongside each other in a square formation (usually 4x4) with one letter facing up per die. Let's re-imagine that the goal of the game was simply to shake the box, align the dice and remove the cover and if there was a 4 letter word on each row, you win, and if not you must shake again.

This is analogous to Bitcoin mining. It is a pure game of chance, and if we had a bunch of them, we could turn the game into a race: who can create the longest chain of winning boggle shakes in a row!

To illustrate how the blockchain creates links between blocks, we can add an additional rule that the first die in a Boggle tray (we will call them blocks going forward) must match the last die in the previous block. This way, we know that the order of blocks cannot change as the link is being built up.

Here is an illustration of a chain from this game:

Finally, let's make it more interesting: the goal is to have as many blocks as you can on the longest chain. If you notice that someone else has a pretty long chain, you can abandon your own and start to build blocks for their chain instead. If you create a block that satisfies the rules and your first letter matches the last letter of their last block, your block can go on top.

We will start to notice the following things:

1. People will quite quickly start to abandon their own chains and work on top of one faster growing chain.
2. The chain with the most people working on it will naturally grow at a faster pace.
3. Those competing too hard to maximise the number of blocks they have in a chain will see their chain fall behind the fastest growing chain.
4. It takes a non-negligable time between rounds and usually one person wins at a time, there are rarely any moments where two people create a valid block for the same chain within moments of one another.

Using forks to change history

It gets interesting when someone notices something like an offensive word in the chain, let's call it "DUCK". A lot of people don't care, but a large group of individuals do, so they choose to "fix" the rules, making that block and all the blocks after it invalid too (because they all eventually link back to the invalid block).

They create a new block that continues off from the block before the offensive one, creating what we call a "fork". This new chain will inherit the same past as the original chain, but it will still be shorter than the original chain because during the time it took to create this alternative block to replace the offensive one, the rest of the players continued to build blocks on the original chain as normal.

Since this game is mostly based on chance, the chain that grows the fastest will be the one that has the most players contributing to it. Even if the smaller group appears faster for some time, over a long enough time, statistics will prevail; it is the same as how over enough coin flips, we will observe that there really is a 50/50 chance of heads over tails, even if the first few flips were mostly all heads.

If enough players are motivated to contribute to the shorter, profanity-free chain, then that chain will grow faster and eventually become, and remain, the longest chain. The other indifferent players will then jump ship and join the new longest chain in order to maximise the number of their blocks in the new longest and faster growing chain.

Fortunately, the more likely scenario is that the offended group is a minority and the original chain remains the longest and fastest growing chain. This natural phenomenon ensures that the history of events cannot easily be changed for simply arbitrary reasons. On a global scale, this phenomenon is ever more present, because not even laws, politics, nor what is considered moral can be agreed across the world.

Cheating

In a game like the one above, there are opportunities to cheat. Maybe you could choose not to shake your box, but place the dice by hand. Unless someone is constantly watching you, no one would ever know.

With Bitcoin mining, there are simply no such shortcuts. The fastest and cheapest way to produce a block is to play fairly. Let's dive into what Bitcoin mining really is.

What exactly is Bitcoin mining?

People often use analogies to describe mining; "it's like a lottery", "miners solve complex mathematical problems", "miners guess random numbers". The problem with analogies are that they tend to omit key details that ultimately mislead the reader.

Miners perform a series of tasks repetitively, simplified:

1. Collect the records that users create and compose them into a file.
2. Add a reference to the previous block.
3. Add a random number to the end.
4. Check if the file satisfies a certain special criteria.
5. If not, replace the random number with a new random number and repeat from step 3.

To check if a file satisfies our special criteria, we pass the file through a special program called "SHA256" and the program reveals a large unpredictable unique number. We check to see if that number is below a pre-determined target and if so, it has satisfied the criteria (i.e. given SHA256(FILE1) = 123 and TARGET = 20, is 123 < 20?).

SHA256 is a known as a mathematical "hash function". Although its output is unpredictable, it is also "deterministic", which means that given the same input file, it will always produce the same number. It is unpredictable because given the same file with even a small change will produce a completely different number altogether. We use these type of algorithms to give our files identifiers that make them resistant to tampering; it is very useful when downloading from torrents, where files can be downloaded in parallel, from multiple places, be reconstructed, and the file is only accepted if it resolves to the same identifier, ensuring that you get exactly what you asked for.

These files containing records are traditionally called "blocks", and once an acceptable block has been produced (aka mined), it is shared with all the online Bitcoin nodes and we all move on to mining the next block. As we observed before, attempting to ignore the latest mined block is counterproductive and would result in a fork and put you on a path of creating blocks for a new chain that no one would care about and that everyone would simply discard as invalid data.

As you can imagine, this process is very repetitive. One round is hardly power intensive, but the chances of success are so low, that it takes many cycles to find a successful block. The process of mining is very power intensive due to the nature of the process being a repetitive process with a low chance of success.

The incentives

Many people who focus on the "number guessing" and "repetitive nature" side of things tend to consider this process to be pretty arbitrary, however this repetitive chance-based system is key to ensure that it cannot be cheated. As we have discussed, it introduces order, and solidifies it to bring robustness and reliability to Bitcoin.

