Bitcoin and the US dollar: Who is the real support of value?

First, the value of Bitcoin is supported by its scarcity and blockchain technology. The total amount of Bitcoin is limited to 21 million, and this scarcity makes it have a "value storage" function similar to gold to a certain extent. As economists point out, supply and demand are important factors in determining prices. As a digital asset, Bitcoin's limited supply means that its price tends to rise rapidly when demand increases. In addition, the decentralized nature of Bitcoin means that there is no central agency that can control its issuance and trading, which attracts many users who seek financial freedom and privacy protection. For example, when some countries are experiencing economic crises, many people choose to protect their wealth through Bitcoin, which also increases the value of Bitcoin to a certain extent.

However, as the world's most important legal currency, the value of the US dollar comes from the strong economic foundation of the United States and the credit endorsement of the government. The US dollar is not only the main medium of domestic transactions in the United States, but also a currency widely used in international trade. According to data from the International Monetary Fund (IMF), the US dollar accounts for more than 60% of global foreign exchange reserves. This means that governments and financial institutions generally trust the value of the US dollar and are willing to use it as a reserve asset. In addition, the United States' economic strength, political stability, and strong financial markets provide a solid value foundation for the US dollar. For example, many countries usually denominate commodities in US dollars, which further consolidates the international status of the US dollar.

Between the value support of Bitcoin and the U.S. dollar, investors' psychological expectations play a vital role. Bitcoin's price volatility is extremely high, and investors' sentiment often directly affects its market performance. In some cases, investors' optimistic expectations for Bitcoin will lead to a rapid increase in its price, and vice versa. For example, in 2020, the price of Bitcoin soared from a few thousand dollars to nearly 20,000 dollars in just a few months, attracting a large number of investors. However, this price volatility also makes Bitcoin still a high-risk investment tool in the eyes of many traditional financial institutions.

In contrast, the value of the U.S. dollar is relatively stable, although it is also affected by multiple factors such as economic data and political events. Investors generally regard the U.S. dollar as a safe-haven asset. When the market is turbulent or uncertainty increases, many people choose to turn their funds to the U.S. dollar, which further strengthens its value support. Therefore, when market sentiment is high, Bitcoin may attract more investment, but when the market is panic, the U.S. dollar tends to become a "safe haven" for investors.

At the technical level, the difference between Bitcoin and the US dollar is also obvious. Bitcoin transactions are realized through blockchain technology, which is transparent and secure, but also faces problems such as network congestion and slow transaction speed. In contrast, US dollar transactions rely on the traditional banking system, which is more efficient in some cases, but is also affected by regulation and policy due to its centralized characteristics. For example, in recent years, the US regulatory policy on cryptocurrencies has been tightened, which makes many investors uncertain about the future of Bitcoin.

In terms of future development trends, Bitcoin and the US dollar each face different challenges and opportunities. As an emerging digital asset, Bitcoin is likely to play a more important role in the future financial system. With the advancement of technology and the acceptance of more companies, more and more people may choose to use Bitcoin for transactions and investments. However, how to ensure the security and stability of Bitcoin will be the key to its future development.

On the other hand, as the world's main reserve currency, the status of the US dollar is unlikely to be replaced in a short period of time. Although central banks in other countries have begun to explore the possibility of digital currencies, there are still many challenges to overcome in order to challenge the status of the US dollar on a global scale. Especially in international trade, the widespread use of the US dollar is unmatched by other currencies. Therefore, the value support of the US dollar will remain strong in the foreseeable future.

It is worth noting that the relationship between Bitcoin and the US dollar is not a simple opposition, but an intertwined one. With the development of blockchain technology and the advancement of financial technology, there may be more integration between digital currencies and legal currencies in the future. For example, the launch of CBDC (central bank digital currency) may bring new opportunities to the traditional financial system, while also having a certain impact on decentralized digital currencies such as Bitcoin.

