Bitcoin Maxima & Other Crypto Things

I'm the founder of Taaalk ✌️. Confused by crypto. Hopefully not for long.
Bitcoin investor, wealth manager, and project consultant.
blog: https://standardcrypto.wordpress.com/
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Joshua Summers
18:32, 19 May 20 (edit: 19:10, 19 May 20)
So this picture:

cropped-nyc.jpeg 43.4 KB

It is the background image for your cryptocurrency focused blog, for your Twitter bio, and we have chosen it as the image to represent this Taaalk.
What does this image mean to you and how does it relate to your thoughts on bitcoin?
Thomas Hartman
18:25, 20 May 20 (edit: 18:19, 06 Jun 20)
Great question. You're the first person to ever ask that. So thanks.
This is a callout to john michael greer's concept of retrotopia.
JMG is not a bitcoin guy, more of a gold bug if anything. But his idea that we have peaked technologically and that the future looks more like the past than some star trek utopia, or blade runner dystopia, resonates with me. To me what bitcoin represents most of all is a return to the gold standard. Except it will be a bitcoin standard. Because bitcoin is a bit more convenient to carry around and transact in.
As mircea popescu put it in Bitcoin and the Poor, "Bitcoin is the most conservative thing since at least queen Victoria, if not outright Jesus. Bitcoin makes so-called "progressive" tax schemes unworkable. Bitcoin makes any sort of public welfare untenable. Bitcoin makes anyone's pretense of equality with anyone else risible. Bitcoin isn't here to "make communes work", but quite the contrary : it will render communes both inoperable and uninteresting to pretty much everyone."
I'm not quite as dark enlightenment trolly as popescu, but there's a lot there that I agree with. Bitcoin is not some futuristic kumbaya sit around the campfire thing. It's a return of nature, of limits, of traditional values, and to a large degree it may feel like a reset to earlier times. 
I think some countries may be able to retain some vestiges of the modern welfare state, post hyperbitcoinization. It won't be easy. There is not going to be a universal basic income (UBI). Sorry.  
Joshua Summers
00:04, 23 May 20 (edit: 00:05, 23 May 20)

WOW

I was not expecting that. There are so many directions to explore.
Firstly, it seems bitcoin is instrumental to the development of a future like the one described above. This not obvious to me. Is this correct? And if so why is this the case?
Thomas Hartman
18:56, 24 May 20 (edit: 05:22, 21 Jul 20)
The gold standard is all about limits.
Under a gold standard, there is a limit to what the government can do to your money. Say the ruling class wants to start a war, or build a new stadium for your local community college. They can tax. Or they can borrow. If they borrow, they have to pay back what they borrowed in gold, like the Iron Bank in Game of Thrones.
And if gold actually worked that way, a gold standard would actually set some limits.
But there is a cheat code to a gold standard: devaluation.
Actually who needs a gold "standard" -- we could just transact in gold for everything, like god intended. No government currencies needed.
We got government currencies because gold does not in fact act like our platonic ideal of it.
1, Gold doesn't work for for small transactions. Even if the 711 liquor store wanted to accept gold, you couldn't buy a slurpee with it. You can't transact in gold dust. Because it blows away and gets lost.
2, gold is surprisingly easy to counterfeit. Lot of gold painted tungsten bars on ebay. This is good enough to pass a water volume test. Do you have an x ray crystallographer?
There's a bunch more properties where bitcoin wins. But I think even without 3, if we just had 1 and 2, we might have a ubiquitous gold transaction world like in fantasy novels.
But since gold is easy to counterfeit, we need coins stamped by the government, with government police to punish counterfeiters. You have to pay the police. It's expensive.
And since gold doesn't work with small transactions, we have small denomination coins and paper notes for that.
Let's add 4, maybe the most important one. Gold is hard to secure. So we keep it in the place we trust the most. The government bank. And we use paper that is redeemable for gold. When the ruling class then wants a war it is just too tempting for their lackeys in the government to say, sorry, your pesos that used to be worth 1/16 ounce of gold, are now worth 1/23 ounce. But don't worry about it. The economy needed it. Nixon. Roosevelt. Germany. England. The roman empire. Everyone did it. So it's not like people didn't see it coming after it happened all these times. But gold is just too hard to secure, there was really no better option.
You could argue war mongering lackeys is just a straw man. Well intentioned democratically elected leaders that want to promote social equality are even worse! Everyone wants to spend, spend spend, whether you agree with their ideals or not.
Getting back to point 4, secure storage. In Silas Marner, this weaver works his whole life to save up a gold hoard and hides it in the floor of his little hut. Then this dissolute upper class guy figures out where he hid it and just takes it to pay off a gambling debt.
Not so easy with bitcoin! Actually not so hard. If Dunstan had gotten Silas's hardware wallet paper backup and Silas wasn't using a passphrase, he could have gotten it all. But Silas CAN use a passphrase. Silas can use 2-of-2 or 2-of-3 multisig for deep cold storage, and keep the other keys with people he trusts. Or more realistically, since he has trust issues, at least somewhere harder to get at than the floor of his hut.
People say, bitcoin is too hard to use, nobody can go through all this hassle to secure a hardware wallet. Fine, have your bank secure it. The point is, bitcoin gives you a choice.
The issue with gold is, because of its physical properties you have no choice but to trust third party vaults. Once you are doing that, the best option is to trust the government central bank vault. And the government can't be trusted not to devalue.
Bitcoin works the way gold bugs imagine gold works. To my mind this is why you need bitcoin to get a real gold standard. Or rather a bitcoin standard.
PS: A great way to secure a hardware wallet is to embed it in a giant cube of concrete, say 10 feet on a side. The buttons and screen get routed to the outside . So if you have the pin code, it works as expected, just kind of unwieldy. If you want to steal it, you have to dig out and haul a huge block of concrete, or use jackhammers to get at the electronics somewhere in the middle of it. Hopefully the noise would wake up the neighbors. 
I expect in a few years, with hyperbitcoinization approaching, citibank or wells fargo or someone will actually be doing this. 
Joshua Summers
18:44, 25 May 20
Right. So I can see that Bitcoin solves the ugly properties of gold.
Before I get onto exploring hyper bitcoinization and the awkward monetary soup we must now be in, would you mind briefly explaining why gold is fundamental to money?
It is easy to forget about gold in a day-to-day world where I'm thinking more about the bag of sweets my $/£ is going to get me, than what is responsible for my $/£ having any value at all.
Thomas Hartman
20:03, 26 May 20 (edit: 18:01, 27 May 20)
Money isn't something that you usually think about, or most people ever think about. Money is just something you use, like electricity. As long as the lights go on when you flip the switch, who cares how electricity works. 