This process also incurs a cost. Computers draw electrical power to perform their operations, and when people are competing with one another, this power draw becomes non-negligible very quickly.

Miners do earn bitcoin when they mine. As they create blocks, they include an entry allocating bitcoin to themselves. This is their incentive to add the most number of blocks to the chain, as the more blocks they add, the more bitcoin they can earn.

The amount that a miner can allocate to themselves is based on two things:

1. Transaction fees (aka fee market): users can see what transactions are waiting to be mined, what fees they are offering, and can offer a competitive fee to get their transactions prioritised. Miners will often pick the transactions that offer the highest fees to include into their blocks; this ensures that they are earning the most amount of Bitcoin that they have available to them at all times.
2. Block reward: Every block can issue a fixed amount of new bitcoin which the miner can allocate to themselves. Around every four years, the amount of new bitcoin that can be issued is reduced in a controlled manner, and in the year 2140, there will be no more bitcoin left to issue, meaning that miners will need to remain profitable using transaction fees alone.

The block reward satisfies two purposes:

1. Bitcoin must be distributed fairly; there are no licenses or authority based limitations that restrict who can mine bitcoin. Anyone with access to energy, a computer and internet can participate, and therefore new bitcoin can land in the hands of almost absolutely anyone around the world, based purely on fair chance.
2. People must be incentivised to participate in the running of the Bitcoin network, Bitcoin is nothing without a diverse and distributed mass of people running it. Early adopters earn more, while as we get closer to the year 2140, we expect that a critical mass of people will rely on Bitcoin and a plethora of tools, technologies and infrastructure have been built to support it.

These incentives are why people think the goal of mining is to produce more Bitcoin. While for a miner, the main goal is to earn bitcoin, for the system as a whole, mining serves a very different, important and distinct role and the rewards are there merely to ensure people are motivated to do it.

The difficulty adjustment

To get a complete view of Bitcoin mining, the "difficulty adjustment" feature of Bitcoin addresses the elephant in the room: as more people compete to mine bitcoin, wouldn't blocks get produced more quickly?

Bitcoin blocks are produced every 10 minutes on average. Every 2 weeks, or more precisely, every 2016 blocks, a "difficulty target" is redetermined based on the historical production rate of the previous 2016 blocks. All the participants who help to run the Bitcoin network are able to follow this well defined rule automatically on their own computers and will come to the exact same result.

The difficulty target is a way to change the odds of the chance based game, such that we can maintain the average of 10 minutes per solve. Doing this on a regular basis, ensures that even if more miners enter, or if the hardware becomes more efficient, or if they get access to even more energy and computing power, or even if many miners exit, the network can adjust itself and ensure that the network runs smoothly and at a constant pace.

There are also many extra rules that ensure that even this part of the system cannot be gamed. Many developers, mathematicians and philosophers have evaluated Bitcoin deeply and have not found ways to easily game the system.

The 10 minute pace of the system is important for a number of reasons:

1. The issuance of new bitcoin as a reward should not happen too quickly; people need time to discover and adopt bitcoin in order to ensure that bitcoin can be distributed as fairly as possible.
2. Chance is unpredictable and there are cases where multiple miners do find blocks within moments of one another, and this creates forks in the system. The chances of this happening consecutively is rare, and this allows the network to very quickly settle on a single chain and continue operating without issue. Reducing the 10 minute average interval would amplify this situation, causing problems with the smooth running of the network.
3. Considering that blocks can be up to 4mb in size, 10 minutes is ample time for it to be distributed to all bitcoin computers across the world wide web, even over slow network infrastructure and old hardware. 10 minute block times ensure that all computers can remain up to date and not be left eternally catching up as more blocks are being produced faster than their computers can download and validate.

With the difficulty property, the Bitcoin network can grow at a constant pace, and yet everyone can still tell which chain has had the most effort contributed towards it. When a computer comes across two chains, two versions of history, it does not look to find the "longest" chain, but it looks for the one that has the solved for the most amount of difficulty. The result is the same, the chain of data that is considered official is the one that has the most amount of man and electrical power behind it.

We use money every day, yet most of us do not know where it comes from, why there is a government debt, nor what inflation really is.

Shells, salt, and gold were all used as money in the past, they were mediums by which we could take payment, defer for some time, and then make payments at a later date. Today we have cash, but we also have digital accounts with debit and credit balances as our medium for money.

Bitcoin is an alternative medium that can be used as money. Each medium has its properties, and people choose to use the medium that works best for them; the chosen medium can and does change over time as better ones become available, but we often settle on a single medium after a transitional period until a new and better medium is discovered later on.

At a glance, some of the more widely known properties of Bitcoin are:

1. It is digital and can be used over any digital communication technology including the internet.
2. It has a fixed maximum supply of 21 Million Bitcoin (scarce).
3. It has no central authority who controls its supply nor its utility (decentralised).
4. It can be owned and spent without any trusted intermediaries (permission-less).

Of course, there are more nuanced properties that are not so commonly brought up at the beginning of one's journey into the technology:

1. It exists in the form of a constantly growing public digital record (a digital ledger).
2. It relies on people to secure multiple copies of the ledger to remain resilient.
3. It depends on people to defend the properties that they care for in order to uphold its integrity.
4. It relies on energy to be globally abundant, yet costly-to-produce to keep itself impossible to co-opt.

