Bitcoin — The Magna Carta of Money


TL;DR. Ecology:8. Technology:9. Decentralization:8. Valuation:8. Rating:8/10


(Update 2018-10-29: Please see the semi-annual ratings review of Bitcoin here.)

Bitcoin is not the king of cryptocurrencies; it is the empty throne, or the Magna Carta that expelled its occupant in the first place. It is the first cryptocurrency in existence. The 0.1.0 release was back in January 2009, and the chain has worked and continued to grow ever since. Although the initial understanding of the network commonly was that of a decentralized peer-to-peer payment system over the internet, that understanding has since evolved to viewing Bitcoin not just as a new type of money but as a protocol for value. More specifically, Bitcoin is a protocol with no owner; the moment it has one it will no longer be considered a value protocol by most participants. As Magna Carta can be compared to a protocol for governance, with the purpose of restricting any entity to achieve total power, so can Bitcoin be seen as a protocol for money where no entity can fully control different aspects of that money, like supply, issuance, who may use it etc. 

Peer-to-peer transactions over this protocol are processed by so called miners. The miners fetch unconfirmed transactions from the mempool (a transaction backlog), batch them together in what is called a block and meanwhile try to solve a hashing algorithm with, among other things, the batched transactions as input data. An analogy of what this would look like would be to throw a regular dice dozens of times and try to get a 6 at every single throw. It is all extremely improbable so the miner has to iterate the throws billions of times. Any miner that finally finds a valid output of that hashing algorithm has proved that computational work has been done. That proof entitles the miner to that block's reward as it is published to the blockchain and broadcasted to other nodes. The senders and receivers of the included transactions can look at the transparent blockchain and see that the transactions have been confirmed.

This block reward is a monetary incentive for miners to process new transactions through the process described above. It makes the network self-sufficient in a way; we don't want to have to put faith in the goodwill of miners so we incentivize them instead. The block reward is also the only way in which new Bitcoins are minted - a more or less unchangeable inflation policy agreed upon by network participants. At time of writing, 17 000 000 Bitcoin have been minted by miners since 2009. This number will very slowly increase to 21 000 000, after which the minting stops and miners have to be content with collecting transaction fees only. In that regard, block rewards can be viewed as miner subsidies in the absence of a sufficient amount of transaction fees.

So in short, Bitcoin is a distributed database of coin ownership data, structured in a way that mitigates the need of a database administrator who would have to be trusted not to change assigned ownership of coins. More specifically, Bitcoin is a self-sufficient value protocol on which value can be transmitted from one account directly to another account, without trusted third parties, like banks, to settle the transactions. These accounts can have the same owner, they can have different owners, one can even have no owner. Like the Internet is not controlled by one single entity, Bitcoin is setup to withstand such control as well. It is indeed fittingly called The Internet of Money by Bitcoin advocate Andreas Antonopoulos. 

The Stockholm Bloodbath - Christian the Tyrant decimates the Swedish nobility attending his coronation gathering. Neglecting decentralization, the Swedish administrative elite almost caused the complete fall of the nation to the Danish ruler. 


Bitcoin is being actively developed and maintained. Unofficial sub-reddits are very active and the network processes a relatively large number of transactions per day. Normally the network operates at near full capacity (around 300 000-400 000 on-chain txs./day), resulting in higher transaction fees as a fee market develops around the empty space in each new block. BD Ratings has a clear view that number of transactions per day is an important number, but an even better proxy parameter to measure how much the network is actually utilized for real market activity is to also aggregate the daily fees paid to miners. At time of writing, average fees are around a dollar, yet during the intensive period at the end of 2017, average fees climbed over 50 USD. With the number of BTC transactions confirmed per day, the total amount of fees seems to have a base level of over 300 000 USD per day. Compared to Ethereum which has around 800 000 transactions per day but lower fees, the total BTC fees are still higher. This may indicate a somewhat higher economic activity on the chain, but it is by no means a certainty. If Ethereum has a low number of (subjectively speaking) useless transactions, then the economic activity on that chain is indeed higher.

During the height of its power, Carthage exported large amounts of salted, dried fish from its Iberian holdings to the rest of the Mediterranean cities. Were there tumultuous periods where this product gained money properties? It is not unthinkable considering its intrinsic value as long-lasting easy-to-store food, its fungibility, divisibility and semi-fixed supply. Money is not money because the authorities say so; it can arise naturally.

