Bitcoin and Its Philosophy

This article is a reprint of "Bitcoin and Its Philosophy" which was contributed to the Libertarian Association's official journal "Libertarian" (Vol. 2, May 2023).

The following is the main text.

Author: K.S.

In Japan, Bitcoin is still often thought of as synonymous with fraud. It is true that most crypto assets and virtual currencies in a broader sense are nothing more than scams. People who support (or believe in?) Bitcoin ideologically are called Bitcoiners or Bitcoin maximalists, and they believe that all altcoins (all crypto assets and virtual currencies other than Bitcoin) are scams. So why do they believe that Bitcoin has (supreme) value? In this article, I would like to introduce the "philosophy" of Bitcoin, which is still largely unknown to the general public, albeit through my humble writing. To talk about philosophy, one must first talk about history. It is generally said that Bitcoin began in 2008 when an anonymous person named "Satoshi Nakamoto" posted a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" to a cryptography mailing list. That may be a fact, but Bitcoin is not a technology that just popped up out of nowhere. The cypherpunk movement, which advocated protecting individual freedom and privacy from arbitrary entities such as governments and corporations through cryptographic technology, had existed as a strong trend since the late 1980s. Over the next 20 years, mechanisms were repeatedly proposed that would allow completely independent individuals to use the Internet to make payments and transfer assets without having to trust any third party, such as governments, banks, or specific companies or individuals. While I will not go into the technical details of Bitcoin in this article, Bitcoin emerged as the culmination of such technical proposals, and the libertarian philosophy of the cypherpunk movement was its background. The background of Bitcoin is not just the cypherpunk libertarian philosophy. In fact, Austrian School libertarian ideas, such as those of Mises, Hayek, and Rothbard, are also "related" to Bitcoin. In this context, there are currently rumors that Satoshi Nakamoto's birthday is April 5, 1975, which coincides with Executive Order 6102, which prohibited the hoarding of gold by U.S. citizens on April 5, 1933, and that the proposal of the Bitcoin paper came immediately after the Lehman Shock, with the intention of opposing arbitrary bank bailouts by the government. Indeed, Austrian School thinkers criticize the current system itself, where the government arbitrarily bails out private banks, as a cause of unnecessarily increasing the amplitude of boom and bust cycles, and they support the gold standard. However, concluding that there is a connection between Bitcoin and Austrian School libertarian thought based on the above episodes would likely not go beyond the realm of "urban legend." More directly, there is a connection between Bitcoin and Austrian School libertarian thought. First, Bitcoin's issuance limit and rules regarding new issuance are determined by the protocol, and no one can arbitrarily increase the total amount(1). This is precisely why the Austrian School supports the gold standard. Western countries abandoned the gold standard and arbitrarily increased the money supply to raise funds for participation in World War I. The result was nothing less than the unjust confiscation of assets from the people through inflation (a decline in currency value). War is where the state, an arbitrary entity, severely infringes upon the freedom and rights of the people. From the standpoint of libertarian thought, the Austrian School opposes the fiat currency system, where the government, an arbitrary entity, can print more money, and advocates for the gold standard as the foundation of society. The gold standard has been subjected to numerous criticisms. The Austrian School has responded to these criticisms, but I will omit the details due to my own lack of study and space constraints. In the early 2020s, the world experienced a situation where governments arbitrarily restricted people's freedom on the grounds of an unknown infectious disease. Also, in Japan, government spending is expanding due to social security expenditures, and this is being secured by the issuance of new government bonds and underwriting by the Bank of Japan. The consequence, according to the Austrian School, would be that the government distorts the market and unjustly expropriates individual assets through inflation. As a means to regain "freedom," why don't you, the readers, try "betting" on Bitcoin? Reference (1) It is not impossible to control new issuance by a "51% attack," which involves controlling more than 50% of the mining speed of the entire Bitcoin network, or by hard-forking the chain and forcing many participants to follow "my rules." However, the former has never succeeded, and although there are examples of the latter, there is no example that has been more successful than Bitcoin itself.