The Bitcoin Standard

Prologue

On November 1, 2008, a computer programmer going by the pseudonym Satoshi Nakamoto sent an email to a cryptography mailing list to announce that he had produced a “new electronic cash system that's fully peer‐to‐peer, with no trusted third party.”¹ He copied the abstract of the paper explaining the design, and a link to it online. In essence, Bitcoin offered a payment network with its own native currency, and used a sophisticated method for members to verify all transactions without having to trust in any single member of the network. The currency was issued at a predetermined rate to reward the members who spent their processing power on verifying the transactions, thus providing a reward for their work. The startling thing about this invention was that, contrary to many other previous attempts at setting up a digital cash, it actually worked.

While a clever and neat design, there wasn't much to suggest that such a quirky experiment would interest anyone outside the circles of cryptography geeks. For months this was the case, as barely a few dozen users worldwide were joining the network and engaging in mining and sending each other coins that began to acquire the status of collectibles, albeit in digital form.

But in October 2009, an Internet exchange² sold 5,050 bitcoins for $5.02, at a price of $1 for 1,006 bitcoins, to register the first purchase of a bitcoin with money.³ The price was calculated by measuring the value of the electricity needed to produce a bitcoin. ...