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Formatting notes: References are provided where possible. Terms indicated as original are believed to be original to the author and may not be in general use. Some terms have a Discussion section to provide more background or explanation of the term.

Quick Look Up

18 months – idiom the often cited, but never shrinking, length of time until the launch of a project or new feature.

related: vaporware, scam 

Altcoin – n. an alternative to Bitcoin, referring to the digital asset or sometimes its network. Technical: an out of consensus fork of Bitcoin. 

synonyms: blockchain, token, digital asset, crypto, shitcoin

Analytic statement – n. a statement that is true in the meaning of the words alone, but that doesn’t convey additional information about the real world. For example: All bachelors are unmarried; or a triangle has three sides.

Anarchism – n. the absence of violent compulsion from a State.

Discussion: Anarchism argues for self-organization, self-defense, and self-determination over centralized violent compulsion. Anarchism has rules in the form of emergent social and cultural norms and morals, enforced by appropriate injured parties. Entangling voluntary contracts and their free-market enforcement are often cited as a replacement for State functions and enforcement of rules. Markets reach the highest possible efficiency under anarchism.

related: capitalism, anarcho-capitalism, free market, laissez faire, liberty, free enterprise

ASIC – n. acronym for Application Specific Integrated Circuit. Computer chips specifically designed to calculate one or one family of algorithms extremely fast.

Discussion: The introduction of ASICs into Bitcoin mining equipment caused the difficulty to skyrocket. They made personal home mining for a people unable to buy specific use computer equipment uneconomical. ASICs are a hotly debated issue today. Some say that ASICs make mining centralized due to the high upfront cost, while a more careful look at the situation shows that ASICs will inevitably be developed in distributed permissionless system. ASICs also equalize the playing field for honest miners. If ASICs weren’t produced under free market competition and available for everyone, well funded attackers would have an incentive to develop their own and use them in secret.

Austrian Economics – n. a tradition starting generally around the study of human action in St. Thomas Aquinas and the University of Salamanca, flowing through the scholastics to economists like Richard Cantillon, Turgot, and getting its modern form in Menger, Böhm-Bawerk, Mises and Rothbard. The foundational ideas are free market, individual rights, subjective value, an Austrian theory of money, and business cycles. One of things that stands out in Austrian Economics after Mises is a methodological reliance on logic vs the empiricism of other modern economic schools of thought. What that means is we can reach some understanding through reason alone. Read more

Bitcoin or bitcoin – n. 1) the distributed consensus network that functions completely without central control known as Bitcoin.

2) the protocol or a set of rules that define valid states and state transitions on the network.

3) a goal to keep money issuance and transactions out of the control of the State.

4) the native asset of the Bitcoin network.

Bitcoin Address – n. an identifier of 26-35 alphanumeric characters, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment, often seen as a QR code. Addresses are mathematically derived from one or more private keys. Those private keys are then needed to mathematically sign outgoing transactions.

Bitcoin maximalist – n. 1) a pejorative coined by Vitalik in a blog post – a person who blindly believes Bitcoin to be the best in all things related to cryptocurrency.

2) a person who is convinced by the economic and technical arguments of Bitcoin’s current position as the leading digital asset/cryptocurrency and its future position as the convergent monetary standard.

Discussion: Bitcoin Maximalists are typically more concerned with economic and technical reasoning than Bitcoin “winning”. They usually have certain characteristics in common, a high standards of evidence, have an appreciation for hard or sound money, are happy to follow the arguments where they lead, are open-minded to new significant evidence, are anti-dogmatic or cult-ish, and are very reason based. Their strict adherence to logic and evidence doesn’t allow them to entertain false statements from scammers.

Bitcoin minimalist – n. a person who believes that Bitcoin’s consensus protocol layer should be kept robust and simple to minimize vulnerabilities. This is done by moving most processes, features and functions up the stack, to other layers, in the very same way the internet itself has scaled and improved.

Bitcoin-like – original, adj. 1) similar to bitcoin

2) a non-bitcoin digital asset that is a native token for a distributed consensus network, smart contract, or application. 3) a distributed consensus network like the Bitcoin network.

Discussion: Some assets and networks will be more or less like Bitcoin; it’s a spectrum. You can use another adjective to describe this relationship, for example, “highly bitcoin-like,” or “somewhat bitcoin-like.”

Bitcoiner –  n. a person heavily involved in bitcoin, similar to bitcoin maximalist but not derogatory. Usually used as a term of endearment.

Buttcoin – n. the subreddit r/buttcoin.

adj. 1) a mocking style, but possibly insightful. 2) clever but wrong, and unwilling to learn why it’s wrong.

Discussion: People from the subreddit always have made fun of bitcoiners, but sometimes their skepticism leads to deeper learning by the bitcoiner.

Related: buttcoiner, FUD, skeptic

Casascius coin – /ka-say-shuss/ – n. an early physical bitcoin coin made by Mike Caldwell. There are large runs and limited editions, more of the story here.

Corn – n. slang form of bitcoin.

Crypto-anarchy – n. the absence of violent compulsion by government, specifically enabled and maintained by the use of cryptologic methods. Further reading Wikipedia and Manifesto

Block – n. 1) file containing transactions and a block header, primarily to order transactions and provide proof of work, analogous to a page in a ledger.

2) an updated state in a distributed consensus network.

Discussion: Blocks are solved in the process of mining, then broadcast openly on the network to all nodes. Once nodes receive the new block it is validated and appended to the chain of previous blocks. Data that must be valid includes, but is not limited to: 1) all transactions, 2) previous block, 3) proof of work, and 4) block size.

It’s a common misconception that blocks and transactions are immutable. The rules are immutable, but blocks are not, though they are rarely overwritten. The finality of transactions in blocks is probabilistic, meaning the “deeper” the block gets into the block chain, the less likely it is to get overwritten. Currently, six blocks is the sufficient for all but the very largest transactions. It’s believed that true finality is not possible on a distributed system if it is open, because nodes can fail or be attacked, preventing the network from reaching consensus.

Satoshi’s explanation of blocks from a comment in the original software:

Nodes collect new transactions into a block, hash then into a hash tree, and scan through nonce values to make the block’s hash satisfy proof-of-work requirements. When they solve the proof-of-work, they broadcast the block to everyone and the block is added to the block chain. The first transaction in the block is a special one that creates a new coin owned by the creator of the block.

Blocks are appended to blk0001.dat files on disk. Their location on disk is indexed by CBlockIndex objects in memory.

Block chain or blockchainn. 1) a chain of blocks.

2) the cryptographically linked chain of blocks in Bitcoin around which consensus is reached.

Discussion: Block chains are an artifact of the functioning of the network, a data structure used to maintain consensus on what has happened and in what order. They are much less cost effective than a centralized database, with no other benefit than to separate the native asset from central control.

In recent years the term blockchain has lost much of its original meaning and clarity, becoming manipulated by scammers to get funding for their startups. Initially only a subordinate piece of the whole system, balanced by incentives, blockchain has morphed into an entire category of technologies which no one can decisively name. Those who either couldn’t bring them to accept Bitcoin’s success or wished to profit from a scam in an abstruse field, proclaimed blockchain as the breakthrough, not hard money.

The word block chain did not appear in the whitepaper, but did make its first appearance written by Satoshi in the original software:

The block chain is a tree shaped structure starting with the genesis block at the root, with each block potentially having multiple candidates to be the next block. pprev and pnext link a path through the main/longest chain. A blockindex may have multiple pprev pointing back to it, but pnext will only point forward to the longest branch, or will be null if the block is not part of the longest chain.

Block rewardn. the reward a miner can claim for solving a block consisting of the block subsidy in the form of newly minted bitcoin and fees paid as part of transactions in that block.

Discussion: The block reward is the incentive for miners to order transactions and transition the next block. In 2019, concerns have been repeated raised about security of the network declining as the block subsidy portion of the reward tapers to zero. This is possibility a misconception of the security model and the debate is no where near become settled.

