The Three Economic Eras of Bitcoin

First Era: Satoshi’s Free Offer (2009–2014)

  1. The pseudonymity and lack of central authority was deeply attractive to scammers, who became pervasive enough to make the permeation of real information extremely difficult and also lead to widespread distrust.
  2. The success of the system brought others who tried to replicate it (often with the main goal of simply generating money) and almost always with minimal understanding of the system.[1]
  3. The early adopters had not only the normal tribalism of an emerging clique, but a concrete financial self-interest in adoption. The resulting boosterism meant it was extremely difficult for any awkward facts to permeate the wider ecosystem.

Second Era: Satoshi’s Subsidy (We Are Here)

  1. Previous increases on the network had driven significant centralization pressure, including a period where over half the network was under control of a single pool.[6]
  2. This would be the first backwards-incompatible change since Bitcoin’s introduction.
  3. Providing a “one-off” bump risks moral hazard, as lobbying for expansion is seen as cheaper and easier than engineering improvements.
  4. Despite being expected, neither software nor services were preparing for the transition. This may have been because they didn’t really believe the transition would occur.[7]
  5. The developers generally want to follow the community, not lead. Changes which are economically significant or contentious feed a narrative of developer reliance.[8]
  6. Transitions in a large, complex system need to be as gradual as possible to avoid unintended side effects. As the Third Era approaches, the Second Era provides that gradual transition, with time for software and services to gain experience with bitcoin as it will eventually be.

Third Era: Self Sufficiency (2028? onwards)

The Third Era Will Start With Civil War

  1. The founder was not an economist; Economists recommend inflation around 1% to encourage spending.[28]
  2. The support burden of the network should be shared by the wealthy bitcoin holders, not just those actually using their bitcoin.
  1. The 21 million bitcoin limit was a key reason for bitcoin’s success,
  2. The system’s founder made a conscious and deliberate choice for bitcoin to be a store-of-value over subsidizing payments, by eschewing inflation, and
  3. Changing the rules now is stealing from early adopters (notably, but not mainly, the anonymous founder).

Footnotes, Containing Further Reading




Rusty is a Linux kernel dev who wandered into Blockstream, and is currently trying to produce a prototype and spec for bitcoin lightning. Hodls bitcoin (only).

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Rusty Russell

Rusty Russell

Rusty is a Linux kernel dev who wandered into Blockstream, and is currently trying to produce a prototype and spec for bitcoin lightning. Hodls bitcoin (only).

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