Principles of Bitcoin: Technology, Economics, Politics and Philosophy. 2025. Vijay Selvam. Columbia University Press.
Decentralized finance continues to evolve. The relative novelty of a digital asset and medium of exchange – bitcoin is only sixteen years old, after all – seems like an endless source of fascination for all levels of society. The mystery and fascination of the digital currency is likely to increase given the increased attention paid to it by the current US presidential administration, whose tendency toward less regulation would warrant and even require a more nuanced understanding of its multifaceted nature. Bitcoin sits on the axis of technology, economics, politics and philosophy. Governments, policymakers, economists, IT professionals and risk officials will all welcome the author’s rigorous analysis and clear explanations. CFA® charterholders and those aspiring to become so will find the treatment of the subject a little different from the more conventional valuation processes employed in public and private markets. On the other hand, bitcoin is anything but conventional.
Vijay Selvam is a skeptic by nature, a trait the author attributes to his field. Vijay Selvam was trained in more traditional asset valuation concepts that Bitcoin does not lend itself to. Yet he brought a deep understanding of complexity to his work with structured real estate products and derivatives, whose performance was the direct cause of the Great Recession. His involvement in 2008 in setting up a bailout plan for a Wall Street bank, in the midst of the debacle, made him cynical. Bitcoin first emerged soon after as an alternative to the wreck of centralized finance that has recently hit economies around the world.
The author’s self-awareness of a cognitive bias against bitcoin and against conventional finance led him to realize that a basic reference work on the subject was lacking. Principles of Bitcoin offers a multi-faceted evaluation of bitcoin in an attempt to put its reputation and notoriety into a thoughtful context. Understanding Bitcoin means understanding the rise of money through the interrelationships between economics, politics, technology and philosophy. It is as much about unlearning the traditional concepts of asset valuation as it is about adapting one’s approach to understanding this new one.
Bitcoin’s inventor, Satoshi Nakamoto, was concerned about the best way to describe Bitcoin. Breaking through its abstruse nature requires the use of first-principles thinking, a disassembly of the subject into its fundamental components, and a development and advancement of one’s understanding of concepts. This holistic approach is central to the book and helps shed light on the true purpose and workings of bitcoin.
The technical discussion spans five chapters and can sometimes seem complex, although the author tries to make it accessible through numerous references to philosophy, technology and literature. One can think of Bitcoin as a scarce digital asset that is in some ways similar to gold, whose path-dependent nature and inextricable link to the Internet make it a robust asset. Bitcoin’s technology uses cryptography, distributed systems, and economic motivations to produce a digital asset that is robust against the risk of double-spending and transparent on a public ledger. Proof of Work (PoW) provides a form of decentralized agreement. Bitcoin technology endows it with several characteristics of scarcity, divisibility, portability, verifiability, durability, resistance to censorship, and non-confiscatability. Its pioneer status and recognisability, in the wake of the global financial crisis, provide the country with an advantage that will be difficult to replicate, let alone defeat.
Against the backdrop of monetary history, which has seen (hyper)inflation and currency depreciation, and given the fact that some governments are betting money against their citizens, Bitcoin seems like a safe haven. It is pseudonymous and knows no boundaries. In many cases it can escape the risk of confiscation. It has the potential to serve millions of unbanked people in remote corners of the world where conventional financial services do not reach. Bitcoin’s decentralized architecture makes any attempt by governments to ban it difficult, if not impossible. Its transnational and apolitical features also seem to answer the issue that former French President Valéry Giscard d’Estaing called the exorbitant privilege, or transactional hegemony, of the US dollar over other currencies. The author advocates bitcoin as a global reserve.
As a newcomer to the financial landscape, Bitcoin has suffered and will continue to suffer from malevolent perception and skepticism, undoubtedly a time-honored ritual in the history of the financial world. Just because cash and gold have been used in criminal activity does not mean they are inherently flawed as instruments of value. Likewise, several well-publicized incidents where Bitcoin has been used for nefarious purposes need not tarnish its reputation. Financial institutions are even involved in money laundering to a greater extent than the digital currency.
A separate and interesting topic is the interaction of bitcoin with the environment. Here, the author attempts to dispel misconceptions about the environmental unfriendliness of bitcoin, arguing that its production can contribute to a more efficient transition to sustainable energy sources. He gives numerous examples of countries using bitcoin to pursue energy-friendly solutions.
Principles of Bitcoin is reporting and editorial at the same time. The writing is clear, the references rich. While it proves a bias in favor of bitcoin, Selvam’s compendium informs and educates. Readers would do well to approach the subject with intellectual curiosity and patience. Although the topic has been covered extensively from many perspectives, these are still early days. You don’t know what you don’t know. With this work, Vijay Selvam tries to bridge that gap.
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