It's when the lights start flickering that you start to care. An argentine cab driver with a high school education is more sophisticated about how money works than a RAND thinktank economist with a phd. Because the lights haven't ever gone out for the economist. The cab driver if he's over 30 has had them go out already two or three times.
If you are paying attention,  the lights are starting to flicker just a bit, for everyone.
So what is money? What do we want money to be? And why is gold fundamental to that?
There's a lot of ink been spilled on this. I guess it’s my turn. Here goes!
1, we want money to just work. It should be CONVENIENT. Convenience for money means SCARCE, DURABLE, DIVISIBLE, and FUNGIBLE (aka interchangeable).
2, we want it to work, without having to trust too many systems or people. Money should be TRUST MINIMIZING.
Before money… we don’t actually know that much. Anthropologists and archaeologists do a lot of theorizing about how societies worked economically back in the day.  Luckily though, at least some of this is recorded history. 
At any rate the prevailing story, if you are a bitcoin maxi anyway,  goes something like this. 
The default system for tribes of the early days is gift economies and honor systems. These are great, and you still have them in communes and small villages. But they require a lot of TRUST. Money is what you use when you don't have trust.
Let's try bartering. I give you a cow, you give me some wheat. No trust required. Instant settlement. But not very convenient. Because what if the amount of wheat I want doesn’t match the value of the cow? Cows aren't very DIVISIBLE. And I don’t want to accept too much wheat for a whole (undivided) cow, because I would have to eat it before it goes bad. Wheat is fairly divisible but it isn't DURABLE. A cow is more durable than wheat, if you keep it alive. And both cows and wheat can be made more durable if you jerky the cow, or make flour and store it under certain conditions. But it's a lot of work.
We could try using debt. I give you a cow, you give me some wheat, and you owe me some wheat for later. If there’s something I want from another guy and he also wants wheat, I can get you to give him the wheat you owe me and then I get what I want. But this requires TRUST. Not just between you and me, but you and the other guy. The whole point of money is to minimize trust. Debt isn't money. It has its uses. But it isn't money.
Cows and wheat also aren't FUNGIBLE. Which is a fancy word for interchangeable. "The property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part." Some wheat could be a little spoiled. You can't substitute an old cow for a new cow.
We're much better off using wampum, i.e. sea shells. Clam shells are scarce, fungible, durable, small enough you don't need to divide them, and hard to counterfeit. You can also wear them in necklaces, making them convenient to carry around. And while somewhat scarce, they aren't too scarce. There’s enough clam shells on the beach that you can run an economy on them. Much better than cows and wheat.
If you have enough wampum, I just sell you the cow and we square up right away. Thanks to its good properties, wampum becomes universally acceptable. Therefore, if I trust you for an IOU, it’s easy to denominate the debt in wampum. So it makes debt more manageable too. 
As far as what we want money to be, with wampum we are basically done. 
There are just some annoying details that get in the way. 
Shells get squished when you make giant piles. Not as durable as we'd like. And some shells are prettier than other shells, so you wind up trying to pick out the nicest shells from the wampum necklaces, which wastes time. Not as fungible as we'd like.  Also since clams grow on rocks, and you are eating them all the time, you get clam shell inflation if you are bringing in more clams than what gets squished or squirreled away as jewelry. Not as scarce as we'd like. 
Gold is basically wampum, but more uniform and durable, and limited in supply. You melt it down and purify it, all gold is the same. It doesn’t rust, it doesn’t smush. And it’s pretty well buried, so inflation is wrangled. Actually there are inflation issues when a big new gold deposit gets discovered, like what happened in the various historic gold rushes. But overall not too bad.
Gold is better wampum.  
And that’s why when we think about money, from dungeons and dragons to disney movies, what pops up in our collective minds is gold.
Nick Szabo talks about the transition from wampum to precious metals, and many other interesting things, in Shelling Out: The Origins of Money, which is canon to bitcoin maxis.
As an aside to Josh (or other readers) when considering the desired convenience properties -- SCARCE, DURABLE, DIVISIBLE, FUNGIBLE -- are you seeing issues with gold? Which, if any, would you say is the most significant? No right answer btw, just something to think about.
Joshua Summers
16:40, 27 May 20
Gold doesn't rust! That is interesting. That and the rest of your answer built a huge fundamental building block in my 'how to think about money' mind map.
So divisibility seems to be where gold falls down. And perhaps where Bitcoin stands up. (As well as being able to be sent through the internet - satoshi's post you linked to earlier, imagine a precious metal that "can be transported over a communications channel", is making more sense now.) 
But before we get there, why can't gold be totally abstracted from modern money? I know vaguely that the gold standard was removed or relaxed some time in the 70s/80s... and the world seems to have trundled on.
It feels in a community of shell traders, an influx of shells could cause a great deal of trouble, but in a modern developed economy it seems more opaque. I can't find modern money on the beach, so my own personal supply is constrained, how does a relaxing gold standard impact the world most people live in today?
Thomas Hartman
17:32, 27 May 20 (edit: 15:00, 03 Jul 20)
Good answers, yes, I would concur.
"why can't gold be totally abstracted from modern money?"
You can try. This isn't our first trip to the rodeo. Governments have been inflating and going off the gold standard since the roman empire. But gold keeps coming back. Because people like saving in gold. Because they are rightfully afraid of the grinding value decay of inflation in government money. The majority of modern savers may prefer houses, or stocks, or art. But gold never quite goes away. It is the symbol of protected money. It occupies that spot in the collective mind.
"I can't find modern money on the beach, so my own personal supply is constrained"
That has been true for you, in your personal experience, but it is not universally true. It is not true for the Argentine cab driver. It was not true for Weimarian germans. It will not continue to be true for you, indefinitely.
Hyperinflation is like bankruptcy. It happens slowly over a long period of time. And then it happens all at once. We are getting near the inflection point between the slow and fast phases. You can look at the balance sheets of the various big central governments and see an enormous rise in the amount of government debt, which translates to money printing.
From what I can recall, US federal reserve balance sheet doubled since corona, from something like 3 Trillion to 6 Trillion USD . It's similar across the world. The numbers boggle the mind. In 2008 the numbers were smaller but still mind boggling. Each crisis the numbers get bigger. At some point, you tip.
More shells on the beach for you. There will come a day for you when you feel it.
And then everyone is a millionaire, but there is no milk on the shelves. A government fiat money hyperinflation is a terrifying thing to live through. It's the stuff of genocide, world war, and generations of lingering trauma. This pain and fear is why savers have craved gold ever since there was government money. Protecting your purchasing power sounds boring if you are living through the slow phase of fiat money decay, but after you tip, it is literally life and death.
Good news though. This next time is different.
Instead of hyperinflation, what we face as a society is hyperbitcoinization.