This means that Bitcoin's existence and its headline properties are not self-sustaining or automatic, it is dependent on the active participation and efforts of individuals. There are also real operational costs due to the way it relies on energy production too.

This very circular dependency of properties depending on the people who depend on them should give anyone pause; if its properties depend on people, how easily can those properties be lost? Fortunately, these properties exist for as long as a single individual defends it. Its usefulness as a money is practically none, but the properties exist. As long as others begin to discover and value these properties, its user base will grow and its ability to represent a useful money will improve.

Contrasting the desired properties

The very properties mentioned at the beginning are unique, but together can make for a much more convenient money than we have today.

Today we have money that can be used online or in person and is convenient most of the time for many of us, but there are limits to how they can be used that are naturally enforced by the medium; the nature of needing to prove your identity to have a bank account, to plead your case before a bank will make a decision to approve or disapprove a large transaction: these are natural properties of our money today due to the mediums we use.

Banks are independent companies with the right to autonomy around who they serve, and what they permit, but they are also the only gateway to digital payments, and in many cases, even in-person payments when shops refuse to accept cash. They are also the gateway to loans and mortgages which are no longer just opportunistic products, but are necessities that people need to survive in society. As a medium for money, both banks and cash leave a lot to be desired - especially today where cash is becoming less widely accepted and increasingly painted as a suspicious tool used only by criminals.

Bitcoin can provide similar properties of cash payments within a digital setting; they are person to person (aka peer to peer) and no intermediary can intercept and block the transaction for political or liability risk purposes. This is often referred to as the permission-less property of Bitcoin. It also seems to be gaining the opposite reputation to cash as a tool for financial freedom and wealth preservation rather than a tool for shady activities, even though many are still trying to push that narrative.

If the convenience and accessibility problem does not affect or appeal to you, another property Bitcoin provides is its fixed maximum supply. This foremost removes the power for others to inflate the value of our money in order to pay for arbitrary political initiatives, forcing governments to cover their costs, including the support of wars, honestly through taxation and other forms of fund raising alone.

This property has another side effect: as traders observe Bitcoin's price in the market, they engage in trading activities, adding massively to its volatility. This volatility attracts more attention to Bitcoin which so happens to accelerate its growth. With a fixed supply, the only other determinant of its price is demand, and while trading demand can be volatile, and while traders tend not to care about the properties of Bitcoin as much as the opportunity for profits, there is an underlying market growth caused by individuals who discover and seek to acquire more Bitcoin after understanding its properties in contrast to those of their own money.

Bitcoin's core properties are much more valuable to people in third world countries. This is where much of the direct use of Bitcoin is happening, where its properties are being utilised and proven, and where there is an opportunity to make the most of this new medium to break free from tyranny and/or help people to improve their positions in the global order; and they will become more familiar with this medium before most of the rest of us catch on to how we can use it effectively as money.

Mainstream misconceptions of Bitcoin

Many try to downplay Bitcoin by citing its limited supply as its only attribute, but this is clearly not the case. It is the different properties together that make it a strong candidate for money, and it is the growing interest by people that makes it a likely candidate for a widely used money.

Another critique is that Bitcoin and cryptocurrencies are the same, and that there are more units of other cryptocurrencies, but again, Bitcoin is only Bitcoin; each other cryptocurrency should be evaluated on its own merits, yet they are often compared to the success stories of Bitcoin by those who wish to sell the product, and Bitcoin is often described as if it were the whole range of cryptocurrencies by those who wish to debate against Bitcoin.

It is widely accepted that the majority of cryptocurrencies are pump-and-dump and ponzi schemes, but what is not well acknowledged is that Bitcoin seems to be the only technology that does not have a central leader or authority. Many cryptocurrencies claim to have the same decentralised property, but for many reasons, there is always a leader or foundation that plans and pushes changes with little to no resistance, including Ethereum who has shown that when checks and balances are put into place but the foundation needs an exception, the checks and balances can be easily disabled or pushed into the future. It sounds a lot like central banks and how they often tend to kick many monetary problems down the road.

It is not impossible that cryptocurrencies may live for many years and serve a purpose to many, but they are closer to private money than to a neutral commodity, which means that they are likely to be captured and presented as the next money, while inheriting many of the properties of today's bank money with biased policies to the wealthy class over others. Worse still, they may have their leaders shut down operations and only then will we know whether the technology can stand and operate on its own with its users at the wheel, but its market price will likely tumble too.

Of course there are nuances

As people have explored and interacted with Bitcoin, they have confirmed that it has limitations, such as its limited capability of processing only around 4,200 transactions every 10 minutes on average. This does not however mean that it is doomed to fail, it merely means that if we wish to continue to use Bitcoin in the future among many more users, we may need to reconsider how we use it.

A great example of how we may overcome this limitation is a payments network called the Lightning Network which was designed to provide relief to Bitcoin by handling the majority of economic transactions off band, reducing the number of Bitcoin records from what might naturally be multiple per person per day, to possibly just a few per person per month.

Another example of its nuances, is the public nature of the Bitcoin ledger. Although there are no names or ID's associated with payments, there is a traceable trail of payments that have the potential to reveal very personal and private information such as your net worth, spending habits and who you financially interact with. Think of this as collection of anonymous data that can later be tied to your identity and become personal data.