In summary, the relationship between Bitcoin and the U.S. dollar is complex and profound, and the value support of each of them has its own unique source. In today's ever-changing financial era, investors need to rationally view the value of these two currencies based on their own risk tolerance and investment goals. Regardless of how Bitcoin develops in the future, the status of the U.S. dollar as the cornerstone of the global financial system cannot be underestimated. In this process, maintaining an open mind and the ability to continue learning will be an indispensable quality for every investor in the face of complex markets.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

Contrary to popular belief, Bitcoin actually has some kind of value backing it. Like any form of money, that backing is the only backing it has: the credibility of its monetary properties. Money is not a collective hallucination or a belief system. Throughout history, various media have appeared as money, and each time it has not been accidental.
Commodities in the form of money have unique properties that distinguish them from other market commodities. Monetary commodities offer unique properties that make them suitable as a medium of exchange, including scarcity, durability, divisibility, fungibility, and portability.
The Bitcoin Standard book provides a more comprehensive discussion of this.
With each new currency that emerges, the intrinsic properties of one medium are improved, and the monetary properties inherent in another pre-existing form of money gradually disappear. For every commodity that is monetized, another commodity is "de-monetized." Essentially, the relative advantages of one monetary medium outweigh those of another. This is also true of Bitcoin, which represents a technological advancement in the global currency competition. Bitcoin is the superior successor to gold and the fiat monetary system that exploits the monetary properties of gold. Bitcoin is the love child of gold and fiat money.
Bitcoin is outperforming the predecessors it initially imitated by virtue of its own monetary properties. Bitcoin is limited in quantity, scarce, and easier to divide and transfer than other competitors. It is also more decentralized and therefore more resistant to censorship or corruption. There will only ever be 21 million Bitcoins, each of which is divisible to eight decimal places, and you can transfer value to anyone, anywhere in the world without permission, and the final settlement does not rely on any third party.
Overall, Bitcoin's monetary properties are vastly superior to any other form of money in use today. Moreover, these properties do not exist by chance or in a vacuum. A combination of cryptographic techniques ensures and reinforces Bitcoin's emerging monetary properties, a decentralized network of nodes (enforcing a common set of consensus rules) and a strong mining network, which ensures the integrity and immutability of the Bitcoin transaction ledger. The currency itself is the cornerstone that binds the system together, creating the economic incentives that make Bitcoin work as a whole. But even so, Bitcoin's monetary properties are not absolutely immutable. Instead, these properties are evaluated by the market by comparing them to the properties of other monetary systems.
Coinbase Pro: Bitcoin to U.S. dollar exchange rate for the past six months (as of September 27, 2019).
If you think about it, for every dollar of Bitcoin sold, there are two more dollars and two more Bitcoins in the world. This represents the relative preference for holding one currency over another. As the value of Bitcoin increases, it indicates that market participants are increasingly preferring to hold Bitcoin over dollars. A higher Bitcoin price (in dollars) means that more dollars must be sold to obtain the same amount of Bitcoin. Overall, it is the market's assessment of the relative strength of the properties of money. Price is the output, and the properties of money are the input.
When people evaluate Bitcoin’s monetary properties, the question naturally becomes: Which currency has more reliable monetary properties? Bitcoin or the U.S. dollar? What supports the price of the dollar (or the euro or the yen, etc.) in the first place?
When trying to answer this question, one of the most common rebuttals is that the value of the dollar is backed by the government, the military (people with guns), or taxes. However, the dollar is not backed by any of these three things, not the government, not the military, and not taxes. The government only taxes things that are valuable, and similarly, the military can only protect things that are valuable, not the other way around. The government cannot determine the value of money, it can only determine the supply of money.
Venezuela, Argentina, and Turkey all have governments, militaries, and the power to tax, but their currencies have failed over the past five years. Perhaps this isn’t enough of a counterfactual, but many of these examples run counter to the idea that money can be backed by government.
Every episode of hyperinflation should be proof of the inherent flaws of the fiat currency system. Unfortunately, this is not the case. Many people still simplistically believe that hyperinflation is just evidence of poor monetary management, but neglect to understand hyperinflation as the fundamental problem of all fiat currency systems. This simplistic view ignores first principles and the economic dynamics of the devaluation of fiat currency.
