Week 23 Day 1: What Bitcoin Actually Is

Bitcoin was created in 2009 by an anonymous person or group called Satoshi Nakamoto. It runs on a public ledger (blockchain) maintained by thousands of computers worldwide. Transactions are verified by math, not by a bank. Only 21 million bitcoins will ever exist -- no government can inflate it away. This scarcity is the core of its value proposition.

Bitcoin's fundamental properties: (1) Fixed supply: 21 million coins, with about 19.5 million already mined. New coins are created through 'mining' at a decreasing rate, halving roughly every 4 years (the 'halving'). By approximately 2140, all coins will be mined. (2) Decentralization: no single entity controls Bitcoin. The network is maintained by miners and node operators across the globe. (3) Censorship resistance: no government can freeze or seize Bitcoin held in a personal wallet. (4) Pseudonymous: transactions are public but tied to cryptographic addresses, not names. (5) 24/7 trading: Bitcoin markets never close. Performance: Bitcoin went from $0 in 2009 to approximately $70,000 in 2024. A $1,000 investment in 2010 would be worth over $5 billion today. But the ride was stomach-churning: -84% in 2014-2015, -84% in 2018, -77% in 2022. Bitcoin has been declared 'dead' over 450 times by mainstream media.

Bitcoin's monetary properties derive from its consensus mechanism (Proof of Work) and the difficulty adjustment algorithm, which ensures block production at approximately one block per 10 minutes regardless of how much mining power is deployed. The issuance schedule is deterministic: 50 BTC per block from 2009-2012, 25 from 2012-2016, 12.5 from 2016-2020, 6.25 from 2020-2024, 3.125 from 2024-2028, and so on. This creates a disinflationary supply schedule with a stock-to-flow ratio that exceeds gold's post-2024 halving (S2F approximately 120 vs. gold's approximately 60). The stock-to-flow model (Plan B, 2019) predicted Bitcoin's price trajectory reasonably well through 2021 but has since been criticized for overfitting and for ignoring demand-side dynamics. The more rigorous valuation framework views Bitcoin as a call option on becoming a global reserve asset or store of value. Winklevoss (2013), Pfeffer (2017), and others estimated Bitcoin's addressable market at $10-50 trillion (portions of gold, offshore wealth, and reserve currency holdings), implying a per-coin value of $500K-$2.5M if fully adopted. The probability-weighted expected value (small probability of massive adoption versus high probability of limited adoption or failure) drives the risk-reward profile that attracts speculative capital.