This trail enables the strict accounting that Bitcoin employs to enforce its fixed maximum supply property and ensure that users can always verify it. Fortunately, researchers and developers have been working to find and develop ways for people to conceal or separate the details of their trades from their historical activities, while also improving the efficiency by which we use the medium; many people don't tend to value their privacy today, but if cheap enough, it can simply become the standard way to use Bitcoin.

Privacy is an important property to achieve, today we have privacy from our neighbours, but none from those who provide it and who also use it to exploit us. Bitcoin has the opportunity to become private from our neighbours and our would-be exploiters at the same time.

Other issues are also being researched and developed, such as how best to develop user interfaces for applications that interact with Bitcoin on behalf of its users (these apps are often called Bitcoin wallets). Many of the things that we must do today, such as writing down 12 words, may feel unfamiliar, but they are huge improvements to much scarier and error prone practices that were used in earlier years such as writing down a 64 character code of random looking letters and numbers. The products we use today will likely change over time, but those who see that progression will better understand the technology and may likely also influence the direction that these products take by simply using, not using, or even complaining or gossiping about them.

TLDR;

Bitcoin is a medium, a tool that can embody money and be used for trade, just like shells, gold, paper money and bank accounts have done until now. This has been a call for people to explore this medium and understand how to use it instead of ignoring it until you have fallen to a position of disadvantage compared to those who did.

Its limited supply makes it economically enticing as a store of value, but it also possesses properties that make it resilient to manipulation and efforts to control it. These properties mean that Bitcoin is not a passing fad to ignore.

We also compared its properties against the properties of the money we use today in order to highlight the stark difference in nature of Bitcoin, and to hint at some of the reasons why people are exploring Bitcoin for themselves and why it has become the only medium available to many people around the world to use as money.

Finally we explored some of the limitations of this medium in order to ensure that it is clear that Bitcoin is not in its final form just yet; just like the internet, it will evolve to overcome its limitations as people build out extra infrastructure in order to be able to benefit from its properties at scale.

I recently had a short conversation with my uncle about saving in Bitcoin. The conversation wasn't very long, but we touched on the difference between trading Bitcoin and saving in it, but I got a little stumped after telling him that the money in the bank was merely a promise. His response was: why is Bitcoin NOT a promise?

I tried to think of an answer, but being technical myself, and having a very technical understanding of it all, I couldn't find a satisfactory answer that was understandable. I needed to walk away and give it some thought. This article is the result.

What is the definition of a promise?

Before we begin, let's take a moment to differentiate between two things that people think about when they hear "promise" in the context of money:

1. The "promise" of money having value in the future
2. The "promise" of you always having access to money to use for trade

Money has taken shape in many forms in history, from shells, to gold, and now paper money issued by government. There is no promise of any form of money having value in the future. It is possible for our central banks to make such a promise, but this is not something that they have absolute control over; money is merely an expression of what we, as individuals, wish to use for trade and savings.

Currently, most people use government issued currency for trade and as a unit of account, however as trust in our governments and central banks erode, people start to look for alternatives. There is good reason to look for alternatives in today's world, our money is being used against us; our money is inherently political - not only regarding how taxes are handled, but also how newly issued money is directed towards political causes while newly issued money causes debasement of our savings. The 2% target inflation is always framed as a noble goal, but in fact it is a promise to constantly debase your money.

But I digress, the second promise is what this piece will focus on. The promise of you always having access to money to use for trade.

As long as there is a middleman facilitating your payment, or facilitating the withdrawal of the thing you use to transact with, there is a promise.

If there is a middleman between yourself and a trade, then there is a risk of that middleman refusing to honour your transactions. Worse still, if a bank goes bankrupt, something that has started happening again recently, there is no guarantee that your balance is refunded in full.

In the UK, the FSCS protects 100% of the first £85,000 you have saved, per UK-regulated financial institution (not per account). This is needed because the bank may not have the funds owed to you, the money that you thought was yours may never have been there at all.

This is a risk that applies to all forms of custody. If you purchase gold, but the gold is held by a third party in a secure facility, then you do not have gold, you have a promise for gold; when you go to claim your gold, you may find that it is no longer there.

Banks often break their promise

The 2008 financial crisis is a historical event, it showed that banks took risks so large, that they could not fulfil their duties to their customers. Banks were considered too big to fail and bailouts paid for the survival of a predatory industry, effectively through money printing. At the same time, small businesses were allowed to fail, people lost their jobs and their homes, and yet the wealthy class became wealthier and banking became more prominent and structural to our society.

More recently, in early 2022, a large number of Canadian citizens found their bank accounts frozen, including their business accounts, leading to concerns of being unable to pay employees, as well as being unable to buy groceries, fuel or medicine. This action was initiated by the sitting government using emergency powers against their own citizens who were protesting government policy, without court orders or any sort of trial, and in the aftermath the Canadian federal courts ruled that the use of emergency powers to roll out these actions was unreasonable. Although this action was temporary, it had a profound effect on many.

In the UK in mid 2023, Nigel Farage had his Coutts bank account in the UK closed with no reason being provided. Nigel is a controversial figure in the UK, one who has been accused of being racist and bigoted, and therefore it was hard for many to empathise with this story. During this event, after Nigel made this issue public, the bank then made a statement to the public via BBC News with a reason: that his account was underfunded, without first sending the reason privately. Then it came out that this was a lie made by the bank to safe face, as they changed their reason to Nigel having views that were "at odds with our position as an inclusive organisation".