Why can't we just look at the number of transactions and make judgments based on that data point? There are multiple reasons. A centralized network can process far more transactions per second than Bitcoin. The reason is mainly that blocks in such a network don't have to propagate to thousands of full nodes all over the world, meaning the block can be made large. This ultimately means the blocks of such networks are almost never full, and it is therefore also easy to misinform the market should you want to by sending a high number of extremely cheap or even free transactions to yourself. A full-block network on the other hand crowds out most of these fake transactions as the value lost by paying transaction fees may be higher than any value gained by clogging the network. Total fees paid is therefore an acceptably crude proxy to real economic activity while the more gameable total-transactions-per-day unit is not. All else being equal, the above-zero fees are positive for an Ecology rating, despite the counter intuition that surrounds the issue. Yes, free transactions feels good, and expensive transactions crowds out businesses, but looking at the issue from a resilience point of view, it is a massive attack surface for any entity that want to force thousands of full nodes all over the world to store gigabytes of useless data. Fees can be alleviated once second layer solutions like Lightning Network is rolled out to broad use, or through a blocksize change after careful analysis of the blocksize - centralization trade-off spectrum.

Apart from a high on-chain transaction activity, the relatively long history of Bitcoin is slowly building money properties as it cements its role as a global, decentralized protocol of value. The hard coded maximum supply of 21 000 000 BTC can be seen as the skeleton of the store-of-value property. The relatively high on-chain economic activity continuously solidifies the medium-of-exchange property, and the constant altcoin value quotation in BTC is testimony to a unit-of-account property developing. No coin has longer history and arguably, no coin has a larger community as a whole. The age has also resulted in a vast box of tools and infrastructure around Bitcoin, like multiple software wallets, hardware wallets, exchanges, Bitcoin atm's etc.

After capturing an abandoned and burned Moscow, no peace offering was ever sent to Napoleon. His army had encountered surprisingly anti-fragile aspects of Russian governance. 

The Bitcoin Cash hardfork on August 1st 2017 was speculated by some to cause considerable harm to the Bitcoin price. The main argument was that if a non-negligible part the network forked, that signals to the market that Bitcoin's store of value properties are not as strong as predicted since the new fork captures part of the total market value and possibly disrupts an intricate real-world ecology. An analogy would be how gold's value would change if anyone could create new types of fixed-supply noble metals from thin air. It certainly sounds like a threat to the value of a coin. In terms of price, the outcome turned out much better than expected as Bitcoin rose towards USD 20 000 during the end of 2017, beginning of 2018. This new reality of chain forks from large cryptocurrencies has demonstrably not crashed the market. The reason is mainly that no one can fork a network effect. With that said, it is the opinion of BD Ratings that Bitcoin is not fully out of the woods yet. It can certainly be said that Bitcoin yet again handled a new type of crisis much better than could be expected of it, just as it always had recovered from other bad news, like trading bans in China, large thefts on cryptocurrency exchanges etc. We should therefore not make the same mistake as other have done and over emphasize every single threat to Bitcoin's current dominance. So what are the concerns of the Bitcoin Cash fork from the perspective of Bitcoin ecology factors?

It is mainly this, that no one can predict when the next wave of mass adoption will hit the cryptocurrency market. The large wave that pushed Bitcoin and many other coins up to an all time high recently has died of. Networks are no longer clogged with resulting huge fees and vast transaction backlogs. If and when an even larger adoption wave is by the door - possibly during the next global financial crisis - they will most probably, like last time, exhaust the network capacity again of Bitcoin to start with. Scaling solutions are not yet fully developed or adopted even though Lightning is in beta stage on mainnet. New as well as old users will look to conduct smaller value transfers with cheaper coins rather than struggling with a Lightning setup. Many newcomers don't know or care about the scaling debate that resulted in the fork, and if the infrastructure of Bitcoin Cash (or others) exists in the form of that coin being tradeable on exchanges, storable on hardware wallets and usable when paying for goods or services, then this is something that Bitcoin may fail to capture. This analysis is obviously not claiming that Bitcoin Cash will replace Bitcoin as the dominant network; it is claiming that there is a far from non-zero probability for a large boost of activity on the Bitcoin Cash blockchain at the expense of Bitcoin. This probability though is estimated to be not high enough to warrant a significant change of the Ecology grade for Bitcoin, as Bitcoin is still very much the protocol of value it sort of aims to be. It must also be said that almost no well-known Bitcoin developers have left the project for Bitcoin Cash.

Grade: 8/10

Reasons: Large community and utility as seen in many on-chain transactions paying high fees to be included. First ever cryptocurrency that is slowly drifting to a protocol of value status at the expense of other chains. Bitcoin Cash chain that shows few signs of dying.


Since published almost a decade ago, the Bitcoin source code has been public, meaning anyone can inspect and learn from it. It also means anyone finding a weakness in it can try to disrupt the network by taking advantage of that weakness. This is equivalent to having an open-gate policy for malign raiding party representatives that will inspect every part of your castle to see if it can be attacked later. The iterative process of attack and resulting bug fix is a very effective way of ensuring that the code is good. It is especially effective if the attacker can gain financially by a successful disruption. Bitcoin has withstood public inspection and attacks since 2009.

