All 21 million Bitcoins already exist and are waiting to be unlocked through an auction

Most people who understand bitcoin know that there are two types of bitcoin. One is Bitcoin, the asset that has a fixed supply and is quite volatile, and the second is Bitcoin, the network and protocol that maintains an immutable ledger that has never been hacked and is bulletproof, bombproof, and tank-proof. I believe there is too much emphasis on the assets and not nearly enough on the network, protocol and immutable ledger.

While listening to a recent podcast that Peter McCormack had with Dhruv Bansal they discussed the network and protocol in a new way.

I really liked Dhruv’s formulation of how to view bitcoin’s fixed supply. The two versions can be simplified as follows:

Version 1: The generally accepted view

The 21 million will be issued over a period of 131 years, from 2009 to 2140. Not all bitcoin has been issued or created yet. This view implies that as of March 2024, approximately 19,659,000 bitcoins have been issued or created, which is 93.62% of the total supply. In today’s era, you could describe this as: “6.25 bitcoins are created approximately every ten minutes.”

Version 2: Dhruv’s view

ALL 21 million were created through the network, consensus mechanisms, algorithms and protocols on January 3, 2009 and from that date monetary policy and therefore supply issuance for those 21 million was set on that date. ALL 21,000,000 ALREADY EXIST, BUT HAVE NOT YET RELEASED OR UNLOCKED. Dhruv used the term “released” to indicate how much bitcoin is issued every ten minutes. I will use the term “unlocked” for the rest of this article to further reinforce the brilliance of Dhruv’s framing. Bitcoiners are already familiar with time-locked bitcoin and in a sense, Dhruv’s framing simply extends the idea of ​​time-locked bitcoin to its logical conclusion. The timeslot schedule for epoch 1 covered 210,000 blocks. The next timeslot schedule for epoch 2 was 210,000 blocks, and so on.

Why is Dhruv’s framing important?

By framing mining as to buy coins instead to create coins it helps us understand the constantly increasing level of difficulty. How do we protect this fixed supply of 21 million coins and prevent 131 years of human deception?

If miners are to create bitcoins, then it seems that they are using more and more resources to create fewer and fewer coins over time. This makes it appear that Bitcoin suffers from an “inefficiency of scale” – as Bitcoin adoption grows, more resources are used in mining and the cost of Bitcoin production rises *rather than falling as we would expect in any other sector. This is part of the reason (Dhruv suspects) why many people object to bitcoin mining at first glance – it just seems stupid and wasteful that it works this way!

Conversely, if we consider bitcoin miners as *purchase* Bitcoins from an existing supply (paid in computations), then the increasing resources used by miners make sense – as Bitcoin adoption grows, Bitcoins become more valuable, the security of the network increases, and the network adjusts the price of new released Bitcoins up to . Dhruv thinks this framework could soften some people’s negative first impressions about the mining market.

Note: The reason this framework makes sense is that Satoshi has created a completely new way to determine time with distributed systems. I don’t think we give him/her/them nearly enough credit for this! As Gigi notes in Bitcoin Is Time, in the absence of a central authority, Satoshi had to come up with a new way for a group of decentralized computers to tell the time. Satoshi chose ten minutes as the target block time and enforced it through an auction. Humans are deeply connected to time as we understood it before Bitcoin, so some of us may find it difficult to see it, as Dhruv suggests.

The Bitcoin base layer has two markets

Dhruv states that there are ALWAYS two markets active in Bitcoin that form the base layer of Bitcoin. Layer zero and layer one.

Layer zero is what I would call the security layer and the monetary policy layer and is enabled through math and code at an auction that takes place at each block, which takes an average of 10 minutes. Since January 3, 2009, the Bitcoin network has held an auction on every block with a fixed asking price (measured in calculations) that sells the next tranche of bitcoin that already exist for the entire global bitcoin mining industry. An example of large-scale collaboration, if ever there was one! When it was just Satoshi and Hal Finney, there was no global bitcoin mining industry, but you get the gist.

Today, I think the global Bitcoin mining industry is better and more accurately thought of as the Bitcoin network security layer, but that’s a topic for another article. Dhruv points out that this is a “two-sided auction where you get so many coins for so many calculations.” The entire industry of bitcoin miners (time stamp servers) paid the computation price collective for that block. There are so many coins (depending on the era) for so many calculations and the network waits to unlock the next batch of coins until one lucky miner comes in and meets that minimum calculation price.