When a miner finds a block they create a special transaction called a coinbase transaction where they create virgin coins at their own address. There is a decreasing maximum amount of reward, halved every 210,000 blocks, roughly every 4 years. The block reward started at 50 coins, halved to 25 in 2012, and halved again in 2016 to the current 12.5 coins. In 2020, the reward will be halved again to 6.25 coins.

The block reward is a very important part of the incentive structure of bitcoin. It provides an incentive to miners to maintain the block chain and order transactions into a block to prevent double spending. It is the sole incentive for miners. Some say miners also have a second incentive to mine, that being the right to vote on upgrades, but that is a perversion of the incentive structure and also impossible to implement.

Bubble or economic bubble or asset bubble or speculative bubblen. a relatively rapid rise in asset prices to unsustainable levels, driven by ignorance of the assets themselves or by a widespread miscalculation of sustainable valuations. Economic bubbles occur on a regular basis, but seem to cluster around two types of scenarios; 1) the initial invest opportunity around new technology, and 2) the self-reinforcing malinvestment due to inflation of money supply. Bitcoin has both of these scenarios wrapped up into one, so the bubble cycles are extreme and short-lived.

Byzantine Fault Tolerance – concept the dependability of a fault-tolerant computer system, particularly distributed computing systems, where components may fail and there is imperfect information on whether a component has failed. 

The term is derived from the Byzantine Generals’ Problem, where actors must agree on a concerted strategy to avoid catastrophic system failure, but some of the actors are unreliable. Byzantine fault tolerance has been also referred to with the phrases interactive consistency or source congruency, error avalanche, Byzantine agreement problem, Byzantine generals problem, and Byzantine failure. Wikipedia

Cantillon Effect – concept an uneven expansion of the amount of money that favors people closer to the source of the new money. This effect is used to explain how mispricing and misallocation of capital results from money printing and how it damages the economy. Named after Richard Cantillon, an 18th century economist.

Cashn. 1) the good held in cash balances for future consumption.

2) a form of money which doesn’t create debt, but extinguishes debt, when used in a transaction.

Catallactics or catallaxyn. theory of the way the free market system reaches exchange ratios and prices. It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices. More

Censorship resistance – concept where an action is technically difficult, financially impractical, or impossible to be censored. Bitcoin transactions and the network is censorship resistant due to it’s decentralized nature. The amount of decentralization is also dynamic. Bitcoin’s design allows it to be run slightly more centralized or slightly more decentralized as market conditions of censorship dictate. No one can stop a bitcoin transaction from being sent or received on the open network. Brute forcing a private key to confiscate money is financially impractical. Compared to traditional fiat exchanges, fiat can be stopped any any number of intermediates or the central regulator, and seized out of your accounts almost effortlessly. Censorship resistance is the thing that makes the inefficiency or decentralization and a block chain worth it.

Channel or payment channel n. cryptographic techniques designed to allow users to make multiple Bitcoin transactions without committing all of the transactions to the Bitcoin block chain.

Discussion: Payment channels can be opened in a web like peer-to-peer structure where payments can be “routed” along the web to the recipient. This is the idea behind the Lightning Network. Using this method allows people to be connect in with every other person via degrees of separation.

Payment channel funding is an area of current research. Channels carry a balance on each end. As payments get routed these balances can bet lopsided, eventually needing to be rebalanced.

Payment channels are a scaling solution for the Bitcoin network with many benefits over consensus layer scaling. Two important benefits are: 1) consensus is not touched, 2) the speed of innovation is much faster.

Chartalism – n. is a theory that claims money is a creation of the State by dictating a solution to barter, and that fiat currency has value, because the State collects taxes in it. Chartalism has been denounced by nearly all modern economists, including mainstream and Austrian as not supported by observation. Chartalism was praised by Keynes, which might be a reason it has survived and even been revived as Neo-Chartalism or modern monetary theory (MMT).

Coinbase – n. the special transaction in each block the miner can award to themselves for solving the block. The number of coins in the transaction consists of a maximum subsidy and the block’s fees.

Cold wallet or offline wallet or cold storage – n. this is a wallet created and maintained offline making it impossible to hack. In the past, many people printed private/public key pairs on paper from an offline computer and kept them in a safe. Hardware wallets are a derivative of a cold wallet.

Consensus – concept 1) agreement on the current state of a network.

Discussion: This form of consensus is always 100%. Some nodes may be behind other nodes, but if nodes have the same information, they will agree on the current state. This type of consensus is a direct result of the consensus rules.

2) a general academic or developer agreement.

Discussion: When an update to the network is proposed, it first goes through a lengthy and rigorous process of peer review. No mandatory process has been or can be created for this due to the permissionless distributed nature of Bitcoin. The proposal continues to get reviewed and discussed until all criticisms have been adequately answered to form a general agreement.

There’s no hard and fast rule for what constitutes “adequately.” Many times, it’s when the person who raised the criticism is satisfied with the answer, or that a large majority of people involved in the debate are satisfied. The ultimate arbitration is, if nodes run the code. This type of consensus has been summed up like this, it’s “the absence of sustained opposition.”

Related: consensus rules, consensus failure, consensus layer

Convergence – v.​ the moving toward one standard from disparate standards. Convergence in Bitcoin comes in two types, communication/money and technology. Money is a subcategory of communication, but has its own incentives.

Credible Commitment – concept An attempt to induce a certain behavior in the other player by committing to a strategy. Commitments are only credible if the promised move is the dominant strategy when their move comes. A commitment is not credible if the player committing to the move is made worse off by following through. In other words, a player cannot credibly commit to an inferior payoff.

By signaling the intention toward a specific strategy, a player is effectively trying to restrict the choices of the other player/s. “I promise not to defect” intends to limit the other player’s choices to outcomes involving the first player not defecting. Of course, it is not credible if the player making the promise is incented not to follow through. The order is important, the person making the promise must be make their move after the other player.

The credibility of threats and commitments are usually a concern for sequential finite games, but they can be applied to infinite games through reputation or central control.

Bitcoin experienced a fascinating commitment problem during the scaling conflict in 2016 and 2017. On one side was a majority of miners and businesses, the other was the nodes. The miners attempted to commit to a strategy of mining blocks for a new network (hard fork). They wanted to induce economic nodes to update in anticipation of changing to the new network. Their failure was due to not understanding the rules, the miners had to move first. They were not in the position which could make a credible commitment.

The nodes, however, were in a place to make a credible threat. A minority of economic nodes committed to a strategy of invalidating blocks without a certain signal (UASF). In this game the miners had to move first, they have to spend resources mining blocks before they can submit them to the network. Therefore, the miners commitment was not credible. However, even with a minority of economic nodes, they had the asymmetric advantage of moving second. They did not have to stick to the commitment, they’d choose what was best for them. In the case of a consensus system, preserving the consensus was the more preferred option

Cryptographyn. the practice and study of techniques for secure communication in the presence of third parties called adversaries.

Discussion: More generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages; various aspects in information security such as data confidentiality, data integrity, authentication, and non-repudiation are central to modern cryptography. Modern cryptography exists at the intersection of the disciplines of mathematics, computer science, electrical engineering, communication science, and physics. Cryptography is found in electronic commerce, chip-based payment cards, digital currencies, computer passwords, and military communications. Often shortened to crypto, not to be confused with the short form of cryptocurrencies which is also crypto. Wiki

Cypherpunk – n. an activist advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change.

Discussion: Originally communicating through email lists like the cryptography electronic mailing list, this informal group aimed to achieve privacy and security through proactive use of cryptography. Cypherpunks have been engaged in an active movement since the late 1980’s. Importantly, cypherpunks write code to bring about change, as opposed to a political process or physical protest. Their code gives individuals asymmetric protection against an attacker. Wiki

Cypherpunks write code – idiom being more than just talk. This term relates several ideas: not abdicating responsibility, not asking permission, actions speak louder than words, create the world you want to live in by providing tools, forcing corrupt authorities or the market to adjust to the tools you build, amongst others.

Default Keynesian – n. a person who, probably unwittingly and passively, supports the centralized monetary and fiscal policies that are descended from the ideas of economist John Maynard Keynes simply because that’s the way things are now. Source

Defi or Decentralized Finance – n. a class of application concerned with replicating common financial phenomena, like interest bearing loans and exchange platforms, without trusted third parties.

