What is Bitcoin?

Crypto Authority
May 29 · 17 min read

If you happen to enjoy this 17-minute read, please share it with your family and friends who ask “what’s up with Bitcoin?” for that is why I wrote it.

I’ll begin by quoting the person(s) who created Bitcoin, Satoshi Nakamoto.

“Sorry to be a wet blanket. Writing this thing for general audiences is bloody hard. There’s nothing to relate it to.”

Fortunately, I’m often asked what Bitcoin is. Actually no, I’m often asked if Bitcoin is still a thing. Instead of struggling to repeat myself multiple times over trying to explain this multifaceted act of remarkable genius in the clearest way possible, I wanted to create a document that could answer the question ‘What is Bitcoin?’ After reading the last lines of this piece, hopefully, you’ll understand what Bitcoin (BTC) is better than you did prior to reading. But what I cannot do and refuse to do is tell you whether you should invest in the asset. An investment is entirely subjective. I believe Bitcoin has a future because of what I’ve experienced, read and heard throughout the entirety of my fortunate eclectic life. My vision of the future may be wrong, but it is my judgment and despite us swiftly transitioning into a dystopian Orwellian society where human rights are being increasingly abused and ignored, no one can take that from me (a nod to why we need Bitcoin). I hope you enjoy the read, I certainly enjoyed writing it for you.

I think it is imperative to open by clarifying that BTC is neither a ‘get-rich-quick’ instrument nor a currency designed to enable the purchase of marijuana via the dark web. Ironically, the latter couldn’t be further from the truth. One of the fundamental components that lay the foundations of the Bitcoin network is the timechain, which is more often referred to as the ‘blockchain’ (please refrain from adopting this marketing term promoted by profit-focused ICOs). The Bitcoin timechain is a transparent database that records the entire history of every BTC transaction ever made; subsequently making BTC transactions traceable (not something you want when purchasing illegal narcotics). That is why you cannot cheat, hack or deceive the Bitcoin network. Thousands of people have copies of the Bitcoin ledger history and if someone tries to adjust something, all of these people will be alarmed and the infiltrators’ attempt will be rejected, meaning Bitcoin is tamper-proof. A DEA agent has even stated that he would rather criminals use BTC over a fiat currency like the USD as it is infinitely more traceable thanks to it leaving a digital footprint. Next time you hear “Terrorists use Bitcoin” just laugh at the absurdity of that claim.

Bitcoin is much more than that. It is a super-commodity that is often referred to as ‘Digital Gold’ as it outperforms Gold in almost every domain of ‘sound money’ except for arguably the most crucial ingredient, an established history. Below is a chart detailing the desired attributes of hard money and how each asset scores for every requisite.

The components of hard money // source: https://medium.com/@vijayboyapati/the-bullish-case-for-bitcoin-6ecc8bdecc1

In this piece, I hope to explain how the incumbent monetary system operates whilst touching on its flaws, and then explore how a global economy powered by the Bitcoin network could promise generations of monetary prosperity; which is how every successful civilization that the Earth has seen, has been able to flourish.

(I know a global economy run by Bitcoin may sound ridiculous now but if this article inspires you to fall down the endless Bitcoin rabbit hole you’ll soon learn that this is no far-fetched idea; unless you’re a die-hard stubborn Keynesian. If that is the case, get into contact with us, we’d love to have you on the podcast).

The Monetary System Which We Have Today

Before we begin, here is a music playlist to read to and if you’re too lazy to read the full piece or do not have the time to, then I have left a bulleted list of why Bitcoin has value at the bottom of the document. But that is just for the lazy and weak. You aren’t lazy and weak, are you?

You may be surprised to hear that neither the US Dollar, nor the Euro, nor the Pound Sterling, nor the Yen, nor the Renminbi nor any fiat currency is backed by anything valuable. No gold. No silver. Not even Bitcoin. Fiat currencies have 0 intrinsic value and their worth is entirely subjective. They are simply backed by the trust that we hold in governments and central banks to not fuck it up and cause monetary armageddon. Christ what a foolish thing to place your trust in! Yet miraculously, we all have for the past 50 years. We have been deceived into believing that the fiat system is righteous, healthy and prosperous. Indeed, the 19th century was the first time when most of the world’s nations converged on a single store of value — gold — which catalyzed the introduction of The Gold Standard. This period saw the greatest explosion of trade in the history of homo sapien life but at the cost of unfathomable amounts of global debt; which stems from the state’s ability to print more money at whim.