While the U.S. dollar is structurally more resilient and has become the global reserve currency, all fiat currencies are essentially functionally the same, the dollar is simply the strongest of the weaker currencies. Once we better understand the mechanisms that support the dollar (and all fiat currencies), we can get a baseline to better assess the mechanisms that support the value of Bitcoin.
Why is the dollar valuable?
The value of the dollar did not emerge on the free market. Instead, it emerged as a fractional representation of gold (and originally silver). In essence, the dollar was a solution to the natural limitations of gold’s convertibility and transferability. Its creation depended on the monetary properties of gold, not on the properties inherent in the dollar itself. Initially, the dollar was also a system based on trust: people accepted dollars and trusted that they would be converted back into gold for a fixed amount in the future. The limitations of gold and its ultimate failure as a currency gave rise to the dollar system as it is today, and without gold, the dollar’s current structure could never have existed.
Here’s a quick review of the history of the U.S. dollar and gold:
Over the course of the 20th century, the dollar transitioned from a reserve-backed currency to a debt-backed currency. While most people have never stopped to wonder why the dollar has value in the post-golden era, the most common explanations remain that the dollar is some kind of collective hallucination (i.e., the dollar has value only because we all believe it has value) or that it is a function of government, the military, and taxation that gives the dollar value.
Neither of these explanations has a basis in first principles, nor is it the fundamental reason why the dollar maintains its value. Rather, the dollar maintains its value today because of its function as debt and the relative scarcity of dollars as a means of repaying “dollar-denominated debt.” In the dollar world, everything is an extension of the credit system. GDP depends on the size and growth of the credit system, and taxes are a derivative of GDP. The mechanisms for funding governments (taxes and deficit spending) all depend on the credit system, which is what enables the dollar to function in its current structure.
The credit system is many times the size of GDP. Because the credit system is also orders of magnitude larger than the base money supply, economic activity is largely coordinated by the allocation and extension of credit. Yet over the past thirty years, the growth of the credit system has far outstripped the growth of GDP. The following table shows the rate of change in the credit system compared to the rate of change in GDP and federal tax revenues (since 1987). In the Fed's system, credit expansion drives GDP, which ultimately determines the level of federal tax revenues.
According to the Federal Reserve (z.1 report), today, there is $73 trillion of debt (fixed maturity/fixed liabilities) in the U.S. credit system, but only $1.6 trillion is actually in the banking system. This is how the Fed manages the stability of the dollar price. Debt creates future demand for dollars. In the Fed's system, every dollar is leveraged at about 1:40. If you borrow dollars today, you need to have dollars in the future to repay that debt. Currently, every dollar in the banking system is owed more than 40 times. The relationship between the size of the credit system and the amount of dollars makes the price of the dollar relatively scarce and stable. In general, everyone needs dollars to repay dollar-denominated credit.
The amount of dollars owed throughout the system far exceeds the amount of dollars in existence, creating an environment where demand for dollars is very high throughout the system. If consumers do not pay their debts, their homes will be foreclosed on or their cars will be repossessed. If a company does not pay its debts, its assets will be seized from its creditors through bankruptcy proceedings, and equity may be wiped out. If the government does not pay its debts, basic government functions will be shut down due to lack of funds.
In most cases, not getting the dollars necessary to pay off debt (aka "future dollars") often means going broke. Debt creates demand for dollars. As long as dollars are scarce relative to outstanding debt, the price of the dollar will remain relatively stable. This is how the Fed economy works. In a sense, it's a bit like a drug dealer. Get an addict hooked on your drug and he'll keep coming back for more. In this case, the drug is debt, which forces everyone to keep running like a hamster on the dollar wheel.
