Bitcoin Protocol Mechanics for Economists: A Compact Reference

Abstract

Economists increasingly engage with Bitcoin's macroeconomic and financial implications, yet many debates implicitly assume protocol properties that are rarely stated with mechanical precision. This paper offers a concise technical primer on Bitcoin protocol mechanics, aimed at providing the minimal foundations for interpreting claims about decentralization, immutability, and a credible issuance cap without trusted intermediaries. We explain how transactions encode ownership and transfer via public-key cryptography and digital signatures, why the blockchain functions as an append-only, replicated ledger, and how full nodes, wallets, and miners jointly enforce validity and compliance with the rules. We then describe Proof-of-Work as a coordination and security mechanism, clarifying how confirmations deliver probabilistic finality and why rewriting settled history is computationally prohibitive. The paper also outlines Bitcoin's deterministic issuance schedule via the coinbase reward and halving rule, and briefly situates fee revenue and second-layer protocols as the long-run basis for payments and security as block subsidies decline. Three appendices provide a didactic treatment of transactions, a compact summary of cryptography, and an overview of the mining workflow.