Pick and Speak – 4: Bitcoin

While discussing on the whole Free Software, Open Software and IBM’s acquisition of Red Hat for $34 billion, Dr. Sudhendar Hanumantharao, a professor whose knowledge reaped from corporate experience and academia combined is a treasure beyond measure, mentioned various names and concepts during a lecture. I hadn’t heard a few of those names before, so I thought I’d look them up and share snippets of information with you all, as I do in most of my “Pick and Speak” articles, so you’d be inspired, maybe, to look up more should the interest bug bite you.

Context: Free Software and Bitcoin

Key People Mentioned: Richard Stalman, Eric S. Raymond, Satoshi Nakamoto, Herbert A. Simon, Rober Schiller

Key Concepts discussed: Free-software, Cathedral and the Bazaar style of development, Concept of Bitcoin, Greater Fool Theory, Bounded Rationality, Irrational Exuberance.


Richard Stalman

A genius activist and author, who founded the Free-Software Foundation, authored EMACS (the extensible, customizable, self-documenting, real-time display editor), launched the GNU Project (GNU’s Not Unix) and wrote the GNU General Public License, among various other towering achievements. He is the Gandalf of the Free Software world, ever-so-wise, making numerous people follow in his example and leading to the creation of a new shared world. Over time, Linus Torvalds freed the Linux Kernal and it pieced perfectly with GNU, and helped change the world for the better by creating a free operating system that could run on any computer. A lot more on how Linux made an entirely new world possible is beautifully outlined in an essay by Eric S. Raymond in the Cathedral and the Bazaar (about which I have talked in the next section).

Richard also came up with the popular statement: “Libre not Gratis”, which means free software isn’t about it being “Free (Gratis)” in terms of “Price”, but about the “Freedom (Libra)” to “Use”. He describes, in one of his TEDx talks, the 4 types of Freedom.

  1. Freedom 0 – Freedom to run the program as the user wishes for any purpose
  2. Freedom 1 – Freedom to study the source code of the program and change it, so that the computer does what action the user wants it to perform
  3. Freedom 2 – Freedom to redistribute
  4. Freedom 3 – Freedom to redistribute the changes made on the source code

Eric S. Raymond’s “The Cathedral and the Bazaar”

Eric S. Raymond, in his seminal essay says, “While I don’t claim to be a great programmer, I try to imitate one. An important trait of the great ones is constructive laziness. They know that you get an “A” not for effort, but for results, and that it’s almost always easier to start from a good partial solution than from nothing at all”. Or less formally, “Given enough eyeballs, all bugs are shallow.

Eric dubs this as “Linus’s Law”. His essay talks about “Fetch Mail” and how he worked in the example of Linus Torvalds and ended up building a great software. The two styles of development talked about in the essay are as below.

  1. The conventional, closed, proprietary kind, which is compared to that of a cathedral – meticulously picked team with hierarchical structures, tight specification of objectives, systems and set processes, long interval between launches owing mainly to testing and making sure the best possible software is launched.
  2. The open, peer-peer, decentralised, market like style – The bazaar, where there are short release intervals and constant feedback who are mostly outside the project, intense peer review and so on, which enables more and more developers to participate openly and build great softwares, together

Click here to read the full essay

The Bitcoin

Bitcoins, the ground-breaking currency system created by Satoshi Nakamoto, are like the castles with gold in the Hobbit, only no one dared understand it fully. So I thought, why not I give it a go too, so here goes.

In agreement with the idea of Richard Stalman, the Bitcoin protocol and software are openly openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Bitcoin can only work correctly with a complete consensus among all users, hence all users and developers have a strong incentive to protect this consensus.

“Value” of “bitcoins” cannot be “created” out of thin air or by the whims of governments / financial authorities, which have proved disastrous in the past and have led to hyperinflation and numerous other problems. Bitcoins, unlike the Dollar or pound, isn’t a form of fiat currency that depends only on the willingness of people to use it and put their trust in it, it has an intrinsic value.