The problem with the Fed economy (and the dollar) is that it relies on a highly leveraged credit system to operate. To stay afloat, the Fed has to increase the amount of base dollars. This is why QE exists. To maintain the amount of debt in the system, the Fed has to systematically increase the supply of actual dollars, or the credit system will collapse. Increasing the amount of base dollars has the immediate effect of deleveraging the credit system, but it also has the long-term effect of inducing more credit. This also gradually devalues the dollar over time. This is all by design. Credit is ultimately what supports the dollar, because credit actually represents a claim on real estate, and therefore on people's livelihoods. Either pay your debt with future dollars or lose your house, which is simply the most effective incentive mechanism to "work for the dollar."
The relationship between the dollar and credit keeps the Fed’s game going, and central bankers think it will go on forever: create more dollars; add debt; too much debt? create more dollars – and so on. Eventually, money becomes a floodgate in the Fed’s (or any central bank’s) system. Because there is $73 trillion of debt in the U.S. banking system and only $1.6 trillion of dollars, more dollars must be added to the system to support the debt. The scarcity of dollars relative to the demand for dollar debt determines the value of the dollar. That’s it. There is nothing else that supports the value of the dollar. While the activity of the credit system creates the relative scarcity of dollars, it also makes the dollar less and less scarce in absolute terms.
Too much debt → create more dollars → more debt → too much debt
As with any monetary asset, scarcity is the monetary property that underpins the dollar, but dollars are only scarce relative to the amount of dollar-denominated debt in existence. Now, the dollar faces competition from a real rival: Bitcoin.
The dollar system, and the inherent monetary properties it lacks, stands in stark contrast to Bitcoin’s monetary properties. The dollar’s scarcity is relative; Bitcoin’s scarcity is absolute. The dollar system is built on trust; Bitcoin is not. The dollar’s supply is controlled by the central bank, while Bitcoin’s supply is controlled by the consensus of market participants. The dollar’s supply will always be at odds with the scale of the credit system, while Bitcoin’s supply is completely disconnected from credit. Moreover, the cost of creating a dollar is almost zero, while the cost of creating a Bitcoin is tangible and increasing. Ultimately, Bitcoin’s monetary properties emerge and are increasingly difficult to manipulate, while the dollar can inherently be manipulated.
Money and Digital Scarcity
The hardest psychological barrier to overcome when evaluating Bitcoin as a “currency” is often “digital.” Bitcoin is not tangible and not intuitive on the surface. How can something that is completely digital be worth money? Even though the U.S. dollar is mostly digital, it is still more tangible than Bitcoin in most people’s minds. With the dollar, there is a physical representation that anchors our mental model in the tangible real world. Bitcoin cannot do that. While Bitcoin has more reliable monetary properties, the dollar has always been money (for most of us), so its digital form seems to be a more intuitive extension from the physical world to the digital world. But in fact, the basis of the dollar as a currency is fixed in time, and its digital nature seems more obvious. On the other hand, Bitcoin represents limited scarcity, while the supply of the dollar is unlimited.
Remember, the dollar has no inherent monetary properties. It has used the monetary properties of gold to elevate itself to global reserve currency status, but the dollar itself has no unique properties that make it a stable form of money, other than its scarcity relative to debt due to its association with credit.
The first major question to consider when evaluating Bitcoin is whether the digital currency shares the properties that make gold a quintessential store of value (and form of money). Did gold emerge as money because it is physical, or because it has extraordinary properties that transcend physics? Of all the natural substances in the world, why gold? Gold is money not because it is tangible, but because its properties are unique. Most importantly, gold is scarce, fungible, and highly durable. While gold has many properties that make it superior to any currency that came before it, its fatal flaws are that it is difficult to transport and prone to centralization, which ultimately led to the rise of the U.S. dollar as a counterparty.
“Let’s do a thought experiment: Imagine there is a base metal that is as rare as gold, but has these properties:
The color is boring gray
Not a good conductor of electricity
Not particularly strong, but not ductile or plastic either
No practical or decorative function
But there is one magical property: it can be spread through communication channels
— Satoshi Nakamoto (August 27, 2010)
Bitcoin has the monetary properties that make gold a monetary medium, but it also improves on gold's flaws. Gold is relatively scarce, while Bitcoin is absolutely scarce, and both are very durable; gold is fungible, but difficult to measure. Bitcoin is fungible, but easy to analyze; gold is difficult to transfer and highly concentrated, while Bitcoin is easily transferable and highly decentralized.
