All 21 million Bitcoins are already waiting to be unlocked by auction.

Most people who understand Bitcoin know that there are two types of Bitcoin. One is Bitcoin, which is a highly volatile asset with a fixed supply, and the second kind of Bitcoin is a network and protocol that maintains an immutable ledger that has never been hacked and is bulletproof, bombproof, and tankproof. My opinion is that there is too much focus on assets and not nearly enough on networks, protocols and immutable ledgers.

While listening to Peter McCormack’s recent podcast with Dhruv Bansal, they discussed networks and protocols in a new way.

I really liked Dhruv’s framing of how to view Bitcoin’s fixed supply. Both versions can be simplified as follows:

Version 1: Normally maintained view

21 million will be issued over 131 years from 2009 to 2140. Not all Bitcoins have been issued or created yet. According to this view, as of March 2024, approximately 19,659,000 Bitcoins have been issued or created, representing 93.62% of the total supply. The way to describe this in today’s era is “6.25 Bitcoins are created approximately every 10 minutes.”

Version 2: Dhruv’s View

All 21 Million were created through the network, consensus mechanisms, algorithms and protocols on January 3, 2009 and monetary policy as of that date and therefore the supply issuance of those 21 Million were fixed on that date. All 21,000,000 already exist but have not yet been released or unlocked. Dhruv used the term “release” to refer to how many bitcoins are minted every 10 minutes. I will use the term “unlocked” for the balance of this article to further amplify the brilliance of Dhruv’s framing. Bitcoiners are already familiar with time-locked Bitcoin, and in a sense, Dhruv’s framing extends the idea of ​​time-locked Bitcoin to its logical conclusion. The time lock schedule for Epoch 1 ran for 210,000 blocks. The next lock schedule for Epoch 2 ran over 210,000 blocks.

Why is Dhruv’s framing important?

By configuring mining as follows: purchase Rather than coins creation Coins help us understand the ever-increasing difficulties. How do we secure a fixed supply of 21 million coins and prevent human fraud for 131 years?

If you are a miner creation With Bitcoin, it appears to use more resources to produce fewer coins over time. This makes Bitcoin appear to be suffering from “scale inefficiency.” As Bitcoin adoption increases, more resources are used for mining, and the cost of producing Bitcoin *increases* instead of decreasing, as expected in other industries. This is one of the reasons why many people are prima facie opposed to Bitcoin mining (Dhruv doubts it). It seems stupid and wasteful to operate this way!

Conversely, if you think of Bitcoin miners as *purchase* If you obtain Bitcoin from the existing supply (payment by computation), it makes sense to increase the resources miners use. As Bitcoin adoption increases, the value of Bitcoin increases, network security increases, and the network adjusts the price of newly released Bitcoin upwards. . Dhruv believes this framing could help alleviate some people’s negative first impressions of the mining market.

Note: The reason this framing makes sense is because Satoshi created an entirely new way of telling time in a distributed system. I don’t think we give him/her her/her them nearly enough credit for this! As Gigi points out in Bitcoin Is Time, in the absence of a central authority, Satoshi had to devise a new way for a decentralized group of computers to know the time. Satoshi chose 10 minutes as a target blocking time and enforced it through an auction. Humans are deeply tied to time as we understood it before Bitcoin, so some of us will have trouble seeing time as Dhruv suggests.

There are two markets in the Bitcoin base layer:

Dhruv assumes that the two markets that make up Bitcoin’s base layer are always operating in Bitcoin. Layer 0 and Layer 1.

Layer 0 is what I call the security layer and monetary policy layer and is activated through math and code in an auction that takes place on every block, which takes an average of 10 minutes. In every block since January 3, 2009, the Bitcoin network has held an auction with a fixed asking price (measured by calculations) to sell the next Bitcoin. something that already exists Throughout the global Bitcoin mining industry. An example of large-scale collaboration! There was no global Bitcoin mining industry when there was just Satoshi and Hal Finney, but you get the point.

Today I think the global Bitcoin mining industry is better and more accurately thought of as a Bitcoin network security layer, but that’s a topic for another article. Dhruv points out that this is “a two-sided auction where you can win a lot of coins with this many calculations.” The entire industry of Bitcoin miners (timestamp servers) paid the computational costs. collectively About that block. For this many calculations, there are this many coins (depending on the epoch) and the network waits to unlock the next batch of coins until a lucky miner comes in that meets the minimum calculation price.

