Once again it’s time to destroy the nonsensical 'Bitcoin will be stopped like Napster' argument.

It’s not been destroyed already? Huh?​

Fine, it’s true, there’s only 3 people left on the planet who don’t get it. But it really needs to be zero.​

First the similarities, then the difference. Then comes the big realization. Quick read.​

Bitcoin and Napster are both decentralized, digital networks. Individual computers use the internet protocol and dedicated software on each computer to enable peer-to-peer data transfers. No central authority facilitator required.​

Now the difference.​

Property. Specifically, the ownership of the property that’s being moved between the individuals using the network. Music files are the property transferred over the Napster network. Bitcoin UTXOs (specific amounts of the currency bitcoin) is the property transferred over the Bitcoin network.​

The individuals who purchase or in any way receive a copy of some piece of music do not become the music owners. The owners are the individuals or groups that have the legal authority to make and distribute copies of the music. It’s all predicated on longstanding copyright law.​

Okay, very easy.​

The Napster network software didn’t have a legal agreement with the owner of the music distribution rights, but it allowed for distribution anyway.​

A copy of the music is property, yes, and yes, a holder of a copy can give it to another person. The problem is the legal rights to make and distribute legal copies belong to the holder of the intellectual property. The copyright holder.​

Napster turned a user’s computer into a distribution hub where any number of other computers could connect and download a new copy of the music. Simultaneously a useful, efficient technical achievement and clearly illegal distribution scheme.​

Contrast that with Bitcoin.​

Holders of the Bitcoin UTXOs (the currency) are the owners of their property.​

But what kind of property are we talking about? The distinction is everything here.​

Bitcoin is money, making it personal property as opposed to intellectual property, like music. Or real property, like land. It’s a bearer instrument so you hold it, own it and control the movement of it. The legal system doesn’t prohibit making copies or distributing it strictly on the basis of being personal property.​

Naturally, users of the Bitcoin network don’t want copies of Bitcoin being mass produced and distributed either. It’s money after all.​ If it were dollars that would obviously be illegal counterfeiting.​

As an aside, it’s interesting how government allows banks to make and distribute copies of dollars, no? More on that later in this article.

Anyway, isn’t intellectual property of all kinds still distributed without permission all the time? Especially on the internet?​

Yeah, they are. So what’s going on?​

Prosecution by the owners, or lack thereof. That’s what’s going on. And famously in the Napster case, the music owners prosecuted. And won.

The Napster network servers, mostly operated by individuals, simply allowed the counterfeiters to be found. Ironically, the ease of users to find each other and download free copies was the same ease for prosecutors to find them.​

Bitcoin servers are equally discoverable. They’re computers running Bitcoin software containing copies of the Bitcoin blockchain.​

But there are two very important distinctions.​

One is simply that the servers don’t contain the bitcoin currency, only a record of all transactions. There’s no legal threat to running that software, whatsoever.​

The other, more germane to the topic, once again goes back to property rights. Holders of bitcoin have legal protection to hold, transfer and receive it, whether they’re running the Bitcoin software, or not. The network software is (in simple terms) just verifying that Bitcoin transactions are valid, authentic, ordered and recorded.​

What's takeaway now?

Individuals holding Bitcoin love that they’re the owners in full control of their property and that the use of their network is legal. Those distributing illegal copies of music hate that authorities can enforce intellectual property rights and stop their network.​

So there’s your comparison and contrast. Thanks for coming.​

...Now hold up.​

If you’re the curious, attention-paying type, you noticed something way more fascinating here.​

When something is digital, unlimited copies can be made. With virtually no cost! If I have a digital copy of something and also give you one, I retain the ability to use my copy. Likely something you observed long ago. But it’s closely related to this Napster issue and a bit more hidden.​

You sensed the DNA of Bitcoin. The attribute making it both a remarkable discovery and invention.

Digital scarcity.​

Let’s take a minute to do the intro.​

The best understanding of it comes from first knowing the nature of scarcity itself. Then the realization of a scarce thing existing digitally can be appreciated for the true breakthrough that it is.​

Scarcity is the balance of a couple fundamental ideas. Supply and demand. Or availability and desirability.​

Obviously, less supply relative to demand drives scarcity. The greater the imbalance, the more scarce a thing will appear to be.​

DaVinci paintings are scarce. The Mona Lisa​? ​Even more scarce. Your front tooth? Low supply, but demand is just you. My front tooth? Demand is just me. Air to breathe? Very high demand but even higher supply, so no imbalance.​

Now take this back to the nature of being digital where it’s very easy and essentially frictionless to create copies of a thing.​

Supply approaches infinity with little to no energy input, regardless of demand. That’s for anything digital, such as music, photos and video. As well as software functions like calculators and inference modeling driving digital intelligence. In the digital realm, demand can always be met and easily outpaced with ever-increasing supply.​

That’s the digital revolution.​

Then there’s Bitcoin. It’s digital but its supply is fixed.​

Think about the meaning of something digital that can’t be copied. It’s so strange.​

We’ve gotten so used to digital stuff being duplicated, weightless, free, endless. We are very familiar with scarcity in the physical realm. So much so that most don’t or wouldn’t believe digital scarcity could exist. Largely because it’s intangible. You can’t see it. So while scarcity is intuitive, understanding how it happens in the digital realm is not.​

By the way, if you hear someone mention the phrase going down the Bitcoin rabbit hole, this is what they’re referring to.​

Without going all the way down in this article, we have to highlight one very instrumental aspect underpinning the phenomenon.​

The Bitcoin network.​

It’s the association of people using software which enforces the fixed supply of the bitcoin currency and verifies when and what amounts of it move between addresses in the network. It stores the complete record of these movements on the blockchain.

Demand always comes from humans but a specific thing such as a piece of property.

But something much deeper is going on here.​

That’s security and trust. Including trust between adversaries and even enemies who, if it came down to it, could confidentially do transactions with each other. And they do.

Not that different from physical cash but when it’s digital property, the adversaries don’t have to physically meet to exchange the bearer instrument. They, and everyone else in the network can know that it occurred without requiring permission from a 3rd party, without being intercepted or any counterfeiting.

One party had the Bitcoin. They sent it. Now this other party has it and can now hold it and spend it as they wish. The prior holder can no longer spend it because the network also witnesses and verifies they no longer have it.

Huh? Wha?​

Yes. This is the monumental achievement.

Monumental. Achievement.​

We wrap it up by briefly coming back to Napster. That network, while wildly popular, was far less sophisticated. Its intent was never to protect property. If adversaries want it shut down,​ they enforce laws governing the property using the network and it gets shut down.​

Contrast that with adversaries who can use BTC to confidently trade with each other. Law doesn’t give either side standing for shutting it down or prosecuting holders of BTC strictly for holding it.​

The only important similarity with Bitcoin rests with its ability to conduct peer-to-peer transactions over the internet. A rather trivial function now.​

Far more important aspects are those contrasts between the networks and that those reveal Bitcoin’s emergence as scarce property in the digital realm.​

The world’s first and likely, it’s only. Forever.​