Related: Dapp, DAO

Deterministic – adj. an algorithm which, given a particular input, will always produce the same output, with the underlying machine always passing through the same sequence of states. Deterministic algorithms are by far the most studied and familiar kind of algorithm, as well as one of the most practical, since they can be run on real machines efficiently. Wikipedia

Difficultyn. a measure of how difficult it is to solve a block to receive a block reward.

Difficulty adjustment or difficulty retargetconcept Every 2016 blocks (approx. two weeks), the difficulty to solve a Bitcoin block is adjusted to keep the average time between blocks at 10 minutes. This adjustment keeps the issuance predictable and practically impossible to inflate above the prescribed number.

Distributed ledger technology or DLTconcept a class of technology focused around distributed databases in the form of a block chain.

Discussion: Effective uses of DLT are extremely rare. It’s a very common misunderstanding that bitcoin’s success is based on the technology the network is made of. This is tactical stupidity is the source the focus by some on DLT. Most of the components of Bitcoin are relatively easy to comprehend, however, when it comes to its distributed nature it becomes hard to wrap your head around. There’s no analogue in a typical centralized organization.

There seems to be a condescending aversion within DLT circles toward Bitcoin. They dismiss the primary role of money in these systems, because of a bias against sound money advocates as fringe wackos. In their minds, Bitcoin couldn’t have become successful due to the superior properties as money, it must be because it has superior technology. They seized on distributed ledger technology.

DLT has been a fabulous failure. Most projects end after a year or two of making no progress. These efforts fail, because of its lack of understanding of bitcoin and ultimately the technology itself.

Double spend – concept Sending the same money in multiple transactions to different recipients. Prior to Bitcoin the double spending problem held back all attempts to create a decentralized digital currency, because there was no solution for ordering transactions without a trusted third party. Bitcoin solves this through proof of work and ordering transactions into blocks.

Dual Consensus Problemconcept, original The impossibility to fully represent a physical good with a digital token. This problem exists because a digital actions have no weight in the physical world, and vice versa. The token is dependent on a distributed consensus and the physical good obeys the laws of physics in the real world. The digital and physical realms are vulnerable to different types of attacks and cannot be kept in sync with each other programmatically. Since the agreement of these two consensus mechanisms is a centralized process, the need for the distributed consensus disappears.

Example 1, to gold-backed token relies on the decentralized consensus for the token and the physical world consensus on the assignment of ownership of the gold. Example 2, tokenized real estate relies on the decentralized consensus for the token and the physical world consensus of the assignment of ownership of the property. If something happens to the real world item, such as theft of the gold or destruction of the property by fire, the token is useless. On the other hand, if the token is stolen, i.e. hacked from your wallet, the dual consensus also breaks.

Dust – n. a small unspent transaction output (utxo) that is uneconomical to send. In other words, an input into your wallet that is so small that fees make it uneconomical to spend. In the early days of the Bitcoin network, malicious users sent many very small transactions to people, which bloated the network. An unofficial “dust limit” was instituted by wallets to stop these types of outputs.

Efficient Market Hypothesis – coming soon

Efficiency – the extent to which a result approaches the most benefit possible given the inputs.

Discussion: Inverse opportunity cost. The greater the opportunity cost, the less efficient an action.

Logically, since well-being is subjective, voluntary exchange is the most efficient option. the ratio of the useful work performed by a machine or in a process to the total energy expended or heat taken in.

Empirical statement – n. a statement about the world based on observation and experience.

Discussion: The truth of empirical statements can be tested. They are hypotheses and falsifiable. For example: Germans drink more beer than Czechs. Empirical statements also make intuitive sense if you state the opposite. Germans drink less beer than Czechs.

In economics, empirical statements are problematic, because there are infinite variables in the market. It’s impossible to control for enough variables to make an experiment’s results meaningful. In fact, it’s trivial to critique any economic study by simply showing several more variables that weren’t controlled for. Austrian Economics is often criticized for its rejection of empirical statements as being unable to tell us anything about economics.

-ening – suffix. a future event of great significance.

related: halvening, flippening

Etherium – n. 1) a common misspelling of Ethereum made by people new to the space.

2) a derogatory way to spell Ethereum used to highlight its relative obscurity to Bitcoin, and relative lack of educated investors.

Ethereansn. people obsessed with Ethereum. A label given to themselves, likely in an attempt to build a strong in-group identity in an imitation the popularity of the term bitcoiner.

Exit scamn. an investment that abruptly disappears with investors’ money in a premeditated fashion. Quite common in Bitcoin’s early years and remains a risk today.

Fee tolerance – concept, original The level of fees that a distributed consensus network can withstand while keeping incentives unchanged. The higher the fee tolerance the less inflation needed to maintain incentives. High fee tolerance also leads to more scalability of distributed consensus networks (blockchains for the layman) due to the added incentive for modular and layered architecture.

Fiat money – n. inconvertible paper money made legal tender by a government decree and violence. Fiat leads to the Cantillon Effect, an incentive to grow market intervention, a degrading ethical fiber of market participants, inflation and ever-expanding debt.

Free market or unhampered marketconcept a market where choices are not coercively limited, except by the self-defense of other individuals. These natural limitations are enforced by the individual and cultural norms.

An easy heuristic to use in identifying a free market is if there is no organization to enforce rules that has powers in excess of the individual. If the individual is not justified in taking an action, but the enforcement organization is, it’s not a free market.

Fiatsplaining – v. the use of simple outdated mainstream financial arguments in a discussion with a bitcoiner in a demeaning or ignorant way. Coined by @WahWhoWah.

Finite Game – concept A game played with the purpose of winning. Finite games have a set number of players, agreed upon rules with clear boundaries and victory conditions. The goal in this zero sum game is binary, win or lose, survival or defeat. Examples of finite games are chess, sporting events, some wars, political battles for absolute power, etc.

The Flippening – n. 1) the much anticipated event that never came, where Ethereum would overtake Bitcoin in market cap.

2) a time when the underdog overtakes the incumbent.

Discussion: The term was adapted to all sorts of similar events in the 2017 scaling conflict, like hash power on rival chains, node count, etc.

Forkn. 1) a new network and native asset created by copying and changing Bitcoin software.

2) a temporary split in the network consensus caused by latency, propagation issues, a bug, or an attack.

Forkv. 1) to copy and change Bitcoin’s software.

2) purposefully causing a split in the network consensus.

FOMO – n. fear of missing out. An emotional reaction to a price increase that makes you chase and be more likely to buy the top of a rally.

related: panic

FUD – n. Fear, Uncertainty, and Doubt. Unfounded rumors or claims aimed at causing an emotional reaction.

Discussion: FUD is found in any community and usually aimed at members or possible new members. FUD can be targeted at specific demographics within the community. For example, certain types of rumors can be aimed at scaring new traders or owners of bitcoin, but don’t affect more experienced bitcoiners. To protect against FUD you must learn as much about bitcoin as possible (technology, economics, and history), and/or find sources of information you can trust.

related: fear mongering

Full node – n. also known as a fully validating node – Created by running the bitcoin software on a computer. Includes a copy of the block chain, mempool and UTXOs. Validates transactions and blocks, can broadcast transactions and act as a wallet. A full node is your vote on the network, your tool to individual sovereignty over your money. No one can tell you what software to run on your node. In the scaling conflict the winning side promoted running your own, and even kept the protocol light to make running a full node easier. Full nodes are the backbone of a decentralized network. If a node receives an invalid block (doesn’t conform to the rules of the network) it rejects it and disconnects from th

Genesis block – n. The first block (block 0) on the bitcoin block chain, mined by Satoshi on Jan 6th, 2009.

Discussion: There was a message contained in the genesis block from a Times headline, “Chancellor on Brink of Second Bailout for Banks.” Another less known fact is that there was a period of time before the second block ending on the 10th. Also the coins in the genesis block are unspendable.

Gold standard – n. a global standard of value based on gold and gold backed currency.