Essentially, Bitcoin has all the desirable properties of “physical gold” and “digital dollars” rolled into one, without any of the major flaws of either. When evaluating a monetary medium, the first principle is to go back to basics. Let’s ignore the conclusion or endpoint and start asking ourselves: If Bitcoin is scarce and limited, and we ignore that it is digital — then, can such a thing be an effective measure of value and ultimately a store of value? Is scarcity a strong enough property to make Bitcoin appear as a form of money, regardless of whether the form of this scarcity is digital or not?
Although money may be an intangible concept, it has real demand and utility as long as commerce and specialization provide benefits to humanity. Money is the arbitration tool we use to determine relative value between more abundant consumer and capital goods. It is the commodity used to coordinate all other economic activities. The absolute quantity of money is less important than the property of being scarce and measurable. Scarcity is the most important property of money. If the supply of a unit of measurement changes constantly and unpredictably, it will be very difficult to measure the value of goods relative to it, which is why scarcity itself is a very valuable asset. While the value of the underlying unit of measurement may fluctuate relative to goods and services, the stability of the money supply minimizes the interference in this measurement of value.
Although digital, Bitcoin is designed to provide absolute scarcity, which is why it has the potential to be such an effective form of money (and measure of value). There will only ever be 21 million Bitcoins, and 21 million Bitcoins is a tiny number both in relative and absolute terms. The Federal Reserve easily created $100 billion last week. This is equivalent to creating a single coin worth approximately $100 billion that will exist forever.
5,000
$10 trillion worth of new money has been created by the Federal Reserve, Bank of Japan, and European Central Bank since the financial crisis, which equates to about $500,000 per Bitcoin. While the dollar, euro, yen, and Bitcoin are all digital currencies, Bitcoin is the only currency that is truly scarce and the only medium that possesses the properties of money.
However, it is not enough to simply claim that there are a finite number of Bitcoins. Nor should anyone simply accept this as a fact. It is important to understand the reasons behind this situation. Why can’t more than 21 million Bitcoins be created? Why can’t Bitcoin be copied? Why is Bitcoin secure and cannot be manipulated?
Security in the Bitcoin network consists of three key components that are woven together and reinforced by the economic incentives of the currency itself. These three key components are:
Network consensus and full nodes: implementing a common set of governance rules
Mining and Proof of Work: Verifying transaction history and anchoring bit integrity in the physical world
Private key: ensures the security of the value unit and ensures that the ownership of the asset is independent of the validator
Factors that ensure Bitcoin security: network consensus and full nodes
21 million is not just a number guaranteed by software and code. Instead, the fixed supply of 21 million Bitcoins is controlled by consensus, and all market participants have an economic incentive to enforce the rules of the Bitcoin network. While in theory the consensus of the Bitcoin network could decide to increase the supply of Bitcoins beyond 21 million, the vast majority of Bitcoin users would have to collectively agree to devalue their currency in order to do so. In practice, it is difficult for a global, decentralized network of rational economic actors and a voluntary opt-in monetary system to collectively and overwhelmingly form such a consensus, after all, these currencies are the currencies that everyone has autonomously decided to use as a store of wealth.
In Bitcoin, a full node
A full node is a computer or server that maintains a complete version of the Bitcoin blockchain. Full nodes independently aggregate a version of the blockchain based on a common set of network consensus rules. While not everyone who holds Bitcoin runs a full node, everyone can do so, and each node verifies all transactions and all blocks. By running a full node, anyone can access the Bitcoin network and broadcast transactions (or blocks) without permission. And nodes do not need to trust other nodes. Instead, each node independently verifies the complete history of Bitcoin transactions based on a common set of rules, allowing the network to reach a consensus on an accurate historical ledger on a trustless basis.
