What does Bitcoin actually do?

Bitcoin is a promising technology, but its leaderless, decentralised nature means it cannot and does not make promises about the future. However, Bitcoin does provide several guarantees, embedded in its fundamental code since its launch on 3 January 2009:

• proof-of-work consensus,
• censorship resistance, and
• a fixed supply of the underlying monetary unit – bitcoin.

These guarantees can be relied upon by all users, attract new users and investors, and form the basis of “what Bitcoin actually does”.

Bitcoin’s Guarantees

Bitcoin’s fundamental guarantees include:

1. Proof-of-Work Consensus Mechanism:
   Proof-of-work (PoW) ensures fairness and security by requiring computational work to mine new bitcoins. This mechanism prevents the arbitrary creation of coins and enforces strict rules of consensus through a fair and competitive process of computational work whose expense is tantamount to the market price of bitcoin. PoW guarantees immutability of Bitcoin’s decentralised ledger, making transaction reversals extremely difficult. For example, re-spending a bitcoin from a year ago would require redoing all the computational work for the past year, a virtually impossible feat given Bitcoin’s current network strength.
   
   
2. Censorship Resistance and Permissionlessness:
   Bitcoin guarantees that anyone using its core software can send or receive transactions without the need for approval from a central authority. Individual and even state level transactions are subject to the prevailing laws of the land, and can be blocked or reversed (i.e. censored). Closely related to censorship resistance is seizure resistance, Bitcoin ensures users’ access to their funds remains independent of external interference. Furthermore, possession of private keys guarantees ownership and protection against seizure unless keys are voluntarily surrendered.

Permissionlessness, in Bitcoin’s context, means that a user is guaranteed access to the transaction verification process by simply downloading the reference wallet (this process is known as “running a node”). Once a user becomes a node on the network, they are guaranteed access to their funds at all times, and can use their bitcoin as they see fit. This is unlike users in traditional systems who sometimes have to provide reasons and justification to their banks when transacting in fiat currency.

3. Limited/Fixed Supply:

Bitcoin’s fixed supply is governed by its code and cannot be altered, with new coins issued on a predictable schedule. A ‘block’ can be mathematically expressed as the sum of a series of thirty-three periods of 210,000 blocks.

1. 
   
   The per block emission during the first period was equal to 50 bitcoins, and will halve 32 times over a period of roughly 130 years. We are currently in the 5th reward era (i.e. there have been 4 emissions halvings), where 6.25 bitcoins are mined per block. As of the 4th halving on 20 April 2024, there are currently ~19.7 million bitcoins in circulation, roughly 94% of the total supply. At the end of the distribution process, there will be precisely 20,999,999.9769 bitcoins, which is commonly rounded up to 21 million. This scarcity ensures that, unlike fiat currencies, Bitcoin cannot be debased. For instance, owning 21 bitcoins guarantees one-millionth of the total supply forever. While some view this as an inflation hedge, Bitcoin’s main promise is its unchanging monetary base.

Bitcoin: The “Dumb Rock”

Bitcoin has been criticised as a “dumb rock” compared to newer, feature-rich cryptocurrencies, leading to questions about what it actually does. While Bitcoin doesn’t do much, it excels at a few critical functions: it provides unstoppable money that cannot be debased or seized, supported by a stable and immutable Proof-of-Work consensus mechanism. Like a strong foundation in engineering, Bitcoin’s simplicity minimises risk at the protocol level, enabling further innovations like the Lightning Network to be built securely on its solid, unchanging base.

Monochrome Bitcoin ETF (IBTC) and In-Kind Facility

Monochrome’s in-kind facility allows investors to contribute Bitcoin directly into the ETF, simplifying portfolio adjustments and enhancing tax efficiency.

By bridging traditional finance with Bitcoin, Monochrome continues to lead the way in regulated cryptocurrency investment solutions.