GDP growth since 1988 = +133% ~~ Debt growth since 1988 = +394%

Prior to 1971, the USD was backed by gold. For every dollar created, the Federal Reserve would have an equal amount of gold stored in its vaults. Any bearer of the US Dollar could redeem an equal amount of gold with their dollar holdings, but that deal no longer exists thanks to the nefarious ‘Nixon Shock’ of 1971. The US Government no longer wants to share its valuable gold. It wants to hoard it and provide its people with worthless pieces of paper and coins to transact with. This idea is further supported by the multiple occasions where state governments have confiscated the private gold holdings of its population; the most recent case in the US was just 86 years ago. This is why Bitcoin matters but not to worry, we’ll get to Bitcoin later.

World War I saw the end of the era of monetary media being the choice decided by the free market, and the beginning of the era of government money

For thousands of years man’s money used to hold intrinsic value; made from gold and silver. But then time after time, central authorities in control of a nation’s monetary system inevitably grow greedy and begin the process of transferring wealth from the proletariat to themselves by gradually reducing the gold and silver content in each coin. In essence, the rulers would seize the gold and silver coins in circulation and provide its people with less valuable coins formed of more steel and copper; cheaper and less scarce metals. But if that weren’t enough, countries all over the globe started to issue worthless paper in the hope that the public would adopt it as money. Unfortunately, we fell for the trap which is why we transfer value from one to another via pieces of paper notes. Two of the greatest empires ever seen, the Roman and Byzantine empires, followed this strategy of a mass-wealth transfer and like many before and after them, it led to their demise. The Byzantine empire ruled for 1,000 years. Nothing could penetrate the sturdy walls that protected Constantinople from its foes; except for their own irresponsible monetary policy.

“Human civilization flourished in times and places where sound money was widely adopted, while unsound money all too frequently coincided with civilizational decline and societal collapse”

What we have today is a worthless currency, that governments can print whenever they so wish. When central banks opt to print more money, they are expanding its supply, which simultaneously devalues already existing money as it becomes less rare. This is inflation. It is why goods become more expensive every year that passes.

For my British readers, remember when our good ol’ Freddo chocolate bars used to cost £0.10 back in the year 2000? Well due to the Bank of England’s decision to relentlessly create more money to solve the tragedies caused by the 2007/2008 financial disaster, they have made the pound less scarce and therefore less valuable. We now have to pay a disgusting £0.30 for a sole Freddo (+200% in less than two decades). This is why alternative assets like real estate, stocks and bonds exist. If you were to store GBP or any fiat currency in your bank and use it as a store-of-value, you’d be shafting yourself up to the backside because the purchasing power of your wealth erodes every year (inflation). In the year 2000, your £0.10 could have bought you a whole Freddo, but if you left your money in your bank account all that time, you could no longer buy a Freddo in 2019, but a third of one. Fiat currencies are horrendously bad store-of-values, which is one of the key components of what makes good money.

“Inflation is Taxation without legislation” Milton Friedman

The supply of the most influential fiat currencies

So to conclude my rant about the incumbent monetary system, the Federal Reserve, like most central banks, is neither Federal (it is a privately-owned company) nor a reserve after President Nixon’s decision to decouple the pegging of gold and USD in 1971. The power that is concentrated within the walls of draconian government agencies rarely ends well. If you reveal the truth like WikiLeaks did or attend the wrong protest or upset the government in any way whatsoever, do not forget that they can cripple your financial accessibility and ruin your life.

A cartoon highlighting the panoptican nature of the present monetary system

The Case For Bitcoin

So… Bitcoin.

Is it a protocol? Is it a store of value and therefore digital gold? Is it a digital currency that can replace the fiat system? Is it a PayPal-killer? Or is it just a bunch of worthless numbers on a screen as Bitcoin contrarian Peter Schiff hails? The art of defining Bitcoin in a sole sentence is something that all believers in Bitcoin compete to do and I believe this is my time to try and shine.

Bitcoin is digital & endlessly consumer-empowering money that is designed to let you store, send, and receive it without any intermediaries burdening the transaction.