Joby Weeks, in a documentary, says that in creating gold, work is involved in mining refining, getting it in the crucibles, polishing and so on, which generates a scarcity value and gives it an intrinsic value. Similarly in Bitcoin, work is involved in hashing, solving math problems, electricity and so on. In addition, the former Vice President of J. P. Morgan, Tone Vays, says that Bitcoin has multiple levels of Intrinsic value – like being unconfiscateable, free in the sense that no one can stop anyone from sending it to anyone, and it depending on the productive capacity of the brightest developers who choose to work on an open source protocol. The decentralised structure coupled with the advantages of Blockchain, makes it impossible for any transaction to fail, get hacked into or shut down. The peer-peer network without any third party governing it makes it more reliable and put the control with the user.

Thus, we can draw parallels with the idea of Eric’s Bazaar, where, freely and without any restrictions, a group of peers work on crafting something great for all. As of now, the only regulators for Bitcoin are Mathematics and Cryptography, and the boom of Bitcoin can be attributed to the level of trust made possible by Blockchain. Divisible into a hundred millionth (called a Satoshi), the bitcoin blockchain enables distributed consensus and builds trust in the system so that any transaction of any type can happen without a central authority regulating and monitoring it, making the it universal and scalable.

Also refer: An Open Source History: from Linux to Bitcoin BlockchainFirst look at the Bitcoin Source CodeBitcoin FAQ

However still, many such “coins” are coming into circulation, each one delving more into technicalities that cross between the finance sector and technology, both of which are tricky and hard to assimilate at once, making it a speculative asset class, leading thus to the next topic of interest.

Herbert A. Simon

A Nobel Prize and Turing Prize Awardee, known best for his work on “Bounded Rationality” (I have written briefly about this in Pick-and-Speak-1, Click here to go through it in case you haven’t yet or want to jog your memory).

In short, even consciously and with all information available, we might not make the best decision. It might be because of shortage of time, which leads us to safely say that too much information will cripple the decision making ability. On the other hand, less information too is bad for making decisions. So, how much if just about enough? I think only those who can decisively tell the ending of Inception can get an answer to that (I’m hoping none).

At this stage, with regards to our topic of discussion anyway, some of us have too less information and some have too much, the former either has skeptics or over-enthusiasts, and the latter has dreamers or again, over-enthusiasts, and then there are those who exploit the best (or worst) of both and profit from the Greater Fool, which leads us to the next concept.

Greater Fool Theory

The greater fool theory states that it is possible to make money by buying securities, whether or not they are overvalued, by selling them for a profit to a Greater Fool, a Fool who is willing to pay a higher price, at a later date. Many practise this and in has past, it has manifested in dire consequences such as the 2008 Financial Crisis.

Similarly, Bitcoin and the whole cryptocurrency, which even though is backed by computing and developing making it possess an intrinsic value, people still have to believe in it, making it both (in my opinion) an intrinsic and fiat currency. With no-one to regulate and the lack of accurate knowledge to many, the number of options and investments in variants of cryptocurrency might increase, and this can go terribly wrong, and if Murphy’s Law has to be believed, it will go terribly wrong.

Robert Schiller – Irrational Exuberance

Irrational exuberance refers to an investor’s enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals. Irrational exuberance is believed to be a problem because it gives rise to a bubble in asset prices, and when the bubble bursts, investors engage in panic selling. The panic can also then spread to other asset classes, and can even cause a recession.

Hence, Cryptobubble, a “speculative” asset-class, can cause a recession, and again, Murphy says, it will cause a recession.


However, with the world moving more towards digital payments and slowing weaning from cash usage, with apps like Tala, m-pesa, Paytm, Google Pay and so on taking massive people in developing countries online, the next step might not be as difficult as the first step.

I do not know why, but I am reminded of three lines from George Orwell’s seminal novel – 1984, which goes.

War is peace.

Freedom is slavery.

Ignorance is strength.

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