This story was interesting, however what was less publicised, was the stories coming out about ordinary people receiving similar treatment, with no reasons being provided, and much harsher personal consequences.

Many such stories exist, but get lost in a swarm of noise and often become forgotten after some time as if it never happened. Much smaller stories exist too, I personally had a payment blocked, and after making a call to unblock it, they asked a series of questions and then decided that they would not honour the transaction. Fortunately, I was able to move my funds to another bank account to make my payment.

Others still have had their bank accounts closed with no reason given, even though they are not criminals, and are not involved in anything suspicious to their own knowledge. Too many people rely on bank accounts, cash is being painted as a tool for criminals and being phased away, and with a bank account being the only way to participate in the online commerce space, the systems we have built as a society place too much power in the hands of middlemen and not enough in the hands of citizens who rely so heavily on this infrastructure to partake in normal activities.

Is Bitcoin a promise based system?

Bitcoin is virtual, most perceive it as being "on the internet" and conclude that therefore it must rely on middlemen and servers just like everything else online.

Bitcoin is more like BitTorrent; for most people, this is a technology most familiar as the tool for finding pirated movies, music and other content. This technology connects people around the world and provides a way for people to share files and data, its most popular, or at least most publicised application just happened to be piracy, and yet it still exists today. Even though industries tried, It could not be shut down because it is not a centralised service reliant on a single company or server somewhere.

Bitcoin is not a business, anyone can and will participate in the operation of Bitcoin, it is more like a community project where the people who operate it also rely on it for savings and trade. Such a system cannot be found and shut down, nor will such a system be abandoned easily.

No user accounts

One of the most significant innovations that bitcoin uses, is the ability to have security without user accounts. A lot of people who are introduced to Bitcoin will first look for a regulated exchange so that they can learn how to purchase bitcoin, unfortunately, exchanges are for-profit businesses and they would rather you remain a customer to them, than you progress to taking custody of your bitcoin. When you purchase bitcoin on an exchange and do not withdraw them to a wallet that you control, you once again have a promise for bitcoin.

Even the most popular exchange, Coinbase, has terms and conditions that state that they may suspend, restrict, terminate, deactivate or cancel your transactions or your access to your account. Also if they go bankrupt, user assets could become subject to bankruptcy proceedings.

To clarify: if you are registering for an account, providing an email address, password and other personally identifiable information to some service provider, and you use this service to manage your bitcoin, you do not really have bitcoin.

Let's explore the two main aspects that make Bitcoin a self service operation with no middlemen:

1. The Bitcoin address,
2. The mining function

The Bitcoin address

The ownership model of Bitcoin doesn't allocate funds to people, instead it allocates funds to unique numerical identifiers which we call "Bitcoin addresses" and the use of these addresses help to separate the relation between an individual and the bitcoin that they might have control over.

Think about cash, the cash exists as an independent thing, I may own a £5 note now, but if I hand it to you, now you own it. In the same way, if I have control of an address with 0.5 BTC and I hand over that control to you, now you own that money.

Bitcoin is not quite the same as cash, because control over bitcoin isn't physical. Controlling bitcoin requires the possession of private information, and typically, just like an idea, information can only be shared and cannot be transferred like physical objects can. Products like the Opendime provide a practical way to produce and contain this private information in such a way that it can be trusted to only exist in a physical form, this then behaves exactly like cash because when I hand you the device, I no longer have possession of the information within it.

The ability for such a product to exist is not to be taken lightly. Imagine being able to trade one of your bank accounts for goods or services, or even just as a gift without having to inform or ask permission from your bank! Even if the banking services are down for the day, you still have a means of trade as long as you believe the bank will eventually resume operations.

Normal operation

Of course, the usual way to use Bitcoin is online or using mobile or desktop applications. To load a Bitcoin address with funds, a payment needs to be made and broadcast to the Bitcoin network.

When we wish to move bitcoin between addresses, we use our bitcoin applications to create a transaction, we can think of it like a blank cheque, and we use our private information to apply a digital seal. The private information is called a private key, and the digital seal is called a cryptographic digital signature.

Unlike a signature on a physical cheque, the digital signature cannot be forged; If bitcoin moves between addresses, the only people that could have moved it are the people who own the private key(s).

Once the bitcoin has been reallocated, the new owners need assurance that the bitcoin cannot be "double spent"; that is, the customer must not be allowed to attempt to move the same bitcoin to an alternative destination. To ensure this, Bitcoin introduced a function called mining.

The mining function

Mining is at the very heart of Bitcoin, and this is where the question of whether there are middlemen appears to become a little muddy.

The miner performs two tasks:

1. First they collect and choose a set of transactions to cement into a block.
2. Then they attempt to cement the block and broadcast the data to the rest of the network.

Choosing transactions

Once a transaction is cemented into a block and broadcast to the network, any alternative signed transactions that attempt to spend the same bitcoin are can simply be discarded as garbage. This is the assurance that recipients need.