Hyperbitcoinization won't be pleasant, especially emotionally, for those who are late adopting bitcoin. But it is a far better option than hyperinflation. Most people don't have the bulk of their savings in fiat anyway. Most people are debtors. Fiat debtors. With hyperbitcoinization in play, the home mortgages and student loans that feel like debt slavery to an increasing number of resentful millenials will be denominated in devalued and eventually worthless fiat. It amounts to a jubilee, where you essentially just write off all the debts that were never going to be paid anyway. 
My gut feeling is that hyperbitcoinization will feel a bit like the fall of communism in russia. A rough time, but moving in the right direction overall.  You will notice that your electric bill wants you to pay in bitcoin, and the 711 wants you to pay for your slurpee in bitcoin, and gradually first then everywhere all at once everyone just wants to be paid in bitcoin. And then it is done, and you don't think about it anymore. 
And the lights never go out again. 
Joshua Summers
16:51, 28 May 20
I get it.
Somehow the 'developed' economies have (for a long time, certainly in my living memory) avoided hyperinflation... But it's a'coming! And when it comes, Bitcoin is sitting there waiting to eat up/resolve all the chaos.
One could say you have a similar position to that of Warren Buffet (the value investor). He has felt markets have been overpriced for so long that he has a $130Bn+ cash pile he is not confident to invest at today's prices. But he believes in the fundamentals of 'value' based pricing to such an extent that waiting is an obvious strategy - even though he has missed out on a lot of debatably 'faux value' during that time.
Do you have the same faith that developed-economy-hyperinflation / hyperbitcoinization is such a fundamental event that it is a matter of when, rather than if?
Thomas Hartman
17:25, 28 May 20 (edit: 19:27, 16 Oct 20)
Buffett is on the record as disliking bitcoin. For him, stocks and businesses are a store of value. He understands them, and he does his homework. Warren doesn't invest in tech stocks either. Tech is not where he has an edge. 
For bitcoin hodlers, bitcoin is where they have an edge. They have done their homework. Not just on the economics story, but all the inconvenient and aversive tech stuff as well.  Like learning to use cold wallets, keeping backups safe, not keeping coins on exchanges where they have a tendency to evaporate, all of that. You got bitten here if I recall correctly. That's common. I have as well. A lot of bitcoin is just learning through pain. 
Bitcoin hodlers are fanatics, but they are rational fanatics. That's why you get these giant hoards of deep cold coins from the early days that just never sell. It's gollum from lord of the rings. Or smaug. 
So anyway, buffett and I disagree on bitcoin as a value investment -- because buffett hasn't done his homework on bitcoin -- but we agree on the general premise of value investing. I haven't done my homework on the kinds of stuff buffett invests in either, so no scorn from me. A lot of success as an investor is specializing, knowing what you know and don't know, and being smart enough to stay in your lane. 
For now the dollar is a good store of value, so buffett is fine holding onto his dollar hoard, though he may miss out on the next wave of bitcoin price appreciation. When he needs to get on board he will get it wrangled. 
Yes, I am convinced on bitcoin. Of course nothing is 100%. But my thinking is hyperbitcoinization in 12 to 15 years, at which point we stabilize at around $10 million of purchasing power per bitcoin. 
Joshua Summers
20:07, 28 May 20 (edit: 12:19, 01 Jun 20)
Sorry, just to be clear I wasn't saying that you held the same perspectives - but that you both have strong convictions about something which you view to be almost fundamental.
So let's go back to the basics and the beginning of bitcoin.
Even though I have heard that one individual named 'satoshi' started bitcoin, I can't imagine it would have developed the traction it did if it was one person with an idea who was isolated form the rest of the web. It feels like, even though it is credited to one person, it must have emerged from an online community interested in a common theme.
Is that the case? And if so were they discussing the floaty-fiat problem bitcoin solves, or did bitcoin exist to solve a different problem? And find itself to be the solution to another.
I'm sort of asking a question to try to see the "big bang" of bitcoin. Not the expansion that followed afterwards, but to understand the ideas behind its spawning into existence and to picture the moment it happened.
Thomas Hartman
03:08, 04 Jun 20 (edit: 06:47, 10 Jun 20)
My personal satoshi nakamoto superhero origin story is, he was a furry. That is, someone who prefers to express his sexuality wearing an animal-themed onesie.
Let’s get right down to it. Furry or not, when you send a dick pic, the idea is that only you and your special lady friend at the other end of the communications channel should be able to enjoy it. This would be basically true if you sent your pics with the postal service. Even if the post office opens your mail, at least you might notice the envelope looks tampered with. But with the modern internet it is not true. Data is universally transmitted across communications channels using a protocol called tcp/ip. For tcp/ip, every packet of data is a postcard. Whoever owns the wires owns your data. 
It’s the 1990s. The modern internet is being born. You are not ok with postcards of you in a squirrel costume, doing stuff, floating around for anyone to look at.  
So you become a cypherpunk. 
Being a cypherpunk, you learn to encrypt internet conversations at both ends. Then you don’t to have to trust those perverts at the NSA not to snoop on the wire. They can snoop all they want. All they see on the postcards is static. We are rolled back to the era of snail mail in sealed envelopes, for privacy purposes. 
But there’s still a problem. We managed to reinvent paper mail for the internet. But we still don't have paper cash. 
The privacy issue is, you have to pay your internet service provider somehow, to access the communication channel. Your ISP can only accept bank based payments. Since your bank account is linked to your identity, your ISP knows you are using encryption even if they can't see what is on that postcard. So a privacy hostile, furry-unfriendly police state could order your ISP to report anyone who uses encrypted communication — or just refuse to carry those staticky postcards to the intended recipient.  It’s a weak point in the privacy story. The payment issue has been rubbing cypherpunks wrong since the beginning. You can see it in eric hughes's famous cypherpunk manifesto, linked above: 
“When I ask my electronic mail provider to send and receive messages, my provider need not know to whom I am speaking or what I am saying or what others are saying to me; my provider only need know how to get the message there and *how much I owe them in fees*.” [Emphasis added. There’s lots more in the manifesto.]
When this was written, there was already a way to do end-to-end encrypted communication: phil zimmerman’s PGP ("pretty good privacy"), released 1991. For the cypherpunks, PGP was the sweetest victory of the nineties. The fact that the US government tried, and failed, to ban it, just added honey to the sundae.
But nobody had a good idea how to solve the private payments problem. 
There was an attempt, by David Chaum. Not many people know this, but bitcoin is not the world’s first cryptocurrency. That would be Digicash, founded by Chaum in 1989. When it was first coming out, many cypherpunks believed that chaumian ecash would be the solution for cash-like anonymous electronic payments. But ecash didn’t pan out. 
