Bitcoin
Bitcoin is a digital currency that no government or company runs. The person who created it, known only as Satoshi Nakamoto, stopped taking part around 2011, and it has kept working ever since.
Most money depends on someone in charge. A government issues it, stops counterfeiters, and keeps the system running. Bitcoin has nobody in that role. Instead, thousands of computers around the world, run by ordinary people and companies, each keep a full copy of the record of payments and follow the same rules. Together those computers are called the network, and the network does all three jobs by its own rules. It issues new bitcoin itself, on a fixed schedule written into those rules, as payment to the miners who add each block. It stops counterfeiters by rejecting fake payments: every computer on the network checks every payment, and one that spends coins that do not exist or were already spent is thrown out. And it keeps itself on schedule, adjusting so that a new block of payments is added about every ten minutes, however many machines are working on it.
But the most intriguing thing about it, as I recall from reading about it in a Wired magazine article in 2012, was that the whole thing was protected by a wall of cryptography. I had known since I was a teenager that a money like this could be made with cryptography. I just did not know how it would be done. The article appeared to be the answer to that question. I kept the magazine, and I have it to this day.
The other examples in the Markets section of the MrAttractor website (a bank run, a stock exchange's order book, a trading game) stop working the moment people stop feeding them: with no orders, there is no market. Bitcoin needs outside help too. It runs on electricity and computers that it does not make, and it is worth something only because people want to own it. Needing outside help does not settle anything, though, because everything that lasts needs some: a forest needs sunlight and a person needs food. What separates something that keeps itself going from something that is only kept going is who repairs it when it is damaged. A forest regrows after a fire on its own; a market emptied of traders stays empty until someone brings them back. So the question this page asks is who fixes Bitcoin when something goes wrong. For fake payments and for timing, Bitcoin fixes itself, but by rules its designer wrote in. That means the answer depends on where you draw the line around Bitcoin. Drawn around the protocol alone, the code and its rules, Bitcoin is an attractlet: its basins were written in from outside, the way a thermostat's setting is chosen by whoever installs it. Drawn wider, around the protocol together with the miners it pays, the developers drawn in by its mathematics and the people who understand that this is an experimental platform in the middle of a life-test, Bitcoin might be more than an attractlet. Those people understand that we shouldn't change the rules, because they are brilliantly placed and executed. And another thing to remember is that the architecture is a frozen snapshot from the time of its authoring. So the question this page leaves open is this: does Bitcoin, together with those people, keep itself going and repair itself, the way a forest regrows after a fire?
Bitcoin's Basins
On this site a basin is the set of conditions a system comes back from. Push a marble around the inside of a bowl and it rolls back to the bottom; the bowl is its basin, and the rim is the edge, the push beyond which it does not come back. Bitcoin has four:
- Ten minutes a block. However many machines are mining, the block time returns to about ten minutes. Edge: a loss of most of the miners at once, which the rule would take months to recover from.
- One ledger. When two versions of the newest block appear, the network always settles back on one. Edge: anyone controlling more than half the computing power.
- Miners who can pay their bills. When the price falls, miners switch off until the rest are profitable again. Edge: the shrinking reward, and whether fees alone will one day be enough.
- The rules themselves. The 21 million cap and the ten-minute target have survived every attempt to change them. Edge: a dispute nobody can settle, which split off Bitcoin Cash in 2017.
Designed, then left running. The first two basins were written in by Satoshi, the way a thermostat's setting is chosen by whoever installs it, so the protocol alone is an attractlet. The other two were never written down; they come from the market and from the people who run the network, and they are where the open question lives. The price has no basin at all: nothing pulls it toward any particular level.
How It Works
the parts, one page eachBitcoin's Basins
The four states Bitcoin returns to after a push, the edge of each, and which ones its designer wrote in.
Read the page →The Ledger
A shared list of every payment ever made, kept in thousands of identical copies that check each other. There are no coins, only entries.
Read the page →Payments
What a payment says, how it proves its owner agreed to it, and the fee the payer offers to get it into a block.
Read the page →The Block
The page the ledger is written on: a header, a list of a few thousand payments, and a fingerprint that links it to the block before.
Read the page →Miners
The machines that guess, trillions of times a second, for the right to add the next block, and why anyone pays to run them.
Read the page →Rarity
21 million coins, ever, released on a schedule that halves every four years, and how the design copies the way gold stays scarce.
Read the page →How It Is Attacked
and why the attacks failForgers
What it would take to fake a payment or rewrite an old one, and why every copy of the ledger would catch it.
Read the page →Spending a Coin Twice
The one attack that can work: pay, take the goods, then publish a secret chain where the payment never happened. A race the attacker usually loses.
Read the page →Nakamoto's White Paper
The nine-page paper from 2008 that laid out the whole design, the odds it printed, and the approximation in them found in 2017.
Read the page →Who It Drew In
the people who keep it goingThe First Group
The cryptographers, programmers and hobbyists who bought the cleverness of the design in 2009 and 2010, and became its first developers.
Read the page →The Later Investors
Silk Road's buyers from 2011, then the people who bought because the price was rising, and the crashes that tested them all.
Read the page →The Difficulty Loop
The computing power is yours to set. In the real network it follows price, electricity cost and hardware. That outer loop is not modeled here; the buttons stand in for it.
The top line is noisy on purpose. It is the average of the last day's blocks, about 144 of them, so it wanders by roughly a minute either side of ten even when nothing is wrong. The status line uses the last week instead.
The Attacker's Odds
The Rules Alone, or the Rules and Their People
An early coin is an attractlet: the king makes it worth something by demanding it back in taxes and punishing forgers, and when he stops, the coin stops. The Bitcoin protocol is an attractlet too, a better-built one. Its corrections run inside it, but they were written by an outside author who wrote them once and left, where the king has to keep correcting.
The open question is Bitcoin with its people: the protocol together with the miners it pays, the developers drawn in by its mathematics, and the community that has refused to change its rules. The protocol replaces its miners automatically. It does not pay the people who maintain its software, who keep arriving because they can check its mathematics for themselves. Whether a loop that runs through people's understanding counts as the system rebuilding itself is the question this page leaves open.
What this page is not. It models no price and gives no investment advice. It does not claim Bitcoin is money; it is mostly held as an asset priced in dollars. The panels are simplified: one difficulty for everyone, no propagation delays, and computing power set by you.
Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Section 11.
Grunspan, C. & Pérez-Marco, R. (2017). Double spend races. arXiv:1702.02867.
The Block (3 July 2021). Bitcoin network undergoes largest difficulty drop ever by nearly 28%.
Bitcoin Core source, difficulty retarget (2016 blocks, two-week target, factor-of-four clamp).