Every time an attacker fails to capture a castle, more can be learned about what weak points need to be strengthened. The analogical Bitcoin castle guards extreme riches, yet has never been fully breached. It has grown more robust for each attack. 

The chain still operates with negligible downtime, and the process of updating the Bitcoin Core reference client has been refined and made extremely conservative in order to keep mistakes out. It is important to emphasize the feat of having a hugely valuable open source network that keeps working as designed. Any obvious flaw would certainly be used against it, immediately, since Bitcoin can be shorted on multiple exchanges. With over 17 000 commits of bug fixes and enhancements, combined with the rigorous testing process, the code really can be defined as extremely secure.

Technological improvements on Bitcoin is based on BIPs (Bitcoin Improvement Proposal), and before those are authored, discussion occurs on public mailing lists to vet ideas before formalizing them. Participating in these discussions as well as contributing with code are many well-known cryptographers and developers like Adam Back, Pieter Wuille and Gregory Maxwell. Adam Back's work is referenced in the Bitcoin whitepaper and the Tor whitepaper. Other Bitcoin developers have many impressive resumes as well.

The Bitcoin Core GitHub repository has hundreds of contributors; most are minor ones but a testimony to the fact that development remains open to anyone that qualify. This vast redundancy is a technological strength, where the project does not stand or fall with a few developers. It is also a good property with regards to code review, where chances are that any newly introduced bug can be caught early because of the large number of people able to review the code.

Lightning is a second-layer payment protocol on top of the Bitcoin blockchain- It is actively being developed by multiple teams and is already deployed on mainnet. This protocol enables instant transactions through payment channels that are not dependent on third party fund custody. It has a good chance to greatly scale the Bitcoin blockchain, increasing transactions per second as well as decreasing transaction fees during high economic activity on the chain. BD Ratings has seen no convincing argument on how Lightning will fail to scale Bitcoin. Most of it resembles the fear rhetoric surrounding SegWit before it was adopted, and non of those fears materialized.

Grade: 9/10

Reasons: Many good developers. Very few bugs historically in the Bitcoin Core reference client. Rigorous code review and tests before implementation. Security emphasized in project culture.


The launch of Bitcoin was fair, with permissionless participation in the mining process. Obviously most people had never heard of Bitcoin in 2009 and could by definition not participate in the mining, but that itself does not infringe on the fairness of it all; anyone could sign up for the mailing list where Satoshi announced the first version of the client. Bitcoin has no Founders Reward to some foundation or company or group of developers. No ICO was ever conducted to collect funds for development. When following Bitcoin developers on Reddit, Twitter etc. it is clear that they are extremely focused on the decentralization property of Bitcoin, maybe more so than any other property. This is important as without decentralization, the other three properties of money arguably does not really matter much in the long run as some authority then has the power to disrupt in a bad way.

The Dying Galatian - A statue celebrating the Hellenic victory over Celtic invaders in modern day Turkey. The downfall arguably started after the mass slaughter of the temporarily unarmed Galatian aristocracy during a banquet in Pergamon. Lesson: decentralization is anti-fragility. 

The mailing list and BIP process seems robust and strikes a balance between enough structure to actually seek consensus around proposals, and not enough structure to mitigate the creation of a more tangible decision making vehicle that could be seized by a future leader or group.

When looking into the Bitcoin mining ecosystem there has been many who voiced the opinion that Bitcoin is extremely centralized due to almost all of the mining having occurred in China, and more specifically parts of the Chinese countryside with its abundance of cheap electricity. There is some hyperbole in that argument. First, more and more mining occurs outside of China, for example in the Quebec area. Second, even when mining was more consolidated to the Chinese mainland, that itself does not mean it is easily manipulated or vulnerable to a complete shutdown by the government. Some mining facilities may be hidden. There is also the aspect of corruption, where a ban is not enforced locally if the right people are paid off. Many things are forbidden in China, yet abundant on the market. Take for example drugs, prostitution, or the thousands of underground book publishing factories.

The NO2X movement, protesting the proposed increase of block size limit to 2 megabytes, was evidently very successful as the proposal was abandoned despite the support from a vast majority of miners and Bitcoin businesses. This proves that centralization of miners in some sense is not the extreme threat it was initially touted to be; there are ways regular Bitcoin users can dictate terms despite lacking the hashrate. Too large miners or mining pools may hold other threats though, like the ability to censor transactions or double spend. So far in its 9 year history, Bitcoin has not been disrupted in this way to BD Ratings knowledge. If one ore more mining pools managed to together gather more than 50% of the hashrate, and to subsequently also engage in censorship or double spend activities, then a huge community backlash would await them with immediate redundancy plans activating. Users and companies would be able to hard fork while changing mining algorithms to make the miner ASICs inefficient. The malign miners would be left with their own chain while most of the ecosystem migrated to the new one.