Ecash was a solution where you could send dollars anonymously. But since it still relied on dollars, it still relied on banks. That meant it had the same single point of failure problem as bank cards for ISP payments. It was too easy to shut down. But the real problem, the real reason ecash failed, was just that no one wanted it. Normal dollars work well enough that it’s not worth installing complex tools and learning strange new concepts just to buy your furry porn anonymously. For all PGP was a delicious victory, digicash was a bitter, drawn out defeat. I remember being sad and frustrated, watching this story play out through the 1990s. Digicash went bankrupt in 1998. Nothing hurts like irrelevancy. 
Bitcoin was announced ten years later, in 2008, with a working alpha released in 2009. Unlike ecash, there was a reason to use — and fanatically promote — bitcoin. Due to its gold-like scarcity, if it succeeded, early adopters would get rich. The dual flywheel of rising mining difficulty and rising price created a nouveau riche cypherpunk class capable of funding software development early on, and effective political lobbying later in the game. Now, bitcoin is taking over the world. 
Never fuck with furries.
Joshua Summers
15:20, 06 Jun 20
So before we get into the technical workings of bitcoin and how it enables privacy, why ledgers are important and what exactly they are, and how mining works - it seems like bitcoin was perfectly, almost cynically, designed to grow.
Going back to our shells on the beach example, it feels like within bitcoin's there is a shell finding mechanism - almost like hyper inflation (which you get to keep) with a cap on it, but made attractive by demand for the currency outstripping its absolute growth.
How much of this do you feel was intentional? More precisely, was this a functional property of bitcoin that happened to facilitate its popularity, or was the facilitating of popularity the primary function behind certain design decisions within bitcoin itself?
Thomas Hartman
20:22, 06 Jun 20 (edit: 11:21, 14 Jun 20)
You could argue that bitcoin has a dark enlightenment vibe. But, for your own good, don't call it cynical. You don't want to go to furry re-education camp!
Kidding.  The terrifying thing about bitcoin is, it doesn't need re-education camps. The terrifying thing about other money systems is, they do.  Digicash died of indifference. Ripplepay, which I was involved with, similar story. But Liberty Dollar and Egold were flourishing ecosystems until the US department of justice decided Bernard von NotHaus and Douglas Jackson needed re-education. The boot on the face is real.
But nothing can stomp out bitcoin. The first thing DOJ agents do when investigating a bitcoin crime is, usually, try to steal the bitcoin. Thus adding to the scarcity and value of the bitcoin network. 
Hypergrowth is a deep functional property of bitcoin. Proof of work hash mining is the only known solution to the engineering deliverable of a working digital cash. There are 9000 or so fools gold cryptocurrencies trading on coinmarketcap, collectively worth 50% of the bitcoin monetary base. That is a generous estimate. Many altcoins have barely any volume. This winner take all distribution is no coincidence. The digital cash with the greatest proof of work can attack its weaker siblings by hash mining them to death with empty blocks. This is not theoretical. Many pretenders have already died this way. Hold shitcoins at your peril. 
The logic for proof of work was understood in the bitcoin white paper. But that it would amount to a better gold is obvious only in hindsight. In 2009, the early days of mining when hashrate was barely growing at all, Satoshi speculated bitcoin might someday fill a niche like frequent flyer miles that could be transferred trustlessly between airlines. The selling boat tickets to the Yukon phase didn't begin until 2010. 
"For to everyone who has, more will be given, and he will have abundance; but from him who does not have, even what he has will be taken away." (Matthew 25:29)
Even to christians, it sounds harsh. The world is a harsh place. 
But in the early days of bitcoin, there was nothing cynical about it.
Joshua Summers
10:22, 09 Jun 20
You say:
Proof of work hash mining is the only known solution to the engineering deliverable of a working digital cash.
The digital cash with the greatest proof of work can attack its weaker siblings by hash mining them to death with empty blocks.
Firstly, what is "proof of work hash mining" (for beginners please!).
And how can one digital cash's proof of work be greater than another's?
Thomas Hartman
04:00, 10 Jun 20 (edit: 08:54, 27 Sep 20)
OK. What is hashing? Let's just take a look. 
hash("thomas hartman") => b73d127e8e76ff01b5cb833980b9712cf1dbc92064b1d2fae700105c8227121b
This beast is a 64 digit hex number. Instead of the usual 10 digits 0-9, it has the 16 digits 0-9a-f. But, it's just a number. In decimal it would be
82881156605080050388863774003735601367246355697689529077366882559854056509979
You could also use 1s and 0s, in which case there would be 256 binary 0-1 digits (bits). I'm going to go back to using hex because it will make googling for historically important hashes easier, further on.
Hashing takes some some data, my name in this case, and applies some gnarly, but basic -- but tedious -- arithmetic and cut paste type transformations to produce a 256 bit numerical output. The transformation has a lot of steps but is completely deterministic. You could do it by hand if you were extremely careful, and extremely patient. It takes 10 hours for a human to compute a hash using pen and graph paper. My MacBook computes a hash in microseconds.
There are hundreds of websites where you play around with hashing, and reproduce the hashes we will be discussing. Just google for "sha256 calculator".
You could think of a hash as a kind of fingerprint for some arbitrary data. It is theoretically possible, but in practice impossible, for two inputs to hash to the same result. And you can't reverse a hash. If I present you with f04b773b796ddb607c9c0df477b4738a690a626e49f59bc91a37dd0cd05b70ee  and ask you to come up with an input that hashes to that, you will never, ever, find one. Unless you have a multi trillion years life span and galactic core black hole level of energy. Then, I suppose, you would get it eventually. Or, I could tell you a secret...
hash("joshua summers") => f04b773b796ddb607c9c0df477b4738a690a626e49f59bc91a37dd0cd05b70ee 
Moving on, if you tweak the data in a tiny way, say by tacking on the string "123" at the end, you get a completely different result.
hash("joshua summers" + "123") => hash("joshua summers123") => 304d0d26fd5ebb3bd3f56fcb48f6fdc6c8b0dbf9be088b34835b3ec988be1ab7
Completely different looking from the original "joshua summers" hash. We call "123" a nonce. A bit of NONSEnse data that you tack onto some fixed data, that is, data that you care about. The nonce can change and it doesn't matter. The fixed data matters, so it can't change.
Hashing always produces a 64 hex digit output. What if we had some fixed data ("joshua summers"), and we wanted a nonce that would make the first digit of the resulting hash 0? "123" didn't work. The first digit of the resulting hash was 3. Let's keep looking... sitting at my macbook, I try nonces manually by incrementing 123 until...
hash("joshua summers" + "134") => hash("joshua summers134") =>
0120353865b8576fc09988444bdeed6f44a1d9433a7058064911d66eafda43e3
Found one! Took eleven tries. (134-123)
And that is hash mining. By producing a nonce and a hash with zero in the first digit, I PROVED I did some WORK connected to the fixed data. The nonce with the hash is like a stamp of authenticity that proves that, for some reason, I care about sacrificing some work attached to the fixed data "joshua summers".
