Bitcoin and the path of becoming a sovereign individual

Before the rise of the Bitcoin network, the path to becoming a sovereign individual was very difficult and steep. One had to learn cryptography and the inner workings of computer systems. One had to become practically a crypto-hacker (whatever that means).

Because of the immense amount of work that had to be put into learning such specialized knowledge, there was not much time left for social interaction. People involved in this had to have a strong motivation to explore ways to become independent of trusted third parties. The most common motivation was simply paranoia, distrust of any social institutions and deep-seated distrust in the personality. The average trait of such people was to be antisocial and not to understand that humanity is most successful when it works together.

Because of the proliferation of easier-to-use technology, it first became possible to do a much better job of securing one's own computer systems from outside interference through, among other things, antiviruses and firewalls. Then it became standard to encrypt computer disks (so that it is no longer so easy to view someone's data).

Some average people already prefer electronic document signatures to manual signatures, because such a signature contains the checksum of the contract or agreement being signed. Thus, such a signature has an advantage over a handwritten signature, because it is not possible to change even a comma in an already signed contract without destroying the signature itself. In contrast, with hand-signed paper contracts, there is the possibility of changing the content of the already signed document and trying to force the signer to accept additional terms to which he did not agree.

People using these technologies do not necessarily need to know the details of how they work. To take advantage of the resulting functionality, all they need to know is how to make it work.

Similarly, sharing the fruits of one's labor among network users is becoming easy to use. More and more simple and intuitive systems are being developed to make this possible. Without any technical knowledge, using the Bitcoin network it is possible to perform money transfers without having to trust banks and other financial institutions.

To make such operations secure and not vulnerable to theft by crackers requires strong cryptography and, paradoxically, the cooperation of many entities seeking to make such a network resilient to disruption. These entities cooperate without a central coordination system, because each of them (if they care about their future income) cares about making the Bitcoin network more secure. It is the level of security that determines the influx of new users and the increased financial commitment of those already using the network.

The entities I'm talking about are Bitcoin miners. People, and mainly companies, whose activities secure the Bitcoin network from outside attacks. In return, miners receive freshly printed Bitcoin.

Because of this printing, the digital currency Bitcoin (if not for the influx of new users) would be subject to inflation. However, the level of this inflation is currently in the range of 1.7% (one comma seven), which is lower than gold inflation (about 2%). With industrial mining, a great deal of new gold is being mined around the world compared to the rate of new gold mining in previous centuries. Interestingly, around April 20, 2024, Bitcoin inflation caused by creating new Bitcoin out of thin air will be cut in half. Thus, it will become twice as good at holding value as gold (which does not at all mean that it will grow twice as fast as gold, since gold may attract more new buyers than Bitcoin at that time).

Miners "mining" the new Bitcoin can become any users of the Bitcoin network, or even any users of the Internet network. However, due to the high level of competition, it is usually not profitable for average Internet users to become miners (especially after the recent energy price hikes). The way to profitable mining is through access to cheap energy or through access to the most efficient latest-generation miners (ASICs). These are special processors designed for only one type of activity, which is securing the Bitcoin network.

Bitcoin mining has come a long way before dedicated ASIC processors were used for it. First it was mined using the most ordinary home computers. Then using professional servers. Then special servers were built using graphics cards. Nowadays, graphics cards are practically no longer used for Bitcoin mining (because they are much less powerful). However, the prices of graphics cards are still high by the massive use of them for training neural networks including the most famous ones: Golems (or Generative Large Language Multi-Modal Models for short: GLLMMMs, such as Chat GPT).

It is thanks to the work of miners that securing Bitcoin transfers is relatively easy without detailed knowledge of cryptographic technologies. You just need to be able to distinguish good tools from bad ones instead of doing everything yourself. The same way we encrypt the contents of our disks, protect against viruses, or protect against hackers - not on our own, but with special programs.

In each of these situations, the knowledge you need to have is the ability to find a good and proven program that is recommended by many experienced users and verified by experts, rather than trusting advertisements.

Bitcoin transfer is done between wallets. In order to receive and own any Bitcoin you need to have a wallet where it will be stored. This is either a program or a physical device. Crucially, you need to find a wallet on which it can be safely stored. Although someone might say that we don't need a wallet to own Bitcoin - it's enough that we know where it is. These can be programs installed on our cell phone, or on a desktop or laptop computer. They are free of charge. They differ in the level of ease of configuration and security.

If we do not want to learn how to operate our own wallet, we can also give up control over our funds and trust a third party. This is something I don't recommend, because if it's not your keys it's not your Bitcoin. In practice, this means that someone else will have such a wallet installed and we will keep Bitcoins with him. Like under his mattress, not like in a bank, because without any bank guarantees. So, paradoxically, it is possible to get Bitcoin for such a wallet and not have it (if our funds are not in our private wallet).

That's why the first thing I recommend before buying Bitcoin is to familiarize yourself with the options for installing and configuring a private wallet - preferably a hardware wallet. So that we don't have to trust anyone with the security of our money stored in Bitcoin and can maintain financial sovereignty. It is particularly easy to achieve in the Bitcoin network, because the configuration of private wallets is not particularly difficult (the authors of these programs are making them easier and easier to use every year).

Zbigniew Galar, PhD

Post Scriptum

This is not investment advice. The author does not encourage the purchase of Bitcoin, nor does he discourage the purchase of Bitcoin; instead, he encourages education about Bitcoin and strongly discourages the purchase of any other non-decentralized cryptocurrency.