Miners cannot modify transactions in any way and they cannot redirect funds or make their own transactions on your behalf, however since miners choose the transactions to put into a block, it could be concluded that they can also choose which transactions to omit from blocks too. If this were true, then miners would inherit the power to freeze funds and censor transactions as they see fit.

Fortunately, mining is a competitive business, transactions offer fees in bitcoin for miners to earn, and opportunity drives competition. Bitcoin mining requires nothing more than access to energy, computers and the internet. This means that mining has competitors from all around the world. If a miner chooses to omit a transaction from a block and broadcast it, the transaction will simply be mined in a future block by another miner.

Cementing blocks

To draw an analogy of mining, imagine a game competitors draw parts of a face in a particular order. Let's say everyone needs to draw the left eye, you draw your eye, then everyone races to win a game of chance: everyone must roll 10 dice at a time and the first person to roll all ones wins the round and submits their drawing before the game moves on to another drawing.

The dice game takes time and energy to complete and out of all of the competitors, it really is anyone's game. This is similar to how mining works; miners work with odds so low that it takes 10 minutes on average to complete a round, and the winning miner submits their choice of transactions with a mathematical proof that they beat the odds. We call this proof "Proof of Work (PoW)".

Consider that as more people join, and as miners get faster, the rounds would start to shorten. Bitcoin naturally readjusts itself to ensure that this is not the case, and so more effort put into the network leads to a higher assurance of security.

Breaking the cement

The cost of time and energy assures that anyone attempting to change the historical records in any way would need to expend more energy at a faster rate than the rest of the miners in the network working together.

To visualise this, imagine that there is a group of builders building a fleet of houses. You as a solo builder wish that houses had a flat roof, so you start building your own fleet of houses of the same quality, but you start a little late. You hire your own team who agree that flat roofs are the best, but you need to pay them out of pocket because you don't get paid until you have built more houses than the other team who is still building at a steady pace.

Assuming you manage to build as many houses as the other team, there are a few more hurdles for you to jump over, but you now have a chance at swapping out all the old houses for your flat roof alternatives and you get paid. All that risk and cost might have paid off, but attempting to build the same quality at a faster rate means that the payout will likely not cover your costs.

Bitcoin is harder to break than cement. It may require constant human action to work, but incentives keep it going in the same way that keeping a fire alive requires people to fetch wood, and let's say those who fetch wood are rewarded with food, the overall win for everyone is that they can cook food and stay warm, so the system works.

Is Bitcoin a promise?

No. Bitcoin has a lot of complexity, and this complexity is a trade off for achieving digitisation without other compromises. The potential of Bitcoin to become the next evolution in money is real, and for some it is even realised. No one in this system has power over anyone else, as long as you have bitcoin in an address that you own, it will be there for as long as forever, and when you wish to move it, there will always be someone available to cement that transaction into a block.

Yes, it is digital, yes it is mostly accessed via the internet today, but people are already building technologies to overcome these limitations. LoRa devices (long range radio communication) are being explored as an alternative to the internet as Bitcoin doesn't require much bandwidth to operate, in Africa bitcoin payments happen over USSD, a technology similar to SMS that works on old "feature" phones like the old Nokia phones that were popular early in the year 2000.

Even if all electronics and cross border communication shut down for some time, Bitcoin doesn't stop, the lack of communication will cause some problems, and another money like gold might be better for local trade for some time, but eventually communications will come back and the system is elegant enough to resolve and continue operation.

Also remember that while gold is less complex and easier to understand, it is only trustworthy and cost effective to use for local trading. This is why, in the digital global economy that we are in today, gold is not suitable, and in a brighter future, a system like Bitcoin is better money that can replace all of the trusted institutions with greedy middlemen that we have needed until now to operate in this modern economy.

It is a protocol, similar to the HTTP protocol that we use everyday to access websites using one of many universally compatible web browsers. If the concept of a protocol, or the term HTTP sounds too scary or complicated to you, fret not — hopefully this article will still articulate the powerful differences between a platform and a protocol sufficiently.

Did you know? NOSTR stands for Notes and Other Stuff Transmitted by Relays.

Clients and relays

Before we get started, lets quickly define the two main components of nostr.

Client:

A client is something that a user or content creator might use to interact with NOSTR.

Facebook also uses clients. Users may use multiple clients to access Facebook's content: they may use the official website on a laptop, the official mobile app on an Android phone or an iPhone, and some may even use unofficial clients to access and interact with their Facebook profile.

Nostr has no official website and no official applications, each client is created and designed to present its creators vision of a useful application that users might desire.

Some clients are focused towards photos in order to provide an instagram-like interface, others are designed to show short text notes like Twitter, and others may present long form articles and personal blog posts, but all clients fetch data from the same source, filter as appropriate, organise and present the data to fulfil a vision.

Relay:

The relationship between a client and a relay is similar to that between Facebook clients and Facebook servers. A relay is a type of web server that clients connect to in order to fetch and post data on your behalf, but as we'll explore, relays have much less power to control or manipulate your data or its discoverability than Facebook does.

Relays are much simpler than web servers; when asking a relay for content, clients are very specific about what content they want, and relays must return only the relevant information.

Relays can not provide sponsored content or advertisements like Facebook does, and relays cannot tamper with user content for any reason; Attempts to do either of these things is trivial for a client to detect and is easy to discard.

