What incentives does Bitcoin offer? Accumulating money, or is there a bigger goal and incentive for miners securing the network? Mining is one of the most important processes in the Bitcoin network, but relatively few actually understand it.
I recently had the pleasure of speaking with Marty Bent, the laid-back Philadelphian with a penchant for Bitcoin mining and founder of the Tales From The Crypt podcast. We talked about my journey and how I wrote my book “From Bars to Bitcoin,” a coming-of-age story in which prison introduced Bitcoin into my life for the better. I didn’t need a halfway house when I returned from incarceration because Bitcoin gave me the skills to re-enter society at a pace only a book could highlight. During the podcast, a revelation struck me about the real reason behind Bitcoin’s incentives; you know, the tangible things that keep the plebs and the investors from sleeping at night.
What incentives does fiat money offer to society that can cause so many members of society to put morality aside, even to the extent that they may even commit a crime to get it? Looking at the mind-boggling number of incarcerations in America, it’s easy to see that this happens on a regular basis. Crime pays, and it delivers in fiat at higher levels than bitcoin. The media can support Bitcoin’s few cases of cybercrime and its founder “in the shadow of the super-coder” as something that threatens the security of the reserve currency. This truth is that crimes committed with bitcoin are rare. Bitcoin, in my opinion, offers a more peaceful, inclusive, and better honest return of money than anything man has ever seen before.
The initial idea crossed my mind on an earlier date while reading “Mastering Bitcoin,” but a conversation with Marty rekindled feelings on the subject. One of the many Bitcoin incentives is mining. To the uninformed, mining can seem like an energy-dependent cash grab. A well-run series of S9 miners working hard on math problems to find a solution appears to have resulted from acquiring Bitcoin at a high price. Even my grandfather tried his hand at mining by buying an old AntMiner, to no avail. This is the power of Bitcoin; anyway, if you’re attached to bitcoin, if it goes up, you go up with it. This is why Bitcoin is the only thing I hold.
For the record, I am not a hardcore Bitcoin miner. I’m just asking the Bitcoin community a question about their incentives to acquire. What is the real motivation for mining Bitcoin? That question alone can quickly remove many other layers of hidden incentives. What I mean by hidden is that a lot of people think these incentives are all about money. The overall price of Bitcoin goes up, then people get too excited; this is what bothers newbies during the orange pill process because they have no idea what mining entails. At the surface level, it’s hard to understand that bitcoin mining keeps the network decentralized, and that’s far more important than just earning bitcoin as a monetary reward. It is also about creating a new financial structure on Earth that treats everyone fairly, as equals, that cannot be manipulated for the benefit of the few at the top. Bitcoin is a healthy currency. Bitcoin saves the world while you tweet, while surfing the internet, and so many people are not paying attention. Here’s how.
Mining is a complex topic at the grassroots level, but mining secures the network and ensures the automated mathematical issuance of new bitcoins. For example, in 2021, every 10 minutes, 6.25 new bitcoins are added to the global ledger and placed in a certain block. What does it look like every day? That’s 900 new bitcoins. The issuance of bitcoin and all that surrounds it encompasses this hard cap of 21 million, requiring a certain fixed amount of bitcoin to come out on its way to that 21 million total each day. The predictability of this structure is the base layer that bitcoin has had a compound annual growth of 200% for over a decade.
Mining acts as a decentralized currency for bitcoin. When miners add a new block to the blockchain, a set number of unique bitcoins are rewarded. They are also rewarded with transaction fees which is another powerful financial incentive. How do we compare this to something in the real world? In fiduciary history, there has never been a form of currency issuance based solely on compliance with mathematical rules. Previously, issuing money was based simply on political politics, whims and even human emotions. We have our most significant example, with COVID-19. 20% of existing US dollars were printed in 2020 alone to save the economy or, better yet, to save Wall Street. Even Federal Reserve Chairman Jerome Powel has lost faith in M2, saying: “Right now, M2 [money supply] doesn’t really have any major implications. This is something we have to unlearn. This should raise a few eyebrows.
However, as governments around the world increased their currency impressions, the Bitcoin network continued to mine the same constant amount it was programmed for, which helped stabilize the world. This decentralized mining issue, coupled with the built-in halving concept, is a reliable incentive and the real reason you mine bitcoin. In the face of a pandemic, the amount of bitcoin issuance was halved and still served as a valuable store of wealth, unlike the fiat system. A “halving” of the amount of new bitcoin issued occurs every 210,000 blocks (roughly every four years). Lowering that number at a steady rate is the genius of Satoshi. Keeping the network on an issued scarcity schedule increases the coin’s value over time, ensuring that demand exceeds supply.
Another invisible incentive is that a lot of manipulations are impossible due to the fact that you cannot add or decrease the size of the block. You cannot change the amount of bitcoin bid created. It makes you stick to it all the time. It confirms the disinflationary nature of bitcoin. Even the HODL method, for example, may well be the biggest invisible incentive in the Bitcoin world of all time. What is the incentive for HODLing? A lot of people think that HODLing is all about increasing your fiat value and keeping bitcoin out of the trade, and YES this is very important.
However, HODLing requires holding your bitcoin for a long time after converting your fiat dollars into it, knowing that the exponential increase in the value of bitcoin is also a fixed fact of life. He creates a recipe for destroying the fiduciary system; However, many believe that it is only to make money. The real conception of Bitcoin is to empower people because the people who control the money cannot go against their own nature, so they keep printing money. When people were asking, “Can Bitcoin end banking?” I used to think that wasn’t possible, but the longer you HODL, the more you strengthen Bitcoin, and that answer starts to lean more towards a ‘YES’. Satoshi wrote the basic Bitcoin code to be impregnable and top-to-bottom aligned. So, the more fiat dollars siphon off the system into Bitcoin, the weaker centralized control becomes, and most people do it without realizing it.
What healthy money does to people
In El Salvador, for example, citizens still spend US dollars, but during the recent price strike, they are slowly starting to realize the common sense value of HODLing as the value of any bitcoin they own increases. You don’t have to teach the value of saving with bitcoin; understanding bitcoin will do that for you. That time will come when you will start to notice that your fiat money is not working for you and the whole monetary system is riddled with corruption. This is when these Bitcoin incentives take hold and are still at work. You are supporting the network you participate in and in doing so, you are actively increasing the role and importance of bitcoin in the world, thus disrupting the old system.
This is a guest article by BitcoinVegan and Dawdu Amantanah. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.