This is the mechanism by which the Bitcoin network eliminates trust in centralized third parties and strengthens the credibility of its fixed supply. All nodes keep a history of all transactions, allowing each node to determine whether any future transaction is valid. Overall, Bitcoin is the most secure computing network in the world because anyone can access it and does not need to trust anyone else. The network is decentralized and has no single point of failure. Each node represents a check and constraint on the rest of the network, and because there is no central point, the network is resistant to attacks and sabotage. Any node can fail or become corrupted, but the rest of the network will not be affected. The more nodes there are, the more decentralized Bitcoin becomes, increasing redundancy and making the network increasingly difficult to bribe or censor.
Each full node executes the consensus rules of the network, a key rule of which is the total fixed supply of the currency. Each Bitcoin block includes a predefined number of Bitcoins to be issued, and each Bitcoin transaction must originate from a previously valid block to be valid.
Every 210,000 blocks, the number of bitcoins issued in each valid block will be reduced by half until the number of bitcoins issued is reduced to zero around 2140, creating an asymptotically capped money supply schedule.
Because each node can independently validate transactions and blocks, the network collectively enforces the fixed 21 million supply rule. If any node broadcasts an invalid transaction, the rest of the network will reject it and that node will be unable to reach consensus. Essentially, any node can attempt to create additional Bitcoins, but other nodes have an incentive to maintain the previously agreed-upon total fixed supply, otherwise the currency will depreciate in the network going forward.
In addition, anyone inside or outside the network can copy Bitcoin's software to create a new version of Bitcoin, but the copied Bitcoin will be considered invalid currency by the original network node because it does not originate from a previously valid block. This is like trying to pass off your own monopoly currency as the US dollar. You can transform Bitcoin into any currency you want, but no one will accept it, and the currency will not share the monetary properties of the Bitcoin network. As long as you run a Bitcoin full node, anyone can immediately analyze whether the accepted Bitcoin is valid, and any copy of Bitcoin will be immediately identified as a counterfeit. The consensus of the nodes determines the effective state of the network in the closed-loop system.
What Makes Bitcoin Secure: Mining and Proof of Work
As part of the consensus mechanism, certain nodes (called miners) perform Bitcoin's proof-of-work function to add new Bitcoin blocks to the blockchain. This function verifies the complete history of transactions and clears pending transactions. The mining process is ultimately what keeps Bitcoin securely anchored in the physical world. In order to solve a mathematical puzzle, miners must perform trillions of cryptographic calculations, which consumes a lot of energy. Once the mathematical puzzle is solved, the node sends the correct answer to the rest of the network for verification. All nodes (including other miners) verify that a block is valid based on a common set of network consensus rules discussed earlier. If there is an invalid transaction in the block, the entire block is invalid. In addition, if the block is not built on the latest valid block, then the block is also invalid.
Assume the computing power is 90
At 1 terahash, the Bitcoin network would consume about 9 gigawatts of electricity, which equates to about $11 million per day (or about $4 billion per year) in energy, at a marginal cost of 5 cents per kilowatt-hour (rough estimate).
). On average, a block is mined every ten minutes, which means that approximately 144 blocks can be mined per day. Across the entire network, each block costs about $75,000 and the reward for each block is about $100,000 (12.5 new Bitcoins x $8,000 per Bitcoin, excluding transaction fees). The higher the cost of producing a block, the more expensive it is to attack the network. The cost of producing a block represents the tangible resources required to write a record of historical transactions into the Bitcoin ledger. As the network grows and becomes more decentralized, the economic value of compensating miners increases overall. From a game theory perspective, more competition and greater opportunity costs make collusion and bribery more difficult, and all network nodes verify the work of miners, which creates a constant check and balance.
Recall that a predefined number of Bitcoins are issued in each valid block (until the limit of 21 million is reached). The Bitcoins issued in each block, combined with network transaction fees, constitute compensation for miners performing proof of work. Miners use Bitcoins to pay for electricity costs to protect the network. If a miner packs a Bitcoin that is inconsistent with the predefined supply, the rest of the network's nodes will consider the block invalid. As part of the security function, miners must verify and enforce a fixed money supply schedule in order to receive financial compensation.