One identity, multiple apps

Imagine you have an account on Facebook, TikTok and Twitter; you will have multiple accounts, each probably with a different profile picture and bio, but likely with some shared information like your name, email address and other identifiable information.

Your identity also has as much to do with the content you post, as the profile you define. Many influencers and content creators need to post the same message on multiple platforms in order to reach different users and relay information to their many followers across these platforms.

Nostr is not a platform; it is a free and open standard that allows us to create an identity and to share information securely without locking in the data with a single platform run by a big tech firm.

Instead of registering for accounts on multiple platforms, on nostr we can define a single unique profile and use its associated keys to post images, notes, videos, streams and anything else we wish to share with the world.

As we touched on above when describing clients, there will be different clients, each specialising and becoming popular for relaying specific content types and experiences. With a single identity, you can simply publish all manner of content, and each app will display only the appropriate content for its purpose to its users.

An Instagram-like application will present your photos proud and clearly, while a Twitter-like application will focus on presenting your notes in a feed.

Misplaced trust

On a platform like Facebook, every user is entrusting a company to accurately relay their content and abstain from modifying or misrepresenting it before presenting it to their followers.

Although platforms are not known for doing these things, in order to provide any sort of assurances, these platforms take full control of our content, including how and when to display it. This in turn affords them power over both content providers and their followers, demanding that users watch advertisements before viewing the content they wanted to see and demanding content providers pay to ensure their content is presented in an egaging manner.

With identities on nostr, we eliminate the need to trust such platforms by introducing digitally signed content which employs cryptography, similar to how WhatsApp employs cryptography to provide end to end ecrypted messaging; it's mostly transparent to us as the complexities will be handled by your nostr client of choice.

It is worth mentioning that nostr can also be used to send encrypted direct messages (DMs) which provides similar protections to WhatsApp, and as time progresses, more privacy features will develop. Also existing features are constantly being discussed in public and improvements to existing features should be expected as more clients appear, and as more users arrive.

Digital signatures provide two things to our content:

1. A digital signature confirms whom the note was created by, as only the user who created an identity can produce a signature.
2. It also acts as a seal for the original content, as the signature will not match any modified or tampered version of the content.

This technology eliminates the need to rely on "big tech" to guard, arbitrate and declare which content was created, by whom, and when. This in turn allows the data to flow freely between relays which compete to become the source of your data, which further in turn creates an environment where arbitrary censorship and so called "algorithmic bias" is difficult, if not impossible to impose onto users.

With nostr, clients request exactly what you want: they specify the identities that you are interested in following, as well as the topics, time ranges and types of content you wish to see. Relays merely provide what data they have, and clients can easily detect and discard unsolicited data. Of course, relays and clients may work together to serve unsolicited content and advertisements, but users can easily switch clients and read from different relays, so this is unlikely to be a fruitful strategy to employ on nostr.

Another point worth mentioning, is that relays may share data with one another, and users may also push content discovered on one relay to another relay. This helps to ensure that your data is less likely to be lost or deleted, as it naturally spreads across the network, and it further fosters competition among relays keeping them honest.

Direct engagement and ZAPS!

With no intermediary, nostr can foster a much closer connection between content creators and their followers. Although relays cannot effectively block or hide messages from you, there are still tools you can use to flag sensitive or offensive comments and share those flags on the network.

Compared to top down censorship, user based flagging can become more effective at allowing different clients, such as those that are child friendly, to take a more liberal approach to hiding content, while allowing other clients to present more content, even if they have been marked as spam, offensive or controversial.

When it comes to monetisation, platforms usually use your engagement numbers to collect revenue from marketing companies and paying customers, and then offer you a small percentage of that revenue. On top of this, many platforms like Youtube and Twitch allow users to tip their favourite content creators, but once again, platforms will facilitate the payment, taking their cut along the way.

A payment protocol was developed fairly early on into nostr. The feature is called "zaps" and was initially developed to allow users to tip content creators, acknowledging their appreciation for it.

Today, zaps are quite often given towards funny posts, memes, and thought provoking posts. Nostr has also become useful for asking questions, getting answers and receiving small tips for providing a useful answer.

What type of money though?

It is not possible to create a protocol to facilitate bank transfers worldwide; banks require intermediaries like Visa and Mastercard to facilitate the payment, which then requires a company to collect and distribute the payments, all which involve fees and often require different solutions depending on your country of origin.

Instead, zaps focus on facilitating payments using Bitcoin on the Lightning Network. This allows fast, cheap micropayments (sub-penny tips that add up when you garner a good amount of engagement) and allows payments to be made directly from user to content creator without a greedy intermediary. It is a great showcase to illustrate how Bitcoin can succeed at facilitating free trade and innovative payment use cases where traditional banking just cannot.

An interesting development that has become somewhat cultural amongst the circles I follow, is how the authors of popular clients will post about the new updates that they have released, detailing new features and many users will zap a small amount as a token of their appreciation. These many small zaps add up and it has become a great showcase of the value 4 value idea:

Everything is optional, but features are complimentary

Just as clients are free to pick and choose features to provide, relays can do the same; some relays may provide very few features, but will be very fast at providing content, while others will provide more feature rich content but might require a paid subscription to read from or publish to.