Discussion: The classical gold standard defines a period that ran from the 1870s to the First World War. In the interwar years attempts were made to return the gold standard, but the financial center of London had abandoned it, so all attempts failed. After WWII, the major countries of the world signed the Bretton Woods Agreement, where the US would maintain a gold standard for its currency, and all other countries would peg or based their currency off dollar backing. This worked for a while, until it because obvious that the US wasn’t able to convert dollars to gold on demand. In 1971, the US closed the gold window all pretenses were dropped. From that point on, the financial system has been based on pure government fiat.

For millennia gold had functioned as a very popular money. It’s scarcity and unforgeable costliness to mine, restrained government intervention in the market. However, as the industrial revolution increased the speed and scope of international trade, more and more gold was centralized into large bank vaults. By the first half of the 20th century, most gold was in vaults directly regulated by government or vulnerable to government seizure. That being the case, it was irresistible to bureaucrats to inflate the paper currency. It wasn’t long until the ruse was up, and they abandoned the official gold standard all together, in favor of the infinitely and politically printable fiat money.

The Halvening or Halvingn. the scheduled reduction in coin issuance by half that happens every 210,000 blocks, roughly every four years.

Hard Fork – n. A non-compatible change to the codebase. Hard forks change the rule set of bitcoin, so some new rules can be previously invalid and some previous valid rules can be made invalid. The resulting valid rule set is different. Since bitcoin is decentralized, some nodes will not upgrade and will be left behind/kicked off the network. Hard forks have massive centralizing pressure for a network, and creates a central party of developers or large stakeholders that take control, because hard forks introduce new attack vectors not present in soft forks. Political attacks, social engineering attacks or stakeholder attacks from governments can control the central party and force changes onto the network.

Hard Money – n. money that is hard to produce, measured by its stock to flow ratio. Until Bitcoin, money production depended on price to control supply, the more valuable the good was the more supply would increase. For example, if the price of gold was to double, it would incent more mining and more supply to be brought to market. In Bitcoin, a higher price still incents capital to go into mining but the issuance rate is very tightly controlled. Bitcoin is therefore the hardest money ever created.

Hash rate – n. the measure of computational power in relation to Bitcoin mining.

Hodl or holdv. 1) to hoard an asset and resist selling.

2) a manifestation of a low time preference investment strategy. Not an acronym of “hold on for dear life.”

Discussion: First used in a forum post where the author drunkenly misspelled the word “hold” and it quickly became a viral meme. It’s become an important concept in bootstrapping a store of value for bitcoin.

Hodler – n. 1) a person who hoards bitcoin as a long term speculator, because they share the long term vision of societal change due to hard money.

2) a person who doesn’t trade short term price swings.

Hodler of last resort – idiom a play on lender of last resort. Someone who will hold bitcoin no matter what, effectively taking supply off the market to stabilize price is a crisis sell off. Coined by Trace Mayer.

Hot wallet – n. a wallet that holds your private keys and with access to the internet, most commonly on a smartphone. In the early days of bitcoin these wallets were very unsafe, but have come a long way over the last couple of years. They now have encrypted keys in isolated environments. It’s very important that you are careful where you download your wallet. Never keep more than spending money on a hot wallet.

Hyperbitcoinizationv. a very rapid spread of bitcoin as money at the expense of fiat money.

Incentive compatible – concept able to be added to a system without affecting to the system’s existing incentive structure.

Infinite Game – concept A game played with the purpose of continuing the game. Infinite games have no set rules, no set players, no beginning and no victory conditions. The rules must change throughout the game, precisely to prevent a player from winning, and also to bring as many players as possible into the game. Infinite games can have many finite games within it, but a finite game cannot contain an infinite game.

There is an asymmetric advantage to playing the game as if it’s an infinite game. Infinite players have the ability to extend the game, be unconcerned by learn and grow, while finite players stagnate. If an player with a finite mind set plays an infinite game,

Inflation – n. an expansion in supply of a good, usually applied to money as a monetary expansion or stimulus.

Discussion: The modern day meaning, however, has been perverted to mean an increase in the general price level. It is extremely hard to measure when defined as an effect, leading to any number of subcategories of inflation. Central banks almost universally have an distorted prices (inflation) target as part of their mandates. The “accepted” rate of increase in the general price level is to be 2% per year.

Intervention – n. in economics the use of physical force or threats of physical force to compel involuntary actions; it substitutes coercion for voluntary actions.

Discussion: State intervention distorts market prices, leading to unintended consequences, and requiring more intervention to adjust. Intervention begets intervention. For example: Say the price of a quart of milk is 1000 satoshis, and the State sets the price at 500 satoshis so the poor can more easily afford milk. Then the farmers make less money, forcing the marginal producers out and restricting supply, while people can afford to by more milk. This leads to shortages. The State then comes in to mandates milk production to meet demand, which causes farmers to produce at a loss. They now have less money to maintain their tractor, so they supply less of their other products (meat or crops) to market. The State then steps in to mandate corn production. On and on.

Intrinsic valuen. a fallacy that purports an objective use value, below which the long term price of a good cannot fall.

Discussion: For example, gold can be used to make spoons or cuff-links, which have a non-zero objective utility, if gold’s monetary premium went to zero, supposedly the value of gold would still remain non-zero.

This was an important early concept of the origin of value, because it stops the circular reasoning of the value of money. However, Mises showed with his Regression Theorem, that it wasn’t intrinsic value, but an established market price based on subjective valuation that was at the root of the value of money.

Know Your Customer or KYCn. a process to verify the identity of customers and assess their suitability, along with the potential risks of illegal intentions towards the business relationship.

Discussion: KYC is a regulatory problem, and it cannot be addressed through code alone beyond initial design. Businesses are most affected. Everytime they touch a customer, they are being forced to gather personally identifiable information. The information can be tied to certain utxo’s and turned over to the State.

This is an example of asymmetric cost for compliant companies that creates very space for a gray market to thrive. These regulations and their associated compliance costs ultimately grow as gray market companies to undercut compliant companies. In other words, KYC is eventually is self-destructive to an authoritarian financial system.

Layer two (L2) – concept Software which interacts with the protocol consensus layer. Base layer distributed consensus protocols are not very forgiving and tend to be hard to change and scale. This limitation buys very high social scalability. Layer 2 software unburdens the user to interact directly with the consensus layer every transaction. This buys the network more user friendliness and effectively unlimited features which don’t have to do with final settlement. That is the sticking point. Final settlement must be done on the consensus layer.

Anything which interacts with bitcoin transactions can be considered a L2, some decentralized and trust-minimized like Lightning Network and sidechains, some relatively more centralized needing relatively more trust like exchanges, centralized merchant processors, statechains, coinjoin, etc.

A limiting factor is settlement, since the number of settlements available on the consensus layer doesn’t scale well. Some have wrongly argued this is a fatal flaw throughout the history of bitcoin, and consistently end up wrong. They usually have very good reasons to think so, but they underestimate two things, people’s ability to create trust-minimized abstractions and the strength of convergence of money to overcome any technical hurdle.

Lender of last resort – a central bank in debt based fiat, where they extend liquidity (loans or outright printed money) to banks that would collapse otherwise. When banks’ assets dramatically decrease in value and the banks can no longer meet their liabilities.

The assets in question are typically loans made by the bank. They will lose value if the economy goes into a downturn and repayment of the loans comes into question, or similar loans are currently in default. From a balance sheet perspective, the banks assets get hammered. The banks’ liabilities are typically the deposits of customers and reserve requirements. If a bank is insolvent, liabilities above assets, they are a bad credit risk, and cannot access credit themselves on a short term basis. They will death spiral and close, losing nearly every cent of customers’ deposits. The central bank will come in to lend money to the failing bank when no one else will, or completely buy the bad loans off the books of the struggling bank at face value, when they know they are only worth pennies on the dollar.

​Lindy Effect – concept a theory that the longer a non-perishable thing, like a technology, survives, the longer it is likely to survive. Source

The Lindy Effect should not be construed to mean a thing will necessarily survive longer, only that it’s likely. It’s an important when exploring properties of money, because monetary value is strictly concerned with a good’s performance through time. The longer a good outperforms other goods in maintaining for appreciating in value, the greater confidence people will have that it will continue to do so. Money is pure Lindy.

