Written by Moruf Lawal
As bitcoin enters the next phase of the adoption S-Curve, what is your take on bitcoin as store of value (SOV) and as a currency? What are the potential implication of staying out of the crypto-currency adoption race, and how exposed does this leave you at the mercy of totalitarian states and increasing power of the giant conglomerates?
Bitcoin is a digital currency created by Satoshi Nakamoto back in 2008, bitcoin is a purely peer-to-peer cash technology that allow digital money to be electronically sent from one person to another without a trusted 3rd party like bank or financial institution in between, bitcoin therefore is emerging as a form of money.
Money is said to be any item of verifiable record that is generally accepted in exchange for goods and services, it’s a unit of accounting that can also be used for debt repayment in socio-economic context and in countries of the world. Money has evolved significantly based on historical analysis, money existed in recent past as commodity money backed by commodities such as Gold i.e. Gold Standard until governments around the world created a new money system known as fiat money i.e any cheque, note, coin which technically has no value of itself but derives value from being declared a legal tender by the government, and must be accepted as medium of settlement within the boundaries of the country.
Money is one of the most important instruments ever created in human history, as it allowed us to transfer value from one to another, money is what most of the world works for, money is the reason most of humanity leaves home in the morning and returns at night, money can be said to be what provides us human the confidence of financial & economic freedom, what makes us feel fulfilled after a day/month/year of work, because we expect money in return of effort, we believe that money would give the economic freedom we have so sought in our life. Money is what make countries of the world to project strength and lack of it is what makes other countries appear weak and unable, therefore money is sure a very critical part of us, individual, cooperate and nation.
Money has two main functions known to everyone in the world, means of exchange and store of value, but there is a third function of money that even though its known to us all, it’s not very obvious until used against us.
While all of the above is going on, a lot of things have changed about money that most of us have failed to notice. We make money and we get paid into a bank account, a mobile money wallet, or given a paper cheque to be cashed, etc. We go to store and we pay using a payment card/ payment App and other medium recognized by our financial instiutions, there is always one big company in-between us and our money, the money we truly and innocently think we own, this big company is called trusted 3rd party, we trust that our money is with the banks in our account, we trust that our money is with the payment card provider, we trust that the government will payback our investment in government bonds or T-Bill, these trusted 3rd parties have become so big that they now determine how, when and where we spend our money, they can actually decide if we are able to spend our money or not, they can actually decline us access to our money due to their internal policies or government policies. Trusted 3rd parties have been known to collude with the government and individuals to deny people access to their money due to one reason or another solely determined by them. They control what we do with our money and indirectly they control us, because if we don’t yield they destroy our economic and financial freedom, which in-turn destroy our life ambitions and ability to take care of our need. Money in turn has become a tool of control and oppression, by these trusted 3rd parties.
Governments around the world have been known to deny ordinary people access to their money as in the case of Zimbabwe and Venezuela in 2017 where government used money as a force of oppression, or arbitrarily withdraw the legal backing that turned paper and coin into money as in the case of India in 2016.
There has been cases of very strong corporation and governments freezing people’s account due to political and social reason all over the world, the bank bail-in in Cyprus is another example, where bank creditors lost a portion of their account balance to rescue the banks. There is an increasing number of cases all around the world, but most times it always looks remote until it happens close to home or happens to you, ask the people of Zimbabwe, Venezuela, or Argentina, luckily people in these countries had bitcoin as a fall back plan, it saved many lives.
Bitcoin is the first successful digital currency designed with trust in cryptography over central authorities. The properties of Bitcoin vary but have core focus areas such as being permission-less, immutable, censorship resistant, decentralized, scarce, and open source. These properties make Bitcoin ideal money and beneficial to people worldwide.
The most important feature of bitcoin addresses the major concern raised above, it is permission-less and requires no trusted third party. Trust in bitcoin is in the form of cryptography , this is method of communicating securely in an insecure environment, the message you are sending is converted into cipher mode that can only de-ciphered by another party with the right secret key for unlocking it. The lack of trusted 3rd party means that the original value provided by the banks and some of the other centralized agencies is not required in bitcoin. The system is designed such that nobody has to trust anyone else for the system to work.
In the traditional money system (fiat system), the trusted 3rd parties like banks not only provide customers the ability to spend your money by issuing cheque and card, and helping to provide clearing functionalities, they also provide safe storage functionalities in the form of IOU for every cent stored with them (the IOU can be in the form of account statements).
Question that come to mind is that without the banks or centralized agencies, how do I store my money and process payments?
Bitcoin is one of the most important inventions in all of human history.
For the first time ever, anyone can send or receive any amount of money with anyone else, anywhere on the planet, conveniently and without restriction. It’s the dawn of a better, freer world.
— Roger Ver, CEO Bitcoin.com
Bitcoin uses a powerful underlining technology called blockchain technology, blockchain is what provides bitcoin with the powerful characteristic called immutability. Blockchain can simply be seen as a decentralized public ledger of financial accounting, that when combined with the powerful cryptography of bitcoin gives it the immutability characteristics.
Financial ledger is exactly what the bank use to record every transaction, and it contains a record of transactions on a particular account number corresponding to an individual account owner in a bank, what is different is that the banks ledger is privately held on an intranet, while that of bitcoin is publicly held on the blockchain which is accessible globally over the internet.
The immutability characteristic of bitcoin means that the content of the bitcoin ledger is irreversible, and any new transaction from the bitcoin address is only written on top of an existing entry but does not replace the earlier entry, thereby creating a history of the transaction on the address going way back to opening transaction.
The ability to spend from an account held in a bitcoin address is provided by the address owner creating and signing the transaction with a with privately held secret, called private key. Private key is akin to a signature you put on a leaf of cheque to be withdrawn from a financial institution (even though in the case of banks, it doesn’t guarantee you the final access to your fund, as the bank’s internal discretion can determine if you are allowed access to your fund or not due to other unknown policies), only that in this case it’s the final authority, whoever produces the private key owns the transaction balance attached to the bitcoin address.
Bitcoin works with the combination of Public and Private keys, a bitcoin public key can be converted to a bitcoin address through a mathematical process called hashing, also a bitcoin private key can be converted into multiple public key, but a public key or bitcoin address cannot be converted to private key.
For every bitcoin address opened, a private key is generated in Hexa-decimal which is unique to the account and can only be used to authorize transactions on that account only, also a set of public keys are generated by hashing the private key, the public keys are also in Hex, all public keys from this account are tied to this single private key, and can only be used in combination to authorize a transaction. Together they identity and provide 100% control of account to whoever is in their custody.
Due to lack of 3rd party trusted entities, whatever fund (unspent transaction output) you own in bitcoin address is 100% yours and determination on how you spend it is also 100% within your control as long as you are in control of your private key.
This new found financial freedom and prospect of being really free to control what you own is what is driving bitcoin adoption, and the increased adoption is what is driving the price just as in the case of demand and supply. The global political situation, is currently enabling a faster adoption of Bitcoin due to the emergence of totalitarian governments and increased state control, people are starting to realize the current system of fiat money is fraudulent.
With most of technology growth, when adoption reaches the critical mass stage it follows the S-curve pattern of exponential growth, just like the earlier technologies (Radio, Cellphone, color TV, Internet, VCR etc) have shown in the past, the year 2018 is projected to be the inflection point in the case of bitcoin, where the fiat money as we know it starts to give way, and we see the emergency of new money system called cryptocurrency, with bitcoin being the center of the universe, first as a store of value and next as a medium of exchange.
The big question is, ‘do you want to be left out’?