Work is another word for energy. Each hash costs my macbook battery a tiny bit of chemical energy. Recall, I could do this by hand instead of using a computer,  taking 10 hours for each try. I would need feeding, since eleven hashes on graph paper would keep me busy (going slowly insane) for four days. Like my macbook, my body needs energy to hash.
On average, I would expect to have to try 16 nonces to get a hit. I got slightly lucky with 11 nonces. If you asked me for a hash that starts with 2 zeros, I would expect to have to try 16 times more nonces, 256 instead of 16. The more zeros, the more energy.
For all my hashes, you need to compute just one hash to convince yourself that my work was valid. The proof had better be cheaper than the work (and it is). Just as assaying gold to stop counterfeiters had better be cheaper than digging the gold itself up, or why bother.
Now let's talk about bitcoin. With bitcoin mining, instead of your name, the fixed data is an "unconfirmed" (ie unstamped) block. An unconfirmed block is a group of bitcoin ledger transactions, along with a hash of the previous confirmed (stamped) block. The link to the previous block, via that block's hash, is what forges individual blocks into a blockchain. Miners try nonces till they find a stamp (nonce + hash) for that unstamped block that proves they did some work. It is the same as in the example I gave before, just with more zeros.
Visually, the difficulty condition is a bunch of zeros at the beginning of the hash. The more zeros required, the more valuable the stamp. Each additional zero makes the search for the stamp 16 times harder.
In 2009, the very first bitcoin block, called the genesis block, hashed to
000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f (google this)
Satoshi mined this block. I picture him with a bunch of scavenged laptops in his mother's basement. He uses multiple laptops to try as many nonces as possible, all hashing at the same time, working in parallel.
There are ten zeros of difficulty required for this first block.
16*16*16*16*16*16*16*16*16*16 => 1,099,511,627,776
So, satoshi had to try a trillion more nonces than I just did to find a nonce that worked. It took satoshi and his little cluster of computers (his mine) about ten minutes to crack this first block. This is specified in the bitcoin protocol. Blocks should take ten minutes, on average.
The energy spent to to find the nonce makes the block precious. Like the diesel spent on earthmoving equipment to find gold makes gold precious. Gold is a precious metal. A bitcoin block hash is a precious number. The more zeros you see at the beginning of a block hash, the more precious the hash.
Now let's look at a recent hash, from today (2020)
0000000000000000000081f22162e5603c4349b66f12a6b4f4274dff14bdc3bc (you can google this too)
It doesn't look that different. It's just 20 zeros instead of 10. But, as we saw before, ten zeros means a trillion times harder. If modern miners were using the same hardware as satoshi, that would be a trillion times as many computers mining, to find the hash in the same ten minutes. A trillion times as much electricity. In fact it's a bit less than that. Modern miners use special single purpose computers, called asics, that are a lot more energy efficient than the general purpose CPUs satoshi started out with. But it's still an enormous amount of hardware and electricity, trying an enormous number of nonces, to solve the next block.
All these giant warehouses full of racks and racks of miners are hashing away, because if you solve a block stamp, you receive a block reward of 6.25 bitcoin (currently), plus some transaction fees. Altogether it's about $60k, up for grabs every ten minutes. So, mining is a lottery that pays $60k every ten minutes. If the price of bitcoin goes up, or even if people just expect it to, more miners join. Bitcoin starts to be found too quickly... nine minutes instead of ten minutes... eight minutes... then the protocol adjusts to require enough zeros  so he block time goes back to ten minutes. (Slightly hand waving there, but close enough.) This difficulty adjustment happens every two weeks. The increased difficulty (more zeros) means bitcoin got more secure, and this in turn drives price goes up.
This is the double ratchet effect that I believe will continue until bitcoin occupies its market niche and replaces money as a global utility in a decade or so. It's worked so far. Three more zeros in the difficulty (around 4000x increase in difficulty) and bitcoin has replaced printed fiat from central banks. ($10 million/bitcoin, as opposed to around $10k today.) It may feel like a lot of ground to cover, but if you just count zeros in the difficulty, bitcoin has practically already won.
As mentioned before, each block includes the hash of the previous block. This makes a sequence of blocks, that is, a chain. A blockchain is a chain of blocks. Blocks are expensive.  So a blockchain is very expensive.
The bitcoin protocol says the most expensive blockchain in terms of physical energy, measured in total hashes,  is the true gold. There can be only one most expensive chain. This is extremely important. There can be only one.
An unconfirmed block has no proof of work, so you can't trust the transactions in it if someone just paid you with one of them. The miners haven't approved it. There is no work behind it. So, these expensive stamps of approvals that each block gets (the precious hashes) prevent cheating, that is, double spending the same bitcoin. Mining is a security system. Miners are the bodyguards of bitcoin.
You have to  pay your bodyguards, or they turn on you. In fact, the largest bitcoin miner, Bitmain, attacked bitcoin in 2017. As the whitepaper foretold, the attack failed. Hundreds of millions of dollars worth of hashes were sacrificed for nothing, and bitmain was nearly driven into bankruptcy. Bodyguards are not hired for their brains.
Anyways, miners are paid in block reward, which is newly minted bitcoin, plus transaction fees. The bitcoin supply is finite, with minting scheduled to end in the year 2140. The reward halves every 4 years. For bitcoin to succeed, the transaction fees have to be sufficiently high to motivate miners to keep working hard enough to make bitcoin safe after the block reward eventually goes away. Transaction fees may ultimately stabilize at thousands of dollars per transaction (pennies now). Only power users like banks and pension funds will then be able to afford the blockchain.
If this happens, and I think it will, most users will never touch the blockchain directly, but will use second layer systems such as lightning. So far, the gradual replacement of block rewards with transaction fees appears to be working according to plan, and I expect this to continue to work in perpetuity. It's one of those subtle points that investors worry about and debate about, but I have done my homework and I'm satisfied with the arrangement.
Well, that was a lot of info. If that was hard to follow, I do apologize. If you want to understand mining there are a lot of concepts to cover. I gave it my best shot. You might also find it helpful to have a look at the "pied piper coin" white paper from HBO's hit tv show silicon valley.
http://www.piedpiper.com/app/themes/pied-piper/dist/images/Cryptocurrency_Presentation.pdf
This is actually an incredibly good explainer, also very funny, and I like to refer to it as well as the foundational bitcoin white paper.
Now, let's move on to the second part of the question: "How can one digital cash's proof of work be greater than another's?"
Let's compare bitcoin and litecoin. Litecoin is almost exactly the same as bitcoin. Just one line of code is different. Litecoin uses a different algorithm to compute the hash, scrypt instead of sha256. So it's almost apples to apples.
