The Substance of Bitcoin

The dictionary defines substance as:

Does Bitcoin qualify as being a substance?

By exploring the answer to this question, we actually gain some understanding of Bitcoin that may have been out of our reach before. By comparing Bitcoin to other substances, we can see how, at least in the material realm, it appears as though we have discovered a new element or material with unique and unprecedented properties. Using this frame, we can test Bitcoin’s properties against those of other substances that we have worked with for decades, centuries, or even millennia.

Let us explore here, together, these unique properties of this pseudo-substance and learn what makes Bitcoin unlike any other substance we have ever encountered before and how we might therefore use it to do things we’ve never done before.

It would be remiss to leave out the fact Satoshi himself took a quick stab at comparing Bitcoin to an imaginary metal way back in August of 2010. So let’s start there.

He then wrote:

“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:

- boring grey in colour

- not a good conductor of electricity

- not particularly strong, but not ductile or easily malleable either

- not useful for any practical or ornamental purpose

… And one special, magical property:

- can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly, as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some.) Maybe, collectors, any random reason could spark it.

I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

(I’m using the word scarce here to only mean limited potential supply)

In his post, Satoshi observed that Bitcoin was teleportable — that it could be transported over a telecommunications channel.

This is a very unique property indeed because there is no other substance we are aware of that can be teleported. In fact, even information we transmit over the internet is not actually teleported — it is copied — and the original still exists. If you downloaded this article from a server, it did not disappear from its original location; you merely made a copy of it.

When you send Bitcoin, however, the copy you retain of that Bitcoin that you spent loses its ability to be spent again. The act of teleporting Bitcoin effectively destroys the value of the Bitcoin being sent and creates a new and equal amount of Bitcoin that can be spent, which has now been teleported to the possession of others.

(In Bitcoin technical-speak, you are spending an Unspent Transaction Output (UTXO), thereby transforming it into a Spent Transaction Output and creating new Unspent Transaction Outputs that total the amount of the UTXO you spent.)

The ability to teleport rather than transport Bitcoin makes it a unique substance with unique benefits. Certainly, the example Satoshi gave of transferring it over long distances is a valuable use case. Additionally, in our increasingly digital lives, we enjoy the convenience of transferring anything we can over telecommunications networks, even when we are face-to-face in person with others, especially when it comes to money.

Sticking with Satoshi’s style, imagine a substance with the following magical property as a thought experiment. This substance could not be lifted, moved, damaged, destroyed, or carried away with any tool or any amount of energy. Instead, however, it could be moved only by uttering a spell — a secret spell.

Such a magical object that can only be moved by its rightful owner has been imagined before. One example is Thor’s hammer in the Marvel Universe. In that imaginary universe, it was only Thor who could lift his hammer. It somehow was bound to him and only him. So even if it was left out in plain sight, it was of no use to anyone but him. Similarly, the legend of the sword “Excalibur,” which was embedded in a stone and could be withdrawn from the stone only by the rightful king, had this mythical power to be taken only by one special person.

With Bitcoin, this trait is no longer resigned to the realm of fiction or legend. This is the power of self-custody in Bitcoin. It is available to anyone, not only Norse gods or the sovereign of Great Britain. In Bitcoin, only the one who knows the secret, private key can move the Bitcoin associated with that key. Obtaining your own private key is a trivial task while figuring out someone else’s, provided they have taken proper precautions to keep it secret, borders on the impossible.

(Now, a minor detail is that when you do utter your secret spell to move some of your Bitcoin, you must give some portion of the Bitcoin in the form of a fee to a Bitcoin miner.)

A Bitcoin transaction essentially is a statement saying, “This unspent Bitcoin is now to be spent and sent to the following unspent addresses, with a portion going to the miner who adds this transaction to the blockchain, and here is the proof that the private key (s) required to spend this unspent Bitcoin is known to me, the sender.” Through the mathematics of private-public key cryptography, anyone can check the validity of the proof through Bitcoin’s public ledger (the blockchain) anyone can check the validity of the claim that the Bitcoin is not yet spent. If both those conditions are met, and if the fee is sufficient, you can expect that the Bitcoin will move to where the owner decreed it is moved to. And once this is done, the Bitcoin that has moved will retain the ability to be moved again only by its rightful owners.

There are so many potential benefits to such a substance that they are hard to all imagine. The major one, of course, is that securing such a substance relies not on having a fortress to protect it but on retaining a piece of knowledge, which can be memorized, easily hidden, kept in multiple locations, carried around in one’s head anywhere in the world, and more.

Once again, let’s imagine a substance with a unique, magical property. This time, it is a substance that can be reshaped (only by its owner as per the previous property), but when it is reshaped, it remembers its previous shape. In fact, it remembers all its previous shapes — perfectly. None of the previous forms are erased from memory. There is no substance possessing this property that is known to us.

When you look into any Bitcoin transaction, you can trace it back all the way to Bitcoin’s genesis. Whether it is the transaction history of the satoshis in the transaction going back to the blocks that they were issued in, or the chain of blocks that leads back, one by one, all the way to the genesis block from those blocks, all the satoshis that exist can be traced all the way back to the genesis block.

Put another way, Bitcoin is a record of its entire history. It is a recursive record of itself. For any amount of Bitcoin to exist, it must trace its history back to its issuance in one or multiple blocks. Those blocks must themselves trace back their history through a chain going all the way back to the very first block ever.