MAHF or Miner Activated Hard Forkconcept A mechanism to activate a non-backwards compatible upgrade to the Bitcoin network via miners as opposed to nodes. Whether a MAHF is even possible is debatable.

Malinvestment – n. “a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses.” Source

MASF or Miner Activated Soft Forkconcept When miners signal for readiness for a new feature, this signaling activates the use of new features. This was encapsulated in BIP9 activation, which was how Segwit was originally designed to be activated. The major problem of MASFs is it changes the incentive structure of bitcoin itself and invites politics into the process. It also, wrongly, gives the miners a feeling that they are more important than they are or in charge.

Mempool – n. the group of transactions in a node’s memory to be ordered in new block.

Discussion: In Bitcoin transactions are broadcast so the entire network can hear them, until they show up in a block they sit in the mempool. Miners take txs from the mempool and order them into blocks. Each node may have a slightly different mempool, because they hear a slightly different set of txs than other nodes. Nodes can set an individual mempool max size for their node, ie 50MB, so anything more than that, the node will drop older txs. A reason for restricting the size of the mempool could be performance. Another option for limiting your mempool is by transaction fee. You can set it to not retain txs with fees lower than a set limit, ie 5 sats/byte.

The mempool is “cleared” by miners ordering transactions into blocks. With a maximum block weight now of 4MB and 6 blocks/hour, the mempool can theoretically be cleared at a rate of 24MB/hour. However, if people refuse to use segwit type txs, the block size is more limited.

Minimum utility threshold – the minimum utility (value) of a bitcoin transaction must be higher than the minimum cost (fee) to get the transaction confirmed. Minimum value > minimum fee. This only holds for consensus layer transactions, however. Source

It’s argued that this threshold makes room for a wholly different money (altcoin) to be a substitute good below the cost for one block minimum of security. However, money substitutes are not addressed in the source. Today, these are thinks like Lightning Network bitcoin and Liquid bitcoin. It seems likely that trust-minimized layer 2 protocols can serve to fill this gap through cryptographic guarantees on underlying bitcoin. The L2 money substitutes can even be atomically swapped (settled) between two trust-minimized layers for more cryptographic security. The threshold would effectively be lowered for all non-essential transactions. It is highly unlikely that a substitute good like an altcoin, with its own exchange rate and security will take transaction share unless there is insufficient time for bitcoin to meet that demand. Insufficient time, however, is temporary.

Mining – v. 1) Bitcoin mining was first described in the white paper, but was adapted from earlier efforts by Wei Dai and Hal Finney. It serves several functions, it is the process by which new bitcoins are released into circulation, distributed randomly, transactions are confirmed, and the keeps the system immutable.

2) Mining is the use of software, hardware and electricity to find a random number which solves a math problem. The difficulty of finding the random number is programatically adjusted to keep the average time to find it to 10 minutes. Miners are incentivized to do this work by allowing them to claim a reward of bitcoin in special transaction in each block called a coinbase transaction. They are also rewarded to order transactions through fees, and doing so increases the value of the block reward, too.  When a miner finds a valid solution they hash it together with ordered valid transactions into a block and broadcast it to the network. For their reward to be claimed, their solution must be added to the block chain by the network. If two miners simultaneously broadcast a block, and because of network latency both are accepted by different parts of the network the tie is broken by the next block. Each block is built on the previous block, so whatever the next block builds on becomes the winner.

3) Behavior of miners is the result of an extremely dynamic process within the Bitcoin incentive structure. It’s not fully understood and the subject of lively debate within the community.

Multi-sig or multiple signaturesn. bitcoin’s transactions can be scripted in such a way to be bound by multiple private keys/signatures. A certain signature scheme (n of m) is needed to evaluate programmatically to true to spend those coins. This is a smart contract that bitcoin does very well, and other networks like ethereum don’t have a native solution for. A popular signature schemes are 2 of 3, meaning that 3 signatures are acceptable, and 2 of those 3 signatures must sign the transaction for it to be valid. This has many very powerful uses, one of them being personal security. You can lock your coins into a multi-sig address where you need two of your personal devices to spend, and you can have a third key locked in a safety deposit box or stored with a third party.

Monetary maximalism – n. a system of logical arguments which examine the market forces and network effects which pressure money toward being one good.

Discussion: The system includes the following topics: 1) the nature of money as the most salable good, 2) the monetization process, 3) benefits of network effects, both monetary and technological, 4) convergence of communication mediums, 5) computer protocol convergence, 6) efficient tools for economic calculation, and 7) Veblen/Giffen goods.

Monopoly – n. the exclusive permission to bring a good or service to market granted and enforced by the State, esp. the control over the money supply.

No enforcement of a monopoly is ever totally effective at eliminating competition, because the enforcer cannot be in all places at all times and black markets are ubiquitous. Monopolies cannot exist in an unhampered (free) market, since competitors can enter the market at will, therefore no examples can be cited.

If a single producer arises on in a free market to dominate production of a particular good or service, it can only be because that producer serves customers best, and at all times vulnerable to competition, either direct or via substitutes.

related: duopoly, oligopoly

MtGox – /em-tē-gäks/ – n. the first large exchange platform in bitcoin.

Discussion: Originally a trading website for Magic the Gathering cards, it was repurposed in 2011, but kept the name which stands for Magic the Gathering online exchange. The first owner/developer was Jed McCaleb, who sold a controlling share, 88% ownership to Mark Karpeles when it got too big for Jed’s comfort level. Jed then went on the found Ripple and Stellar (two very similar altcoins).

MtGox experienced several hacks after Karpeles too over and is infamous for having a woefully inadequate trading engine. It is very much what you’d expect early on in a nascent industry, however, it became wildly successful despite the technical limitations, eventually becoming a victim of its own success. At the height of MtGox’s influence it accounted for approximately 75% of bitcoin’s liquidity and held a very significant percentage of all coins, possibly as high as 20%.

In 2013, several security and scaling problems arose in the exchange’s backend. Rumors circulated of a large hack, even insolvency, as withdrawal delays grew. Trading was suspended several times for different periods of time. After the fact, evidence came to light that rogue trading bots were being used, possibly by MtGox itself, to win back some bitcoin to cover losses. Other scandalous rumors spread that board members of the Bitcoin Foundation along with Karpeles himself, were given preferential treatment in withdrawals. That included people like Paul Vessenes, Roger Ver, and Jon Matonis. As the cover up and whale exit was happening, Roger Ver was producing his now infamous “MtGox is solvent video”. MtGox officially stopped trading in Feb 2014 when it was publicly disclosed the loss of 800,000 bitcoins, at the time roughly $800 million. Many people lost all of their bitcoins in the event, and the lengthy legal battle is still raging today.

Nash Equilibrium – ​a solution to a game, that if given a choice, no player would change their strategy. This is not an absolute best case for each player, but it is a best case for both involved.

A Nash equilibrium is the trust-minimized solution to a game and applicable to economics.

Native Token – n. a purely digital token that exists on and for a distributed network. 

The native token is directly dependent on the other Nakamoto Consensus rules, and they on it. It’s the keystone that locks the network’s economic incentive structure together.

Neo-Austrian – A branch of the Austrian School that places primary importance on Bitcoin and building unstoppable tools for civil disobedience.

Nocoiner – n. a person who has no Bitcoin, knows little about it, yet speaks negative publicly about it.