From coinmarketcap.com, bitcoin currently has about $200B monetary base, and litecoin has $2B, 1% of bitcoin. This means litecoin miners are rewarded at about 1% of the rate of bitcoin miners. So if you are a litecoin miner, it makes sense to spend about 1% as much on hardware and electricity to mine the litecoin. Litecoin has bodyguards, and they are paid pretty well. But bitcoin bodyguards are paid 100X as much, meaning there are 100X as many of them. If the bitcoin bodyguards decide to attack the litecoin bodyguards, it will be a bloodbath.
What an attack would mean in practice is, bitcoin hodlers would buy or rent a large amount of litecoin hardware, equal to or greater than the existing litecoin miner supply.  In other words, some bitcoin hodler whales decide to hire their own litecoin bodyguards to murder the existing ones. With greater than 51% of the hash rate, attackers are assured to mine every valid block, controlling the chain. Thus they can harass litecoin users so that they cannot transact in this currency. The hostile litecoin miners controlled by bitcoin whales mine empty litecoin blocks, so no transacting in litecoin can take place. Litecoin crashes in value, you can't even sell it because with transactions stuck you can't deposit to an exchange, and eventually no one wants to use it.
This is an expensive attack. But bitcoin hodlers have 100x as much wealth as litecoin hodlers. Destroying litecoin could be seen as a costly but ultimately worthwhile lesson in pain, that by torturing litecoin heretics would ultimately increase the value of bitcoin.
Actually, bitcoin and litecoin have lived in harmony for many years, and may continue to do so. Litecoin may even enjoy a certain immunity against this type of attack, because it plays a useful role as a test environment to try out new features that may eventually be integrated in bitcoin. I hold some softness in my heart towards litecoin myself. But many punier altcoins have already been destroyed in this way, and who knows. It's a little scarier to hold litecoin than bitcoin. 
Joshua Summers
10:16, 21 Jun 20 (edit: 15:46, 26 Jun 20)
OK - I am learning a lot!
I have a few more questions planned after this to get into your answer with a little more depth, but one question is rattling around my mind first:
Can bitcoin enter a type of inflationary spiral itself?
So I (think I) understand that if the price were to fall, and mining profitability were to reduce, mining capacity should reduce and the protocol would adjust to reduce the number of 0s required for a hash (keeping mining a new block to the 10 minute mark). This would make it easier for the active miners to be profitable, as they have to do less work to mine bitcoin. All good in theory, but...
Can mining profitability volatility exhaust bitcoin? If you are a miner you are competing with other miners, so if bitcoin price is falling (putting pressure on miners as a whole, theoretically driving some out of the market and eventually making bitcoin easier to mine) you want to be the last miner to turn off - so you can enjoy reduced mining difficulty all for yourself. So is there not an incentive built into bitcoin where it is correct to be a temporarily unprofitable miner (especially considering mining requires lots of upfront capital expenditure, meaning you want to get as much mining for your upfronted money as you can)?
Does this mechanism not push the mining industry in an unpleasant direction? Which could a) make it inherently unprofitable/loss making to be a miner and b) cause bitcoin to have long term mining capacity issues, where smart people actively decide not to enter into a highly volatile and high capex industry with minimal profitability?
I can see how if you are a miner with a long term view of bitcoin at $10M, you are happy to earn your coin at break even/a loss now, but if there is a prolonged lag in bitcoin price increases, to the point where doubts creep into this longterm vision - you won't want to do that, and it could be argued that, just like many poorly chosen VC investments, burning money for the promise of future money is not a good plan.
I could be barking up a totally insane and incorrect tree... but 🐶.
Thomas Hartman
21:19, 25 Jun 20 (edit: 05:22, 21 Jul 20)
Let's frame the mining question a bit, by going back to gold.
Pretend you're a gold/usd trader, seeking to accumulate gold.
If the gold price just crashed, it's probably a good idea to buy gold. If gold just boomed, it's probably a good idea to sell gold and hold more dollars. The selling part is emotionally harder, because your happy place is owning gold. But, by selling high, you are setting yourself up to expand your gold hoard in the future when you will be buying low.
Of course, booms and crashes are in the eye of the beholder. Trading is hard, and most traders lose money. But, the better you time the gold boom bust cycle, basically, the better you are at your trading desk job.
Now pretend we're in the yukon. You're a gold miner, also seeking to accumulate gold.
If the gold price just crashed, it's probably a good idea to sell off some of your mine and buy cheap gold with it. You can buy your mine back when the gold price goes back up, and profit on the gold. If gold just boomed, it's probably makes business sense to sell your gold and expand the mine. 
This mining scenario ignores the existence of dollars and the possibility of hedging. Mining is super risky. It's all the volatility of gold, plus the operational risk of running a mine. Realistically you want to keep some of your profits in dollars rather than plowing it all into expanding the mine, so you can sleep at night. Miners generally do hedge with dollars. So, gold miners are also gold/usd traders.
Back at the bloomberg terminal, the gold/usd trader might also be tempted to trade gold mining stocks (risky) or etfs (less risky), or even make private equity infusions into solo mines (riskiest of all!). So, traders are also miners.
What I'm driving at is that mining is a tempting alternative to dollars, if you want to accumulate gold. And the right time to mine, for a miner, roughly coincides with the right time to hold dollars, for a trader. Mining is a good way to acquire gold when the gold price is too high to buy, whereas just buying is a better way to acquire gold when the gold price is too low to easily run a profitable mining operation.
Now, pretend you are the apple corporation -- ie rich institutional investor --  with a hoard of hundreds of billions of offshore dollars to protect against the risk of future hyperinflation. You are the smart money. You want to hedge into gold. You are basically a gold trader that might also want to be a gold miner.
Or a bitcoin trader that might also want to be a bitcoin miner. 
Mining when the price is "too high" makes sense if you are well capitalized, believe in your smarts and competence, and have an appetite to take some risk. Bonus points if you have semiconductor manufacturing capacity (TSMC), or have access to lots of cheap energy (Saudi Arabia). 
For an institutional investor, making a mining investment is a riskier strategy than just holding dollars, when the price of the asset you covet is high. But then, you are the smart money, or at least believe you are. That's how you got those hundreds of billions of dollars to begin with. So you can do the spreadsheets and the business due diligence, and go ahead and invest in a mine if it seems to make sense.  
To be honest I don't really follow the gold markets, and I don't have charts to back up my theory about timing the gold mining market cycle. But for bitcoin, I have done my homework, and I believe this story. "Buy when the price is low, mine when the price is high," is basically what I tell institutional investors. 
Now, as to your question. "So is there not an incentive built into bitcoin where it is correct to be a temporarily unprofitable miner (especially considering mining requires lots of upfront capital expenditure, meaning you want to get as much mining for your upfronted money as you can)?"