There is a constant guessing game between all timestamping servers connected to the Bitcoin network using proof-of-work. This is what gives the Bitcoin network incredible security. Eventually, one of these timestamp servers uses Dhruv’s framing to “win the auction” and earn the block reward. All timestamp servers during that 10 minutes serve the purpose of making the network extremely secure, but only one timestamp server earns the block reward. Technically this single timestamp server often operates in mining pools, but for the purposes of this article it is not important. If the network pays too much computation or too little, the time it takes to satisfy that bid will vary by more than 10 minutes.

Network protocols and software track 2016 auctions during the 2016 block period and record the time of each block. “Each of those hours can be thought of as a bid in itself,” he said. The whole industry is delivering these bids sequentially, and the network pauses and says, ‘What was the most recent bid in time?’ And we re-adjust the price paid to the miners (security forces) so that the bidding time matches the target time.”

The big idea is that Bitcoin Layer 0 is a marketplace between the entire network of users. and It is the entire network of Bitcoin miners that forms the security layer of the network. This market has been acting as an energetic force field protecting the network every moment of every day since 2009. Why is it called a market? Dhruv believes that any decentralized system must be a market to function. (In this case, Layer 0 is the collective market that contains the calculations for the timely release or unlocking of Bitcoin. This collective market also provides security services for the timechain.)

What is the core deal of layer zero?

What are the core transactions of layer 0? “Calculations for Bitcoin,” says Bansal. Layer 0 is the “marketplace between two aggregates.” This is a market between the entire Bitcoin network, which wants security, and the entire Bitcoin mining industry, which wants security and block rewards. There are only two “participants” in this layer. This market is closely related to another market (layer 1), which is the block space market. Bob Burnett also put it another way, pointing out that there are two types of scarcity in Bitcoin. Layer 1 can be considered the final payment and transaction layer of Bitcoin.

Layer 0 solves the problem of how to release or unlock a fixed supply of money into fair circulation. Secure the network until 2140 using Proof-of-Work..

How does a layer 1 market achieve finality and obtain transactions to change ownership on an immutable ledger? Each market has artificial and intentional constraints. Layer 0 is a fixed number of coins released or unlocked over a period of 131 years. Layer 1 is the block size or block space. Layer 1 is the peer-to-peer marketplace. How much is an individual user willing to pay to have this transaction included in the block?

Sometimes blocks are mined with no transactions whatsoever. For those of you who are thinking, “What a waste,” think again. This block proves the value and existence of the security layer. Every block mined without any transactions proves that a layer zero market exists and ignores the layer one market. (It also supports Dhruv’s claim that there are two markets.) Over time, with all the Bitcoin in circulation, the layer zero market will disappear and will no longer be needed. At that point, the only market left in the base layer becomes Layer 1. Most Bitcoin users believe that transaction fees alone will be enough to continue to secure the Bitcoin network for a long time. Conceptually, the Layer 1 market will secure and secure an immutable ledger to ensure that no one is fooled.

Although some believe that transaction costs do not provide enough incentive for miners to continue mining, there are two markets and the first, Layer Zero, is still a long way off.

The incentives for mining are already very strong (there are about 20 publicly traded companies) and these incentives are getting stronger every day. I know many Bitcoin users who currently run miners for the heat they provide, so they have a strong incentive to continue even after the layer zero market has served its purpose. There are entrepreneurs trying to build businesses around these timestamp servers to heat swimming pools, heat water, heat rooms, heat homes, heat buildings, and provide electricity to people around the world who don’t have electricity. In fact, I predict that within the next few years there will be appliances made for the heat they produce.

Additionally, miners are constantly looking around the world for sites with waste tires that can be used for free energy, stranded energy, wasted energy, methane mitigation, and even as a fuel source. Some countries mine Bitcoin. Anyone who holds a significant amount of Bitcoin will have a lot of incentive to continue mining as long as the value of the network continues to increase and countries continue to devalue their currencies to zero. There is also a new form of energy technology called OTEC, which is thought to be a groundbreaking form of energy that will prove viable near the equator thanks to Bitcoin mining.

Bitcoin is a market layer. The first two markets operate separately from each other. And Layer 2, which provides faster settlement and settlement, has emerged and is still being built. Layer 0 is the security layer and supply unlock layer. Layer 1 is the repository of the value layer and final settlement layer. Layer 2 is the medium of exchange and fast payment layer.

For those of you who find these ideas unfamiliar or difficult to understand, feel free to ignore them or let me know where the gaps in your thinking lie. Take comfort in the idea that free markets and math (instead of central banks) protect Bitcoin and will do so for the foreseeable future.

Special thanks to Dhruv Bansal for his constructive comments on this article.

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