Nocoiners tend to be socialists, lawyers, PhD economists, or any other profession with vested interest in the corrupt financial system. They missed the opportunity to buy very early due to ignorance, and instead of owning their mistake, they lash out to some degree against bitcoin and bitcoiners.

related: precoiner

Non-deterministic – adj. an algorithm that, even for the same input, can exhibit different behaviors on different runs, as opposed to a deterministic algorithm. There are several ways an algorithm may behave differently from run to run. A concurrent algorithm can perform differently on different runs due to a race condition. A probabilistic algorithm’s behaviors depends on a random number generator. An algorithm that solves a problem in nondeterministic polynomial time can run in polynomial time or exponential time depending on the choices it makes during execution. The nondeterministic algorithms are often used to find an approximation to a solution, when the exact solution would be too costly to obtain using a deterministic one. Wikipedia

Noobn. someone new to Bitcoin. This term carries a slight feeling of empathy, since we were all new at some point.

related: rookie, rook

Opportunity cost or hidden cost – n. the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen). More An often quoted example is found in the Broken Window fallacy. A broken window doesn’t stimulate the economy, because the money put into fixing the window would have been used elsewhere. The broken window also decreases capital wealth, which must be replaced by cash. Opportunity cost is not quantitatively measurable. We know it’s qualitatively positive, in other words opportunity costs exist, but there is no way to calculate it, because it would involve subjective value judgments of an alternate outcome. We can deduce that the opportunity cost for an involuntary action is greater than the benefit of the action taken, because if it were less it wouldn’t be involuntary.

Oraclen. the entity responsible for bringing external data into a decentralized network. Many smart contracts depend on external data to function. For example, a smart contract may do something when a sports team wins a game. The oracle is responsible for telling that smart contract which sports team won. See Oracle Problem.

Oracle Problemconcept Oracles are not trustless, they are centralized and controlled by one or a group of parties, therefore the smart contracts that rely on oracles are not decentralized or trustless. Many efforts have been made to solve the oracle problem, which rely on obfuscated trust. None have been successful. If a smart contract relies on a centralized trusted oracle, there’s no need for the smart contract itself to be on a decentralized network. The overall trust level of an app is the most trusted aspect of that app. So if the oracle is centralized, the whole app is centralized and trusted. Related to the Dual Consensus Problem.

Payoffs – ​numbers which represent the motivations of players. Payoffs may represent profit, quantity, “utility,” or other continuous measures (cardinal payoffs), or may simply rank the desirability of outcomes (ordinal payoffs). In all cases, the payoffs must reflect the motivations of the particular player. source

Ordinal payoffs are numbers representing the outcomes of a game in preference order, where the value of the numbers is not important. For example, when solving for a Nash equilibrium in pure strategies, you are only concerned with whether a payoff is larger than another – the degree of the difference is not important. Thus, we can assign values like “1” for the worst outcome, “2” for the next best, and so on. Thus, ordinal payoffs simply rank all of the outcomes. source This is applicable to economic investigation, since human preferences are ordinal in nature. Further study is needed to find where Austrian Economics axioms intersect game theory.

Permanoobn. someone who is not new to Bitcoin, but has struggled to learn basic concepts about money, economics, game theory, scaling and alike.

These people usually have a profit motive keeping them from accepting basic empirical and logical arguments. They either have large bags of altcoins, a blockchain company, are a so-called academic, a gold salesmen, or are play the role of permanoob in media.

related: noob, rook, pluralist

Plunge Protection Team – The Working Group on Financial Markets (also, President’s Working Group on Financial Markets, the Working Group, and colloquially the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988, by United States President Ronald Reagan. Its goals are enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence. It’s commonly believed that this body acts to support stock market prices directly.

Pluralismn. a future monetary scenario characterized by more than one coin playing a significant role as money in perpetuity.

Discussion: You can compare pluralism to a bimetallic standard or barter. This theory does not accept two pillars in Neo-Austrian economics and monetary maximalism.

1) Multiple sets of prices make economic calculation less efficient than one set of money prices. People will gravitate toward the use of one unit of account through natural selection in the capital accumulation process. People who chose to hold cash balances in, and perform economic calculation with, the superior monetary asset will out produce those who choose to use multiple money denominators.

2) The supply of one monetary good will be harder to inflate than the other monetary goods. The incentives are aligned to hold your cash balances in the harder to inflate money, because of the risk of relative depreciation. The more cash balances are held in the harder money, the greater the opportunity cost to the individual of not holding their cash balances in, and performing economic calculation with, that asset.

Ponzi scheme – n. a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

Discussion: Nearly all altcoins and tokens in the bitcoin space have aspects of Ponzi schemes. Ponzi schemes need a continuous supply of new buyers, “greater fools” to buy the shitcoins.

Praxeology – n. the study of human action, based on the axioms that humans act and human action is purposeful behavior.

Discussion: It’s based on synthetic a priori statements, as opposed to empirical (falsifiable hypothesis requiring testing) and analytical (true on purely logical grounds). Synthetic a priori statements can say something true about the world without needing to be tested. For example: two straight lines cannot enclose a space. This statement says something about the world and is irrefutably true.

The Austrian School of Economics is based on praxeology and deduction, not empirically testable hypotheses. Statements such as, voluntary trade is mutually beneficial to both parties, else it wouldn’t take place, don’t need to be tested to be true. Many people (nocoiners, MMT, default Keynesians) feel uncomfortable around Austrian claims, because the claims can’t be quantitatively confirmed, only logically deduced in a qualitative manner.

Precoiner – n. a person who has yet to be exposed to arguments for Bitcoin, or who has not tried to understand Bitcoin. Unlike nocoiners, precoiners are not outspoken against Bitcoin, they simply have yet to concern themselves with the topic.

Preferencesn. the ordinal ranking of valued ends by individuals.

Prisoners’ Dilemma – ​a very basic game that explains the traditional framework for game theory with strategies and payoffs. It is most often found in payoff matrix form or word form.

In the image below, we find two players that can defect (confess) or not defect (don’t confess). The game goes like this. The players are arrested, interrogated in different rooms and cannot communicate. They are given two options, confess or don’t confess. The guards explain the payoffs, if Player 1 decides to confess while the Player 2 does not, Player 1 will get zero penalty and Player 2 will get 12 years in prison. If they both keep quiet, they will both get only 2 years on lesser charges. If they both confess, they will both get 6 years.

How do we figure out what they are likely to do? Of course, there are some assumptions, the most important being they prefer a lesser sentence over a longer one. Each player will decide based on what the other player might do. What will Player 1 do if Player 2 does not confess? They will confess. What will they do if Player 2 confesses? They will also confess. Therefore, the dominant strategy is for both players to confess, even though the best possible combined outcome is for both players to keep quiet.

What’s more is if the players are allowed to repeat their move, knowing what the other player picked, it would not change the outcome. If Player 1 knows Player 2 will not confess, their best move is still to confess. In a repeated game scenario, the result of both players defecting is very stable, known as a Nash Equilibrium.

The Prisoners’ Dilemma is a simple example of the power of game theory, not only to examine specific one time games, but also repeated games in the real world.

Prisoners’ Dilemma Payoff Matrix

Private key – n. a private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file. The private keys are mathematically related to all public keys and Bitcoin addresses generated for the wallet

Proof of stake or PoSn. an alternative decentralized consensus model to proof-of-work where cost and time is replaced by putting some of the native token on the network at stake with a risk of loss for dishonest behavior. There are many more attack vectors to PoS than pure PoW. It has been a well studied topic, with live experiements in the form of cryptocurrency networks. To date, no PoS network has been able to garner much confidence, especially relative to PoW networks.

Proof of work or PoWn. 1) a consensus mechanism for a distributed system.

2) a piece of data that results from a costly or time-consuming process, but is easy for others to verify.

Discussion: The defining characteristic of a proof of work process is the cost incurred in producing some data. In Bitcoin, computers scan through random values to find a hash that meets certain difficulty requirements.

The history of PoW starts in the 1990’s in several obscure academic papers. In 1997, Adam Back proposed Hashcash, an idea to use proof of work to limit email spam. Though it was not a money application the name was fortuitous, because within several years the PoW concept was being used in exploring how to make a digital money. In 1998, Wei Dai released a paper entitled B-money, which eerily resembles Bitcoin, with a block chain like distributed database. In the 2004, legendary computer scientist Hal Finney, began developing on the idea of Reuseable Proof of Work (RPoW) to the create a money token. The breakthrough in Finney’s work on RPoW is that the tokens could be sent back and forth without redoing the PoW used to “mint” them. Nearly at the same time, Nick Szabo released his paper on Bit Gold. All of this preemptive work were never launched, but were well known in advanced cryptography circles.