The Bitcoin blockchain is a record of every issuance of Bitcoin ever and every transaction of Bitcoin ever. Each new entry in the record declares how much Bitcoin exists in that new entry and showing which previous entries are being spent to create that new entry.

If you do actually try to look at it all yourself, it will be overwhelming, as there are hundreds of thousands of blocks and tens of millions of transactions. But you can start anywhere, trace transactions back to when the satoshis in them were issued in a block, and easily trace that block back to Genesis.

Now, this property is sometimes viewed as a weakness concerning privacy. However, it is necessary to ensure that no Bitcoin can ever be spent twice or conjured up out of thin air, and there are ways to confound attempts to violate privacy. This brings us to the next unique property.

This property is commonly known and widely appreciated, but still, nevertheless perhaps under-appreciated. There are and can only ever be 21 million Bitcoins, each made up of 100 million satoshis.

When used as a store of value, to be exchanged for other goods or services, whose supply is not restricted or even known, Bitcoin’s scarcity provides another unique property that we simply cannot expect from any other substance, including gold.

There is a certainty — an assurance — in Bitcoin that eliminates a risk associated with any other substance we are holding for the sake of preserving its value. That assurance is that nobody will develop a breakthrough to increase its supply and therefore drive down its price based on flooding the market with it.

Money is the only substance that we want to remain scarce. Civilization is enriched whenever we figure out how to make any other substance more widely available and abundant — except for money. When we make money more abundant, all that happens is that price inflation occurs. This is, of course, one of the central problems of fiat money. Unknown and unpredictable supply, especially as present circumstances reveal, is a tremendous problem when relying on a substance to serve as money.

What is under-appreciated about this property of Bitcoin, though, is that everyone can know and verify this restricted supply. Nobody really knows how much gold there is out there, where it is, or at what rate it’s being discovered. There is no way to verify any popular claims of how much gold exists or remains to be mined. The BBC reports that estimates range from 155,000 tonnes to much as 2.5 million tonnes of gold have been mined. That’s a discrepancy of sixteen times, which nobody can verify.

However, both the current supply of Bitcoin and its issuance schedule leading to its final supply can be verified inexpensively and relatively quickly by anybody anywhere in the world.

This uniqueness is especially valuable in a world where trust in claims that can’t be verified continues to erode.

Let’s go back to imagining magical substances, this time imagining one that cannot be mixed in or blended with any other substance. If someone hands you some amount of it, you can quickly verify both the amount, right down to the atomic quantity of it, and moreover, you can know that the amount handed to you is 100% pure. Any kind of fraud of passing off something else or something diluted is impossible if the recipient takes a few simple and inexpensive precautions. This substance cannot be counterfeited or faked.

Like all the previous properties discussed here, Bitcoin possesses this property too. When someone sends you Bitcoin, that’s all you receive. There are no trace amounts of anything else mixed in. It’s impossible to make it appear that there’s more Bitcoin in a transaction than there actually is. This is true only of Bitcoin taken into self-custody because a promise of Bitcoin from another person is just a promise. But Bitcoin in self-custody is 100% pure Bitcoin.

This property is yet another assurance that you know what you’ve got. You’ve got 1) a 100% pure substance, 2) that nobody else but you can move, 3) that’s strictly limited to a known supply, and 4) that you can teleport to anyone else, anywhere in the world.

In its early days, Bitcoin was often somewhat jokingly referred to as “Magic Internet Money”. That expression was itself a hand-wavy approach to saying “it’s quite complicated, but it works.” However, it turns out that even more than fourteen years in, it is still helpful to imagine Bitcoin as a substance with various 'magical' properties. Doing so helps us more easily understand how Bitcoin works and how it is different from all other known substances.

There are other unique properties of Bitcoin that this article won’t go into detail about, such as having zero mass (unlike matter), being at no single particular location (because every Bitcoin is located in every single Bitcoin node in the world), being a substance you can 'back up' and keep the entirety of what you own in multiple locations at the same time, being perfectly divisible down to its smallest particle — satoshis in the case of Bitcoin — and probably quite a few more.

Bitcoin is simply, in so many ways, unlike any other substance we know. And each of those ways makes it quite useful for the things we use money for — storing value, transmitting value in exchange for goods and services, and measuring value. This isn’t really magic, though. It’s what we often see when we get to a point where we have engineered something from raw substances and no longer rely on those raw materials alone to serve a particular purpose. Just as a hammer is an engineered, dramatic improvement over using a rock to smash things — it fits better in your hand, uses leverage, balance, and momentum to direct the striking energy exactly where desired (provided you don’t hit your thumb) and combines various materials like wood, plastic, and iron each for their benefits. And a hammer is itself quite inferior to a nail gun, which uses electricity to perform the energetic work previously required by the person holding the hammer. Hammers and nail guns might have been considered 'magical nail drivers' when people first encountered them, but they are so commonplace and well-understood that nobody is awestruck by them (although the first time one sees a nail gun at work, it does leave quite an impression).

In reality, Bitcoin, like the nail gun, isn’t a substance but a carefully and the precisely engineered solution to a crucially important human need — the need for a reliable, universal medium to use as money. However, since we currently use something so vastly inferior to fiat money, and many of us can see the weaknesses of fiat money when compared with an actual substance, like gold, it is beneficial to compare Bitcoin to gold and all other substances to see how it is superior as money, and why, therefore, it will, in time overtake both fiat money and gold as what people use for money.