Whitby Abbey - Confiscated and disbanded by the Crown during the anti-Catholic Dissolution of the Monasteries in England. Magna Carta was still part of English political culture at this time, but as for its practical implications, there is the Pompey saying: "Stop quoting law, we carry swords".

Counter to the goal of a permissionless meritocracy with regards to the development of the Bitcoin protocol, continuous censorship seems to have occurred on multiple social interaction platforms like Reddit and It is when push comes to shove a hurtful practice conducted long before the Bitcoin Cash hard fork, meaning constructive discussions around changes in the Bitcoin protocol were effectively cut short. BD Ratings is of the opinion that consensus should be sought in an open environment of free thought and discussion. If an idea is technically bad for the Bitcoin protocol, technical experts and others could defend their position with arguments rather than have someone removing posts arguing for said changes. If rigorous testing shows that a 0.9 megabyte block size limit is optimal, or a 1.1 megabyte block size is, that must be allowed discussion instead of pretending exactly 1 megabyte is magically the only option there is.

What makes all this shameful is that censorship resistance is the fundamental idea of Bitcoin. And to deflect this critique with the argument that proponents of large changes can discuss this elsewhere is cowardly to say the least. It is exactly the same routine as seen in many authoritarian countries, time and time again. The powers at be always make sure to leave some small corner of a platform open to discussion so that they more legitimately can censor the platforms that really matters in a practical sense. If BD Ratings did not think the above described practices mattered in the sense of long term valuation of Bitcoin, it would not be included. It does matter however, both from a centralization viewpoint as this practice may leave footprints on the project culture, and also from an ecology point of view as users and companies take their financial and social activity elsewhere.

Grade: 8/10

Reasons: Fair launch, many developers, transparent and meritocratic BIP process. Blind eye to information censorship.


At time of writing, Bitcoin has a market cap of USD 160B. Comparing this to global M3 money supply that is around USD 100T, the Bitcoin valuation is negligible - not even 0.2%. BD Ratings is not arguing that hyperbitcoinization is imminent. It is however not improbable that cryptocurrencies capture some percentage points of M3 within a decade or two; the properties of sound money are continuously strengthening and will compete against national currencies where those properties are under constant mismanagement. And far more technical, safety and user experience innovation occurs within Bitcoin than within many of the national currencies out there. If nothing fundamental changes, Bitcoin should be able to continue the protocol establishment and absorb value from the huge M3 stock of money. As soon as financial institutions and central banks start buying Bitcoin, and they probably will or are doing it already, the protocol property strengthens further.

The total market cap of all gold that was ever mined is estimated to over USD 7-8000 billion. Also gold will see competition from cryptocurrencies that establish protocol-like properties globally. There is no clear obstacle for Bitcoin that hinders its ascent and its absorption of some of this huge total gold valuation.

Amber - once a large value protocol stretching over northern and eastern Europe. This protocol existed alongside those based on metals like gold and silver. Amber had no real intrinsic value; it was just beautiful as jewelry and to some extent used in folk medicine. 

There has been fears from some people that the maximum supply of Bitcoin may just be changed with the click of a mouse button. And because of this threat, the value of Bitcoin should be considerably lower. Such a disruptive action would obviously be impossible with a gold protocol as the only way of increasing supply is to dig for more gold ore. This fear however is nonsense as it would demand a herculean effort to convince the whole ecosystem of users, miners, exchanges etc. that an increased supply is something that ought to happen. Remember, Bitcoin has no central database administrator that can push that mouse button, so it is not going to happen.

What about competition from some future coin created by a huge company like Google or Amazon? This is something that is brought up some times. And the answer is simply that for such a coin to be classified a competitor to Bitcoin, it would have to be as decentralized in the first place, meaning it is actually not GoogleCoin, or AmazonCoin. Why would anyone want to own a coin controlled by these companies if they have power over its supply or general usability? If they want to create a Bitcoin competitor, they need to have a decentralized project that resembles that of Bitcoin, which makes the whole effort somewhat moot in the first place since by definition no one would be in control.

Finally, some people skeptical to Bitcoin point to the fact that you can not pay taxes with it, so therefore the value is indeed questionable. As far as BD Ratings know, no one can pay much taxes with gold either, yet it has a huge amount of total value. If someone needs to pay taxes, that person can convert Bitcoin to whatever currency the state accepts. There is no contradiction in these facts that casts doubt on the value of Bitcoin.

Grade: 8/10

Reason: Despite recent surge in value, the valuation is still low compared to that of many national currencies with far worse fundamental-, technical- and governance properties.