Proof of Work effectively solves several problems in maintaining consensus on a distributed system. Prior to Bitcoin it was assumed that finality in a distributed consensus system needed to be deterministic. All nodes perfectly agree on what has happened and transition to a new state together. However, the internet is not perfect, messages get missed, malicious actions take place, and nodes fail. Proof of work cleanly solves these problems, Accumulated proof of work secures the network’s history, because to change the history, an attacker would need to redo the proof of work. An extremely costly and time consuming process. The attack would need to sustain >50% of the network’s hash power for an extended period of time to even rewrite a few blocks. A vast majority of 80% or more would be needed to dominated the current and historical record of Bitcoin.

Public key – n. a 2D point coordinate on an Elliptic Curve derived from private key. The private key is used to sign messages (in case of Bitcoin – the transactions), and the public key is used to check whether the signature is correct. The public key can either be used raw in a transaction, or turned into a Bitcoin address by means of hashing and other operations.

Pyramid scheme – n. a form of investment in which each paying participant recruits further participants, with returns being funneled to early participants using money contributed by later ones based on their recruitment success.

Reckless – adj. without thinking or caring about the consequences of an action. Often used in relation to Bitcoin’s Lightning Network.

Discussion: When lightning was in alpha, people recklessly started using it before the protocol developers said it was ready. There are some products that have embraced this meme, like Recksplorer for the Lightning Network.

Regression Theoremconcept In the early days of Austrian Economics and the marginal revolution, it was not established how the value of money was set. You couldn’t simply say “people have a marginal utility for money because of its purchasing power,” because that’s circular. People exchange goods for money because they have a higher marginal utility for the money, but to explain why people have that marginal utility for money is not readily apparent. Other goods have a consumption value, money does not by its very definition, it is a good held for future use and not consumed. Mises devised a way in which people’s expectations about future value was priced-in today’s and based on yesterday’s value. If you follow that back in time, you arrive at a time before that good was money, and all it had was a consumption use, like gold for cuff-links. More

This is often misunderstood by gold advocates as damning for bitcoin, because bitcoin lacks a past as a marketable consumption good. However, the Regression Theorem only applies to money arising out of an economy without money. New money arising in a market with old money, can simply bootstrap off of that old money. The exchange rate history takes the place of the original consumption value.

Rekt – n. losing all your bitcoin, or losing an argument badly.

Saleableadj. able to be exchanged (sold) for something else of value.

Discussion: Some goods cannot be sold, whether it’s because the value of a unit is to low to be calculated (a blade of grass) or because there is simply no demand at the time. In a hypothetical barter economy, if a person has a good on offer that no one is willing to trade for, that good is currently not saleable.

Saleabilityn. the level to which something can be readily exchanged (sold).

Discussion: Everyday items like food and water have high saleability, because people have a constant need for them. The use of an indirect medium of exchange, money, causes the saleability of most items to go up. This is often referred to a network effects.

The performance of an indirect medium of exchange can be estimated by examining the monetarily important characteristics of the good. Traditionally these have been scarcity, durability, portability, cognizability, divisibility, and fungibility. Digital goods like bitcoin have a unique characteristic, along with these traditional ones – inalterability.

Satoshi or satn. the smallest unit size on the bitcoin network. 100,000,000 satoshis make 1 BTC.

Discussion: Sub-satoshi division is possible on other layered protocols like the Lightning Network (LN). The satoshi is the native denomination currently used on the LN since its value is still very low (~$0.0001), but in the future a satoshi will be worth more than a $0.01, you will want to be able to divide a bitcoin further, and that’s possible on other layer protocols. It’s unclear if those divisions can be available on the consensus layer.

Scalability – n. the ability to increase the size and scope of the Bitcoin network.

Discussion: Distributed systems don’t scale in the same fashion as centralized systems. In a centralized system, if you want to scale a network, you simply increase the power of the central party. The main reason this brute force scaling strategy is available is the nature of the system. The central party controls or validates all transactions already. It’s also fairly simple to get the people with the authority to change the parameters into the same room.

Distributed systems are different. There’s no central party to coordinate the change. The network consists of tens of thousands of node spread across the world. There is no way to get agreement.

Despite this, a group of bitcoiners attempted to both brute force scaling and brute force the nodes to change the rules allowing larger block sizes. It would have allowed for more transactions to be ordered in every block, but the tradeoff is the breaking of the consensus. To achieve larger block sizes, the rules that govern Bitcoin consensus, arguably what defines Bitcoin as Bitcoin, must be changed. The attempt failed as predicted since there was no way to form a credible committment. It remains to be seen if Bitcoin’s consensus rules can be changed at all.

Bitcoin followed a second path in scaling. It has thus far followed the internet’s model of a modular approach. The base layer or consensus layer was left compatible with previous versions of the software (backwards compatible), but some rules were bent to allow more expressive transactions. This update was known as Segwit and was a great success. New bahavior was agreed upon, but didn’t have to be agreed upon by all nodes. This changed enabled the development of the Lightning network and sidechains.

Bottom line, Bitcoin is highly scalable, just not through changing its rules, changing what it is.

Scalability Trilemma – concept A term coined by Vitalik Buterin to describe theoretical scaling trade offs for a Bitcoin-like network. The three components are decentralization, security, scalability. The claim is that these three things are each a spectrum and designers of these networks must choose to what level to optimize for each component.

Scamn. 1) A project that intentionally misleads investors to steal their money.

2) A project doomed to failure through ignorance and leads to later investors losing money and wasting time. This ignorance can be technical or economic, or both.

Scammern. 1) A person who intentionally misleads investors.

2) A person whose actions unwillingly will lead to investors losing money and wasting time.

It’s very hard to tell between these two types of scammers in an abstruse field. However, for that reason, don’t dismiss people calling out scams or scammers. Be wary of people using labels like “maximalist” or “toxic” to silence those shining light on scams or scammers. Scammers freak out and desperately want skeptics silenced and marginalized, so their targets don’t ask too many hard questions.

Schelling point or Focal pointconcept A strategy that people will tend to use in a game in the absence of communication, because it seems natural, special, or relevant to them. ​

This has importance to bitcoin, because it’s the first, the biggest, most liquid, most secure, most well-known, the most respected technically, the most users, etc., so when investors look into this space, bitcoin stands out as the only investable asset. Also, in a scaling sense, status quo is the shelling point. If there is a credible commitment problem, or uncertainty in any way, the shelling point will win, because it’s the most obvious and established consensus.

Seigniorage – n. profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.

Seed phrase or seed recovery phrase or backup seed phrasen. a list of words which store all the information needed to recover a Bitcoin wallet.

Discussion: Wallet software will typically generate a seed phrase and instruct the user to write it down on paper. If the user’s computer breaks or their hard drive becomes corrupted, they can download the same wallet software again and use the paper backup to get their bitcoins back. Anybody else who discovers the phrase can steal the bitcoins, so it must be kept safe like jewels or cash. For example, it must not be typed into any website. Seed phrases are an excellent way of backing up and storing bitcoins and so they are used by almost all well-regarded wallets. Read more

Shitcoinn. a pejorative for an altcoin or token with no utility, that will massively under-perform bitcoin long term, and likely to go to zero.

Soft Fork – n. a backwards compatible change to the codebase. Soft forks make the rules of bitcoin more restrictive, so the resulting valid set is smaller.

Discussion: All actions on the network after the soft fork remain valid to older versions of the software. This is an extremely important concept for a decentralized network. Since bitcoin is decentralized, you have control over your own node, and getting everyone to update to a new version is impossible. There’s still people running 3-4 year old versions on the bitcoin network and they continue to function as they always have.

Sound Money – n. a commodity based money that has arisen from the market as the most liquid and salable good, and used as reserves for government money.

Sound money has many benefits over fiat. It can’t be printed by governments, so the corruption and misallocation from money printing is controlled. It also tempers and alleviates the worst effects of boom bust business cycles in the economy. Bitcoin will be sound money, but it’s unlikely to be used in any reserve scheme, because it’s highly tradable.

Spookn. a secret agent of the State who infiltrates groups to sabotage their efforts, lead them astray, or to gather evidence for future prosecution.