Yes. And your other observations are all pretty much valid as well. Where I think your normie bias may have led you astray is the underlying motivational story. Some miners mine for dollars, sure. But most bitcoin miners are trying to accumulate bitcoin. 
If you are a gold miner and gold somehow loses all value, you can use the earthmoving equipment to mine other stuff, or sell it used. But if you are a bitcoin miner and bitcoin fails, all you have is a pile of noisy overpriced heaters. ASIC devices are single purpose computers. All they can do is hash.
So don't think of bitcoin miners as miners. Think of them as smart money that wants to acquire bitcoin, crunched the numbers, and decided that mining makes more sense than buying spot. 
Yes, you might mine unprofitably for a bit. But if the price drops below a certain point, you will turn off your miners and buy spot hard. You are not grandma. You are the apple corporation. Or TMSC, or Saudi Arabia, or the Walton family office. And your goal is to accumulate bitcoin, not dollars. 
Some in the trading community refer to this as the "miner floor." But it's not really a miner floor, any more than it's a trader floor. Miners, traders -- all are trying to accumulate bitcoin. 
Joshua Summers
21:48, 29 Jun 20
Right, so in a world of bitcoin-believers, which perhaps is a prerequisite for becoming a miner in the first place, there is just bitcoin accumulation - and mining is just one of the ways to do that.
Moving things towards the mechanics of transactions, what are miners connecting to and how...?
It might sound a bit silly, but for me the world of connecting to the internet is plugging my broadband cable from my router to the wall, and then connecting to wifi. How does one "connect" to bitcoin? And what type of connections are there (is there only mining, or are there "requests" to miners)? Does bitcoin simply transact through the web (so is it a bit like visiting a website - i.e. you are accessing a database on an external server)? Or is it different in some fundamental way?
Thomas Hartman
01:44, 01 Jul 20 (edit: 04:59, 01 Jul 20)
"Does bitcoin simply transact through the web (so is it a bit like visiting a website - i.e. you are accessing a database on an external server)? Or is it different in some fundamental way?"
Bitcoin does not depend on the web. That is to say, the web could cease to exist and bitcoin would soldier on. But bitcoin and http (web) are both federated internet protocols. Email is another one. 
https://en.wikipedia.org/wiki/List_of_TCP_and_UDP_port_numbers
What these federated protocols have in common is no gatekeeping. Anyone can write an email client. So thomas@yahoo can email josh@gmail. (Facebook messenger and telegram would be examples of non-federated protocols.)
The "bitcoin network" is generally understood to be the colllection of bitcoin full nodes that serve the blockchain. There are currently 10,000 or so public full nodes that serve blocks to all comers, and an unknown number of additional lurker nodes that only serve blocks to authorized users. 
https://en.wikipedia.org/wiki/Bitcoin_network
Full nodes are somewhat heavyweight, at 300GB. A few days of fetching and validating data is usually needed. But they're not that heavyweight. Running a node is within reach of anyone with a residential internet connection, an old laptop, and a bit of patience. 
Web servers serve various different web sites. But every bitcoin node serves essentially the same information, namely the database of transactions known as the blockchain. When a new block is broadcast by a miner to a node, this information propagates within seconds to every other node to keep the bitcoin network in sync. When a new transaction is broadcast by a wallet to a node, this also propagates to all nodes. So bitcoin servers, ie full nodes, are basically all mirrors of each other. The tip of the blockchain can vary if two block candidates are discovered simultaneously. But this gets ironed out quickly (one of the tip blocks wins) and once you get a couple blocks deep it's always the same info on every node. 
The Google Chrome browser is an example of a web client. 
Electrum, a bitcoin wallet, is an example of a bitcoin client. Electrum creates "send money" transactions and broadcasts these to the bitcon network. Electrum is notified of "receive money" transactions that increase its balance. 
Miners are also clients. Miners broadcast newly mined blocks to the bitcoin network. They are in turn notified of new blocks so they know which block hash is at the tip, that they should build on. Miners also get updates on all transactions, so they can decide which transactions should go into the next block. 
Some miners run a full node, and some wallets run a full node, but many don't. It's safer to run a node, and it strengthens the bitcoin network, but many bitcoin users don't bother, including many of the bitcoin rich. Running a full node is most important when the network is under attack and conditions are unstable and confusing. If you are not running a full node, it is probably safe to sit out the attack and start transacting again after the dust settles. 
In brief: 
  Miners  -> self mined blocks -> Nodes
  Miners <- other mined blocks <- Nodes
  Miners <- all transactions <- Nodes

  Wallets -> send money transactions -> Nodes
  Wallets <- receive money transactions <- Nodes

  Nodes <- mirror -> Other Nodes
Joshua Summers
17:58, 14 Jul 20 (edit: 23:00, 14 Jul 20)
Ok, well bitcoin is making a lot of sense as we go deeper into it.
How is the source code of bitcoin updated? As in, who are the chosen few that can merge a pull request (if it works like that)? How did they come to be? And what are the processes around changing any of the bitcoin protocol like? Is bitcoin a democracy or an autocracy?
Thomas Hartman
15:50, 05 Aug 20 (edit: 12:13, 19 Aug 20)
"How is the source code of bitcoin updated?" 
There is no source code of bitcoin, because bitcoin is a protocol. Protocols don't have source code. Protocols have documentation... if you're lucky. 
"who are the chosen few that can merge a pull request (if it works like that)? How did they come to be?"
There are many (I guess hundreds of) programs that implement the bitcoin protocol. These programs, bitcoin clients, get updated with pull requests pretty much as you would expect. 
"And what are the processes around changing any of the bitcoin protocol like?"
The process around protocol changes, as opposed to code changes, is more fundamental to the essence of bitcoin. So let's start with this.
"Protocol" is a bit of a fuzzy word. The definition I like, which works well for bitcoin, is: a protocol is a procedure for two or more parties to accomplish some task. "Two or more parties" implies that protocols involve communication, trust, rules, and things like that. With just one party, you don't need a protocol. You might call a procedure for one party to accomplish a task an algorithm, or something. 
The bitcoin white paper documents a protocol for mutually distrusting parties to accomplish the task of value transfer over a communications channel. The bitcoin protocol is brilliant. But it's complicated. To get a better idea of what a protocol is and build up some intuition on how protocol changes work, let's look at a simpler task. Say we just want to run a meeting. Can we create a protocol to keep our meeting orderly and polite?
"Pick a leader, who can speak whenever they want. For everyone else in the group, keep quiet or raise your hand if you want to speak, and if the leader calls on you by name, go ahead and speak." That's a protocol.  Let's call this style of running a meeting the "classroom" protocol.  