The effective reward paid to miners is halved every 210,000 blocks, with the next halving cycle occurring at block 630,000 (or approximately May 2020). In the next halving cycle, the effective reward will be reduced from 12.5 bitcoins per block to 6.25 bitcoins. After this, if any miner includes an invalid reward (more than 6.25 bitcoins), the rest of the network will reject the block and the reward will be considered invalid.
The halving is important not only because it reduces the supply of newly issued Bitcoins, but also because it proves that the economic incentives of the network are able to continue to coordinate and execute the fixed money supply schedule efficiently on a completely decentralized basis. If any miner attempts to cheat, the remaining nodes of the network will punish them to the maximum extent possible. There is no other way to coordinate this behavior except the economic incentives of the network. It is carried out on a decentralized basis without the coordination of any central authority, which enhances the security of the network.
Because mining is decentralized and all miners are constantly competing with other miners, collusion among miners is not realistic. In addition, all nodes immediately verify the work done by miners at no cost, which creates a very strong check and balance function. The cost of verification is the opposite of the cost of mining: mining blocks is expensive, but verification is easy.
Overall, this is the fundamental difference between Bitcoin and other competing monetary systems, whether it’s gold or the dollar. Paying miners compensation for securing the network and enforcing a fixed supply is exactly the mechanism Bitcoin employs. The economic incentives for the currency (the compensation incentive) are so strong, and the penalties are so severe and easy to enforce, that miners are maximally incentivized to cooperate and work efficiently. By introducing tangible costs into the mining process, by incorporating supply scheduling into the validation process (which all nodes can validate), and by separating the mining function from network ownership, the entire network reliably and permanently enforces a fixed money supply (
That is, $21 million in currency, but a new consensus can also be reached on a decentralized basis).
What Protects Bitcoin: Private Keys and Equal Rights
While miners pack, solve, and publish blocks, and nodes check and verify the work performed by miners, the private key controls access to the unit of value itself. The private key controls the use of 21 million bitcoins (of which only 18 million have technically been mined so far). In Bitcoin, there is no identity system. Bitcoin knows nothing about the outside world. The Bitcoin network verifies signatures and keys, and only this information. Only those who control the private key can create a valid Bitcoin transaction by creating a valid signature. Valid transactions are included in blocks, packed by miners and verified by each node, but only those who have the private key can produce valid transactions.
When a valid transaction is broadcast, bitcoins are paid (or transferred) to a specific bitcoin address. The address is derived from the public key, which is derived from the private key. The public key and address can be calculated using the private key, but the private key cannot be calculated from the public key or the address. You can make your public key and address public without revealing any information about your private key.
Putting bitcoins in an address is essentially the same as locking them in a safe. In order to unlock the safe and spend the bitcoins in it, a valid signature must be generated by the corresponding private key (each public key and address has a unique private key). The owner of the private key generates a unique signature without actually revealing any information about the private key itself. The rest of the network can verify that the holder of the private key has generated a valid signature without knowing the private key. The public-private key pair is the foundation of Bitcoin. Ultimately, the private key controls access to the economic value of the network.
It doesn't matter if someone owns one-tenth of a bitcoin or ten thousand bitcoins. Both are secured and validated by the same mechanism and the same rules. Everyone has equal rights. Every bitcoin (and bitcoin address) is treated equally in the Bitcoin network, regardless of economic value. If a valid signature is produced, the transaction is valid and it will be added to the blockchain (if the transaction fee is paid). If an invalid signature is produced, the network will reject it as invalid. It doesn't matter how powerful or weak any particular actor is. Bitcoin is apolitical. All it verifies is keys and signatures. Someone with more bitcoins may be able to pay a higher transaction fee to prioritize a transaction, but all transactions are validated based on the same set of consensus rules. Miners prioritize transactions based on value and profitability, nothing more. If transactions are of equal value, they are prioritized based on chronological order. Most importantly, the mining function of packaging transactions is separated from ownership. Bitcoin is not a democratic society, ownership is controlled by private keys, and every bitcoin transaction is evaluated according to the same criteria within the network. Every bitcoin must originate from a block that is consistent with the 21 million currency supply schedule.