There is an ongoing guessing game using proof of work that takes place between all the timestamp servers connected to the Bitcoin network. This is what gives the Bitcoin network such amazing security. Ultimately, one of these timestamp servers “wins the auction” using Dhruv’s framing and earns the block reward. Each timestamp server during that 10 minute period serves to make the network extremely secure, but only one timestamp server wins the block reward. Technically, this single timestamp server often works in a mining pool, but that doesn’t matter for the purposes of this article. If the network paid for too many or too few calculations, the time it took to fulfill that bid was different than 10 minutes.

The network protocol and software monitor these 2016 auctions during this 2016 block period and record the times for each block. He says: ‘Each of those moments can be considered a bid in itself. The entire industry submits these bids in order and the network pauses and says, “What were the most recent bids over time?” and adjusts the price it pays to the miners (the security force) so that the bidding time matches the target time.”

The big idea is that Bitcoin Layer zero is a market between the entire network of users And the entire network of bitcoin miners that forms the security layer for the network. This market acts as an energetic force field that has protected the network every moment of the day since 2009. Why do we call it a market? Dhruv believes that all decentralized systems must be markets in order to work. (In this case, Layer Zero is a collective market that includes computations for the timed release or unlocking of bitcoin. Additionally, this collective market provides time-chain security services.)

What is the core trading at Layer Zero?

What is the core trading at Layer zero? Bansal says: “They are calculations for bitcoin.” Layer 0 is a ‘market between two aggregates’. It’s a market between the entire bitcoin network (which wants security) and the entire bitcoin mining industry that wants security and the block reward. There are only two ‘participants’ in this layer. This market is closely related to another market (tier 1), namely the block space market. Bob Burnett also said this another way by pointing out that there are two types of scarcity in bitcoin. We can call Layer One the final settlement and transaction layer of Bitcoin.

Layer zero solves the problem of how to fairly put into circulation or release a fixed supply of currency and secure the network until the year 2140 using proof of work.

The Layer 1 market is: How do I ensure that transactions finalize and change hands on an immutable ledger? Every market has an artificial and deliberate limitation. Tier 0 is the fixed number of coins released or unlocked over 131 years. Layer 1 is the block size or block space. Layer 1 is a market between individuals. How much is the individual user willing to pay to include this transaction in a block?

Occasionally blocks are mined that contain zero transactions. For those thinking ‘how wasteful’, think again. These blocks prove the value and existence of the security layer. All blocks mined without transactions in them prove that a Layer zero market exists and ignores the Layer 1 market. reinforces Dhruv’s point that there are two markets.) As all the bitcoin is put into circulation, the Layer zero market disappears. This is no longer necessary. At that point, Layer 1 will be the only market left for the base layer. Most Bitcoiners believe that the transaction fees alone will be enough to keep the Bitcoin network secure well into the future. Conceptually, the Layer 1 market will take over and secure the immutable ledger to ensure no one cheats.

Some believe that transaction fees won’t provide enough incentive for miners to continue mining, but there are two markets, and the first market, Layer Zero, is far from finished.

The incentives to mine are already very strong (there are about twenty listed companies) and these incentives are getting stronger every day. I know many bitcoiners who are currently running their miners because of the heat it provides and therefore they have a strong incentive to continue even after the Layer zero market has achieved its goal. There are entrepreneurs who want to build companies around these time stamp servers that will heat swimming pools, hot water, rooms, houses and buildings and provide electricity to people in the world who don’t have one. In fact, I predict that in the coming years, devices will be built for the heat they produce.

Furthermore, miners worldwide are constantly looking for places where there is free energy, stranded energy, wasted energy, methane reduction and even waste tires that they can use as a fuel source. There are also nation states that mine bitcoin. Anyone with a significant amount of bitcoin will have ample incentive to keep mining, as long as the value of the network continues to grow AND the nation states continue to devalue their currency to zero. In addition, there is a new form of energy technology called OTEC, which I suspect will become a breakthrough form of energy that will be workable near the equator through Bitcoin mining.

Bitcoin is a layer of markets. These first two markets operate separately from each other. And a Layer 2 has emerged and is still under construction that ensures fast settlement and payments. Layer zero is the security layer and the unlocking layer for the offering. Layer 1 is the value store layer and the final settlement layer. Layer 2 is an exchange and quick settlement layer.

For those who find these ideas strange or difficult to understand, feel free to ignore them or tell us where our gaps in thinking occur. Find solace in the idea that free markets and math secure your bitcoin (instead of central bankers) and will continue to do so for the foreseeable future.

Special thanks to Dhruv Bansal for providing constructive inputs for this article.

This is a guest post by Mark Maraia. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc Bitcoin Magazine.

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