Bitcoin whitepaper is nine pages. Classroom protocol is two sentences. Rules for running a meeting are easier than rules for money. But in both cases, they're just rules.
People being people, and not liking constraints, we violate protocols all the time. If you talk without raising your hand, you violated the classroom protocol. The classroom protocol doesn't say what happens when you break it, but hopefully something bad, or everyone will start breaking it and talking at the same time. The bitcoin protocol does say what happens when you break it. It depends what part of the protocol you break, but yes bad things do happen, and they had better, or everybody would cheat all the time. Recall, bitcoin is money for mutually distrusting parties. In kumbaya world, the protocol is to use credit, or gifts, as we have already been doing for thousands of years. 
You might also notice that protocols can embed power relationships. Different protocols have a more, or less, egalitarian feel.
If you feel oppressed by the classroom protocol, perhaps you would prefer the "talking stick" protocol. Talking stick protocol goes, "Whoever has the talking stick is the acting leader, while they have the stick. The acting leader can speak, and picks who gets the stick next. If you aren't the acting leader but you have something to say, raise your hand to ask for the talking stick." The talking stick protocol is very similar to the classroom protocol, except the group members take turns being leader so there is no permanent leader who is privileged over the rest.
The classroom protocol doesn't specify how the leader gets picked. Maybe it doesn't matter. A protocol doesn't have to specify every detail, just the important ones. 
Knowing which details are important is part of the art of protocol design. For instance with the talking stick protocol, how do you keep the person who has the stick from hogging it forever? Maybe there should be a rule like "nobody is allowed to keep the stick for more than ten minutes. If you use up your ten minutes and other people are asking for the stick, pick someone at random and give them the stick." One might then worry about misbehavior such as two people colluding to pass the stick between each other every ten minutes, and not giving anyone else the chance to speak. IE, they are lying about picking someone at random, but how could you prove this? Maybe you should sit in a circle, and pass the stick to your right, until someone gets the stick who wants to talk. All this is a contrived example of the kind of thinking that goes into protocols. It can get pretty subtle.
Unanticipated problems emerge when a protocol is used in the wild. So protocol users need to be able to update protocol rules. If there is a protocol for changing protocols, I call this a meta protocol. Protocols don't generally have meta protocols. Email doesn't. Web doesn't. But bitcoin does. Can we get some intuition about meta protocols? 
Suppose we are back at our meeting, and some of the attendees want to switch the meeting protocol from classroom to talking stick. This could go down many ways. 
For instance, if someone doesn't like the classroom protocol -- let's call this person "the activist" -- they can raise their hand while making a "power to the people fist" and if a majority of the group makes the power fist along with him, the activist can propose a new rule for running the group. IE, at this point the activist could propose to switch to the talking stick protocol. Then there is a vote, and if a majority wants to switch to the new protocol, the group makes the switch. That would be an example of a meta protocol. We could call it the "power fist" meta protocol. 
I already said protocols are tricky to get right. Well, meta protocols are trickier -- way trickier. Just consider the way voting is used in power fist. There are many so shenanigans you can play with voting! For starters, who counts the votes?
Setting aside the issue of shenanigans, just notice that "power fist voting" is a signaling mechanism that a protocol change is on the table -- someone wants a rules change. Bitcoin has signaling too -- several flavors of it in fact. Signaling is fairly easy. What's not so easy is deciding what to actually do, especially if there is disagreement. 
A protocol change can go smoothly, or be contentious -- disruptive and confusing. 
With a smooth protocol change, the rules of the old protocol continue to be followed in the transition, and everyone understands and agrees with how the switchover is supposed to work. A smooth switch from classroom to talking stick might go something like this. You start following classroom rules. Then someone goes and gets a stick. They give "leader" the stick. Leader tells everyone that from now on, they should follow talking stick rules. Since everyone already agreed that leader should be running the meeting, hopefully no one has a problem with this. Once everyone understands the rule change that leader has endorsed, "leader" becomes "acting leader" and from then on we follow talking stick rules. 
For an example of a contentious change, say the leader, and perhaps some of the meeting attendees, oppose the change. So when the leader is offered the stick, he ignores it and continues following classroom protocol rules. To switch to "talking stick" now, you hold your stick up and talk over the old leader and hope enough of the rest of the group treats you like the acting leader and follows the "talking stick" rules, until the "traditional classroom" faction along with the old leader are forced to conform to the new rules. 
But... multiple people talking at the same time? Avoiding this was the entire reason we wanted a meeting protocol in the first place. It's chaos! If you are really passionate that "talking stick" is the way to run a meeting, and you think enough people agree with you that you can push it through, maybe it is worth being disruptive and undergoing a period of disorder. Then again, you might just wind up aggravating everyone that was happy with traditional classroom rules, and be forced to go off and find a new meeting room along with whoever likes your talking stick process. There are now two meetings, and you are not discussing the same things. 
The not smooth case gives the flavor of a contentious protocol fork. This can happen, and has happened, in bitcoin. A contentious bitcoin fork can peter out if there is no momentum for it, or one faction can decisively win. Either of these ways, you have continuity of a single bitcoin block chain. But you could also have two factions emerge that have enough mining power and users to go on maintaining their own ledger, and then you have the "two meetings in two separate meeting rooms" scenario, as it were. With bitcoin, this means two blockchains emerge. 
If you own bitcoin pre-fork, you wind up owning coins on both chains post-fork. Which is one is the real bitcoin? That depends on you!
The ur-rule with bitcoin is, most energetically expensive chain of valid blocks wins. The "valid blocks" bit is important here. Miners prove energy expense. But you get to decide what is a valid block, by choosing what protocol rules to follow, ie which flavor of node to run. 
If miners are burning ungodly amounts of energy producing blocks that follow rules you don't like, you have some choices. You can do nothing, and hodl both sides until the situation clarifies. Cowardly, but safe. You still have your evil coins even if the bad guys win. Or if you are sharky and you think the coins are mispriced -- in dollar or hashrate -- you can vote with your wallet and sell your evil coins to buy or mine more good coins. This depresses the price of the chain you don't like. If the market agrees with you and everyone dumps, evil coin hodlers are left with worthless bags. Evil coin miners will get electric bills they can't pay and go bankrupt -- you can buy their mining rigs when they get auctioned off, and go back to mining good blocks with them again. Voting with your wallet is interesting. It's not very egalitarian, because basically, "he who has the gold makes the rules." But it has the benefit of being a lot more shenanigan proof. Who counts the votes? With one man one vote, you can vote with dead people, or gerrymander, or get control of the counting process. There are shenanigans with forks too. But you can't fake proof of work, and you can't fake ownership. 
Voting with your wallet is basically the bitcoin meta-protocol. 
I'm not sure if this makes bitcoin an autocracy. For sure though, it is definitely not a democracy. 
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