This is why user control of private keys is so important in Bitcoin. Bitcoins are extremely scarce, and private keys are the gatekeepers to every Bitcoin transaction. Not your private key, not your Bitcoin. If a third party controls your private key (such as a bank), then it also controls your access to the Bitcoin network, in which case it would be very easy to restrict access or seize funds. While many people choose to trust bank-like entities, Bitcoin's security model is unique. Not only does each user control their own private key, but each user can also access the network and transfer funds anywhere in the world without permission.
In summary, users who control private keys disperse control of the network's economic value, thereby increasing the security of the entire network. The more distributed access to a network is, the more challenging it is to disrupt or co-opt it. Additionally, by holding private keys, it is difficult for anyone to restrict access to others or confiscate funds held by anyone. Every Bitcoin in circulation is protected by a private key; miners and nodes enforce that there are a total of 21 million Bitcoins in existence, but every valid Bitcoin will ultimately be controlled and protected by a private key.
Bitcoin’s Reflexivity
In summary, Bitcoin's supply is constrained by the network's consensus mechanism, and the proof-of-work function performed by miners anchors Bitcoin's security in the real world. As part of the security function, miners are paid in Bitcoin to produce blocks, thereby verifying transaction history and clearing invalid transactions. If a miner attempts to compensate himself with a monetary amount that is inconsistent with Bitcoin's fixed supply, the rest of the network's nodes will consider the miner's work invalid. The monetary supply is integrated into Bitcoin's security model, and real-world energy must be consumed to compensate miners. However, every node in the network can verify the work of all miners, so no one can cheat without significant risk of punishment.
Put aside any preconceived notions of what money is and imagine a monetary system with enforced scarcity and a fixed supply: anyone in the world can connect to the network without permission, and anyone can send transactions to anyone anywhere in the world; everyone can independently and easily verify the supply of money and ownership of the entire network. Imagine billions of people scattered around the world, all able to transact on a public decentralized network, and everyone can reach a consensus on network ownership without any central authority coordinating. How much value would this network have? Bitcoin is valuable because it is finite; Bitcoin is finite because it is valuable. The economic incentives and governance model of the network reinforce each other; the final cumulative effect is a decentralized trustless monetary system with a fixed money supply, a network that is global, and anyone can use it.
Bitcoin is distinct from all other digital currencies because of its inherent and emergent monetary properties. While the supply of Bitcoin remains fixed and finite, central banks are forced to expand the monetary base to maintain the traditional economic system. Bitcoin will become an increasingly attractive option as more market participants see future rounds of quantitative easing as not only a tool for central banks, but also a necessary function to maintain alternative and inferior options. Before Bitcoin, everyone was forced to join the system by default. Now that Bitcoin exists, there is another viable option. Every time the Fed maintains the credit system with more quantitative easing, more and more people will find that Bitcoin's monetary properties are vastly superior to the traditional system, whether it is the dollar, the euro, or the yen. A is better than B? Ultimately it's a race. In the global currency competition, Bitcoin has inherent monetary properties that the fiat currency system lacks. Ultimately, Bitcoin will be backed by something that all other currencies only have: the credibility of its monetary properties.

In today's rapidly changing financial environment, the relationship between Bitcoin and the US dollar, two very different forms of currency, has gradually become a hot topic. Bitcoin, as a decentralized digital currency, is challenging the authority of the traditional financial system, while the US dollar, as the world's most important legal currency, still occupies a pivotal position in international trade and reserves. So, who is the real value support? In this article, we will explore the relationship between Bitcoin and the US dollar in depth, analyzing their respective value foundations and future development trends from multiple dimensions.