Stablecoinn. a digital token who’s value is pegged to a national currency or possibly a basket of national currencies.

Staten. 1) an institution of violent compulsion, differentiated from other institutions or groups, which all make and enforce rules, by its claim to a legitimate authority to force involuntary actions in the market.

2) the sum total of all remembered events and interactions in a computer program or network. In Bitcoin, this is represented by the most recent block. To be able to verify how this current state came to be, all blocks are cryptographically linked and stored in the block chain.

Discussion: All intervention by a State is coercive or violent, because voluntary action does not need the State to take place. The State’s goal is to force involuntary action. Some will try and argue that the State can “facilitate” voluntary action. Not true. The State would only be able to facilitate trade after first taking from others. They create the system and limitations in which that voluntary action is supposed to occur coercively. The State limits choices, so any choice you make in that system cannot be completely voluntary. You don’t know what you’d choose if the State hadn’t limited everyone’s possible choices. For example, if marijuana is illegal, I might choose to buy beer, though I’d prefer marijuana. Turning around and saying that the State facilitated a voluntary purchase of beer is absurd.

Stealthadj. a secretive period of development, made popular in technology start ups.

Discussion: Two usual characteristics of a project “in stealth” is they have well-known backers and are concerned with an idea that is not yet proprietary. It could also be a technology that isn’t proprietary, and founders are busy building to a stage at which their launch will form some sort of first mover advantage.

Stimulusn. economic stimulus is nearly synonymous with the original definition of inflation.

Discussion: It is an attempt to “stimulate the economy” through government deficit spending or monetary policy (money printing or interest rate manipulation). These activities result in the expansion of the quantity of money.

Substitute or money substitutesn. claims to a definite amount of money, payable or redeemable on demand.

Discussion: Not to be confused with substitute goods, which are wholly different goods used for the same thing. Money substitutes are derivatives of the money meant to impart different characteristics on the money, or to save costs. Banknotes created a more divisible gold for example, and allowed economies of scale to save cost on security. Money substitutes technically introduce counterparty risk, but it’s considered so slight that people treat money substitutes as the money itself.

Altcoins are substitutes in the general goods sense and not in the monetary sense. With cryptography, we can make truly trust-minimized money substitutes for the first time, with an auditable supply. Lightning network bitcoin could be seen as a trust-minimized money substitute. Pegged sidechain coins, like Liquid BTC (LBTC) may grow into proper money substitutes for bitcoin with time, as well.

Trust-minimized money substitutes do introduce new challenges for the market to solve. The necessity for fees at the protocol level, seem to make small value transactions impossible to settle. Some have argued this gives enough incentive for a wholly different money complementary to bitcoin for small transactions. However, I don’t believe this to be the case. Innovation will bridge the gap of the minimum utility threshold (one confirmation), with perhaps a trust-minimized L2-to-L2 settlement; e.g. Lightning to sidechain, exchange to sidechain or lightning.

Switching costn. the cost incurred to switch brands of a common good.

Discussion: The monetary effect, mental effort and time needed to do so is non-zero. This is very important when discussing monetary goods. The switching costs must be less than the benefit of switching. The benefit to holding a different asset in your cash balances must be greater than both the opportunity cost of the forsaken asset plus the switching cost if necessary. When substitutes are very close in utility, the switching cost always favors the more liquid good.

Synthetic a priori statement – a statement that is logically true, but also contains information about the real world. It’s a mix of the benefits of empirical and analytic statements. For example: Two lines cannot enclose a space, or the sum of the angles in a triangle is 180°. A synthetic a priori statement is often confused with empirical statements, because it contains information about the world, however, they are not empirical, because they don’t need to be tested.

This type of statement is extremely powerful and the basis for Austrian Economics. The Action Axiom is this type of statement: All humans act and all human action is purposeful.

Technical analysisn. 1) the art of learning from past prices and market data to predict future prices. 2) an analysis methodology for forecasting the probable direction of future prices through the study of past market data, including price history, relative price history, price movements through time in relation to empirical market data, volume, price formation and the basics of economic calculation, market sentiment and investor psychology.

Discussion: Technical analysis is not trading, it is forecasting. TA must be combined with an individual skill set, including a proclivity for risk management, consistency, calm temperament, open mindedness, etc. to be profitably applied to trading.

TA can be defended with the following logic: 1) all action is future oriented, 2) all action is a prediction of outcomes, 3) we can learn and make better decisions to achieve our goals, and 4) prices are the only reliable source of information about the market. Some people are more skilled at forecasting than others. They are more able to form the probabilities of price movements. Some people’s character are better suited to trading. It is, however, impossible to have 100% certainty about the future, or to be 100% uncertain. To be certain about the uselessness of TA is a contradiction.

Toxicadj. a label given to bitcoiners to silence them when they’re making evidence based arguments in public and/or refusing to accept faulty counterarguments.

Discussion: It’s most often applied by con men, their bagholders, or people who have been convinced by con men of their legitimacy, at vocal Bitcoin maximalists in an attempt to shame or silence them. The goal is to keep the con man’s targets ignorant.

synonyms: bigoted, non-inclusive

UAHF or User Activated Hard Forkn. a mechanism to activate an incompatible upgrade the Bitcoin network where users coordinate and agree to adopt the change as a large organic distributed consensus. The extremely important distinction is incompatible, because it is very hard or impossible to force all nodes to upgrade. Leaving nodes behind out of consensus shrinks the network. If any of those nodes constitute significant economic value, the hard fork will definitely decrease the price of the hard forked coin, influencing others not to upgrade. In Bitcoin, HFs are impossible if there is an option to not upgrade, they are only viable in existential cases. All other HFs in Bitcoin result in an altcoin.

UASF or User Activated Soft Forkn. a mechanism to activate a backwards compatible upgrade to the Bitcoin network, where users coordinate and agree to adopt the change as a large organic distributed consensus. It’s the opposite of a centrally planned change. As a soft fork, the upgrade is backwards compatible, so doesn’t mandate any action on the part of nodes (the Segwit UASF was slightly different than this due to the hardcoded requirements included in the upgrade).

Unit biasconcept The reasoning that the relative price of a whole unit of a money says about its fair value. For example, when people compares the price of bitcoin at say $20,000 and the price of an altcoin at $10 and concludes the altcoin has a lot more room for growth. Of course, this is a fallacy and doesn’t take into account total supply, liquidity, robustness, or any actual metric at all.

Unwilling convergenceconcept The ​eventual capitulation to a overwhelming single standard. This is related to loses accrued due to holding out against convergence. Entrepreneurs take on large risk toward a perceived larger payoff. You are incentivized to try to pick the eventual winner in any of these convergent areas. If you invest in the wrong standard, you will benefit relatively less or lose outright.

Eventually you’ll be forced to capitulate based solely on relatively loses. Your illusion is ultimately dependent on the limited resources of reality.

UTXO – n. unspent transaction output.

Vaporwaren. software that is advertised and marketed, but has not been delivered.

Discussion: Vaporware is a common problem in the altcoin space, especially in ICO tokens. Funding is raised on promises of revolutionary tech, but then when the team finds out their extraordinary claims are harder than thought to deliver. The incentives of ICOs are aligned to produce many vaporware projects. The developers are met with the decision, do they deliver a project that won’t meet expectations and crash the price of the tokens, or do they extend and pretend for as long as they can?

Variable sum game – n. a game in which the sum of all player’s payoffs differs depending on the strategies they utilize. This is the opposite of a constant sum game in which all outcomes involve the same sum of all player’s payoffs. In variable sum games, players can mutually benefit through cooperation. source

Discussion: It seems that this type of game with ordinal payoffs is an area for further study, as it could give economists a powerful way to simplify complex logic.

Whitepaper – n. the original outline of ideas written by Satoshi Nakamoto and released on 31 Oct 2008. The white paper introduced the ideas behind Bitcoin, but wasn’t the first application of the ideas. That came two months later.

Zero sum game – n. a special case of a constant sum game in which all outcomes of all player’s payoffs sum to 0. Hence, a gain for one participant is always at the expense of another, such as in most sporting events. source