One of the most common topics related to bitcoin people like to debate is about the most important attribute of the crypto asset. Some say it is the ability to make digital transactions that cannot be censored, while others will point to the 21 million coin cap as the key selling point of the system.
In my view, both of these points miss the mark. Censorship-resistant transactions are extremely powerful, but they wouldn’t be possible if bitcoin were not also viewed as a useful store of value. The 21 million cap on the amount of bitcoin that will ever exist gets closer to the digital asset’s most important feature, but it also falls a bit short.
Instead of the specific monetary policy in bitcoin being the most important feature of the digital asset, it is actually the extreme resistance to changes to that monetary policy (and other rules of the system) that allows bitcoin to provide a variety of valuable use cases to the entire world.
A Monetary Reason to Hodl
Bitcoin’s monetary policy is effectively what creates a reason to hold the digital asset over long periods of time, but trust in that issuance rate is only made possible by the belief that there won’t be any contentious alterations to the protocol rules. In other words, the monetary policy is trusted as “set in stone” because of the extreme difficulties associated with making changes to the rules of the system.
Without the 21 million coin limit, bitcoin may have simply been an appcoin for certain types of online payments and everyone would try to use it as little as possible (much like how appcoins and altcoins are used in the digital asset world).
You could also say that the difficulties associated with seizing someone else’s bitcoin adds to the attractiveness of holding the crypto asset, but the unseizability of an asset does not much matter if it doesn’t have a predictable issuance rate. At the base layer, it is bitcoin’s unwavering monetary policy is what makes everything else possible.
Why Can Bitcoin Be Trusted Not to Change?
Contentious hard forks threaten the level of trust that can be placed in a public blockchain, which is why Bitcoin users have avoided them at all costs up to this point. Last year, many users revolted against the SegWit2x plan, which was eventually called off due to this lack of support from the overall community. Even with the backing of wallet providers who accounted for more than half of all Bitcoin transactions on a daily basis and miners who made up more than 90% of the network hashrate, the signatories of the New York Agreement were unable to push through the hard-forking portion of their plan.
From the view of users who were against SegWit2x, the hard-forking part of the agreement effectively threatened the reliability of bitcoin’s monetary policy. If a change to the block size limit could be forced through by large companies in the space, why couldn’t the same thing happen with bitcoin’s monetary policy?
No other crypto asset has faced such a powerful attempt to change the protocol rules and been able to push back successfully, which makes bitcoin’s monetary policy the most reliable in the ecosystem. Having said that, it’s possible the Bitcoin network could face a much more powerful attempt at changing the protocol rules in the future.
Until your altcoin successfully defeats a coordinated attack like NYA/S2X, with 90% of the hashrate and major businesses trying to force a hard fork, its immutability is untested and its monetary policy is suspect.
Bitcoin has earned its keep, its immutability is beyond question
— Pierre Rochard [⚡️] (@pierre_rochard) January 14, 2018
This Makes Everything Else Possible
To bring the point of this article together more succinctly: It is the difficulty associated with changing the Bitcoin network’s protocol rules that creates the ability for the bitcoin asset to act as a store of value, which in turn helps provide the liquidity for all of the features of the system.
Bitcoin would be unable to act as a medium of exchange, as the backing for potential stablecoins, or simply have a secure blockchain without this hardness that goes along with the decentralized network.
And it’s possible that Satoshi knew this. He wrote back in 2010, “The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.”