Fortunately, relays have a standard way to broadcast what features they do and do not support and any notable limitations in a standard, machine readable way. This will allow clients to more effectively manage how it interacts with relays in order to provide a much smoother experience for their users.

Anyone can operate a relay too. A tech smart family member can set up a private relay that only serves known identities and serves to host and relay private content such as family photos and private communications.

For an influencer, a personal relay could also serve as a more reliable source for people to discover your content without needing to be concerned about which relays might be attempting to censor you.

Relays can be politcally left leaning, while others may be right leaning, some may be focused on music and entertainment, while others focus on preserving news articles.

As a user, you can connect to whichever relays you wish to, and disconnect any that are unhelpful. In this way, relays compliment each other and work together to provide all of the data you expect.

Just like in the early days of the internet, there is a lot of room for anyone with talent to set up, and participate in the development and evolution of this new technology, and it's super exciting!

Nostr is for public content only (for now)

It is important to note, that there are not yet any clients or standard features that protect the visibility of your posts, so all shared notes should be considered public.

It is not recommended to use nostr for sharing personal photos of your children, or sharing personal or sensitive information about yourself unless you truly want to share this information with the whole world publicly.

The only protected feature on nostr is the DM (direct messaging) feature. Similar to WhatsApp, these messages are protected with end to end encryption, which will protect your messages from prying eyes, however there is still metadata that is public.

With metadata, it is possible for others to see things like what identities are messaging together, how often, and at what times. This is at least not as bad as WhatsApp where they also collect things like your location and your phone number as you use the application.

Hopefully in the future, more progress will be made in this area with features that enable private group chats, and access control management which might mature nostr into a protocol that is suitable for sharing information limited to trusted friends and family.

Just the tip of the iceberg

Nostr is much much more than just a social media protocol. At its most basic level, nostr provides a way for anyone and anything to communicate reliably and publicly, without gatekeepers.

This technology can be used to disrupt many existing services, especially those that cannot function today without intermediaries that profit, purely by positioning themsleves as middlemen.

Things like Uber, AirBnB, Deliveroo and likely other such services may find competition powered by nostr, and who knows what else.

Nostr today

This article has been presented to you on a nostr client, and is available to read on many different apps and websites, but it is going to be best viewed on a blogging client like https://habla.news

That said, the most popular clients built for nostr provide a Twitter-like experience. I thought I'd close this piece with a few examples of the innovative and unique features I've seen on my favourite client Amethyst (for Android phones only):

Express more than a like with emoticons

The image above shows a post by Carla, and my own reaction (the laughing emoji: 🤣) is shown where a heart symbol would usually be (see the post below it).

Details can be expanded underneath the post to show all the other reactions people have submitted to the post.

Best of all, you can submit multiple reactions, you don't have to stick to just one!

Tamper proof image links

An image can be worth a thousand words, but in a post, an image is loaded by a link to another website. The site that hosts your image could change that image very easily, very abruptly changing the context and meaning of your post.

The purple ribbon on the top right indicates that a unique identifier was captured when the image was uploaded and that the contents of the image have not changed since the post was first created, and tapping the icon will provide a short message to explain this to the reader.

With this feature, your words and your images are safe from manipulation and if a host were to change the image some time in the future, users will immediately know that the images in your post were tampered with after its creation.

Donate with a zap

A great platform for raising money, either for a project or for a charity, is called Geyser Fund. On this platform, donations are paid in Bitcoin and are also paid directly with no middlemen to collect any cuts.

Since both Bitcoin and nostr development are done openly and collaboratively, it is scary how interopable they can be.

Upon noticing a note that asked for donations, it occurred to me that many may make the mistake of zapping the author of the note instead of donating on Geyser Fund.

I learnt that Geyser Fund allows us to accept donations via a Lightning Address, and that my nostr client allows me to specify an alternative destination for zaps when creating notes using Lightning Addresses too.

When using the zap feature, it is possible to send an accompanying message, and I wanted to know what might happen if I send a zap with a message to a note that redirected its zaps to a Guyser fund.

To my surprise, the integration was flawless. The message I sent was received along with the donation to the Geyser Fund platform and was displayed on the site like magic!

Note: The full title of the fund was called "BITCOIN TO MY MUM AND SISTER'S CHARITY CHALLENGE" and funds were promised to an African charity called FOGADD. Details can be found here

Zapple Pay

Last but not least, is a feature that was designed specifically for Apple iPhones.

Very recently, Apple threatened to take a nostr client for Apple called Damus off the app store unless they removed the zap feature, citing that it violated their terms of service by offering content or products for payments without using Apple Pay.

Arguably, the value for value model of tipping posts AFTER they have been shared should not be considered a payment for content, but regardless, after a few attempts to reason had failed, Damus removed the feature.

Within weeks, a website called Zapple Pay was created to provide users of Damus (and any other clients for on the Apple app store that would also have zaps removed) the ability to work around the ban. Users are able to assign an emoticon to a specific zap action such as "tipping 100 satoshis" to the note author.

To Damus, you are simply reacting to a note with an emoticon; to Apple, Damus has broken no rules; yet for the user, they have successfully circumvented the ban and can continue to enjoy the zap feature.

This is a great example of how open and collaborative nostr development can be; strangers around the world were able to work together and build something for themselves and their users despite Apple's obvious reach for power over their users.