(How was my attempt? Let me know below & if you think I should’ve mentioned something else or have a better definition, leave a comment below)

Bitcoin was created just over a decade ago by an unknown person(s) that went by the name of Satoshi Nakamoto. To this day, no one knows who Satoshi is and he has been absent since late 2010. This was intentional. The core philosophy of Bitcoin is that it is not controlled by any person, any bank or any government. It is decentralized, peer-to-peer, non-sovereign money. If I want to send you Bitcoin, it will depart my Bitcoin Wallet and arrive in yours without the interference of any third party like PayPal or Santander Bank who’ll surely increase the cost of the transfer, the time for it to process, the friction and add counter-party risk to the exchange. They’ll also remove you of your right to privacy. Under the fiat system, the empowered have complete surveillance over all financial transactions worldwide thanks to the Financial Action Task Force; whereas with BTC, players are anonymized.

Scarce

Unlike fiat currencies that have an infinite supply, BTC’s supply is capped at 21-million coins. If governments need to pay off a share of their debt to China, they cannot print more BTC to fund the repayment. They have the same control as you and I do. Power is democratized to every participant in the BTC network, which is why it’s described as ‘decentralized’ and ‘censorship resistant.’ Therefore, as more people choose to use BTC and demand rises, price ought to rise in harmony because the threat of supply being expanded is non-existent. 21 million is arguably the greatest perk of the Bitcoin network. It is why Bitcoin is often coined gold 2.0. The race to acquire as many of the 21 million available coins has certainly begun.

“Economists and journalists often get caught up in this question: Why does Bitcoin have value? And the answer is very easy. Because it is empowering, useful and scarce.”

Unconfiscatable

Owed to its democratized power structure, BTC is unconfiscatable, another tremendous trait of sound money; particularly for those who live in a country ruled by kleptocrats. In the past, wealth was stored at home, which was fortunately free. However, the security of this method is weak as anyone can thieve it. Therefore, mankind decided to start storing their wealth with banks who could safely protect it; but due to their monopoly, banks can afford to charge astronomical fees for this service and are gifted a panoptican viewpoint of everything and everyone you transact with.

However now, an alternative has arisen where you can safely store your wealth privately, with no additional costs; the Bitcoin Wallet. There’s no need to outsource the storage of your wealth to an invasive and sinful bank. Once BTC is in your wallet, it is yours and yours only. Consumer empowerment at its finest.

To give an example, in 2013 the EU decided that in order to reduce banks’ debts, every Cypriot’s savings that exceeded €100,000 would be seized and taken from their accounts. As such many woke up the following day to see that their life-savings had vanished over-night and many businesses were forced to file for bankruptcy. If humanity is striving for optimization, we should value and leverage Bitcoin’s trait of unconfiscatability as much as possible. Protect your wealth, or have it taken from you (as previously seen in countries like the US, Australia & Germany).

https://twitter.com/MustStopMurad

Universal Inclusion

Any person born is invited to use the Bitcoin network. The UN has estimated that 2/3 of adults worldwide still do not have access to financial services and remain unbanked. Not because they cannot be, technology could definitely enable this, but because they aren’t welcome. Banks don’t see how they can directly profit from offering services to this share of the population, it’s that simple. That means that 2/3 of the adult population cannot transfer value over distances, join the globalized economy, store their wealth securely and cannot take out credit to fund a new house or agricultural machine that’ll help them in their fight to escape poverty. They are stuck in the rut.

There are a billion people right now, with no financial services but access to the internet who could use Bitcoin as an international wire-transfer service. This could be extremely beneficial for the Remittance Market which hosts $466bn per annum from overseas workers sending money back home to their native country. In 2018, someone sent $300 million worth of BTC across the world and incurred a daunting $0.04 fee. Just IMAGINE the cost of that if it were carried out by a bank or money transfer provider who can take up to 1% to 5% of the transaction’s value.

In order to use Bitcoin, all you need is a device that can connect to the internet; and you can be sure that your funds are as safe as can be thanks to the Bitcoin timechain (advancements are being made to remove this internet requirement so that satellite connection is possible). One may argue that the impoverished people of earth cannot afford this but with the cost of smartphones gradually decreasing every year to as low as $2 in some nations, this will eventually become an insignificant hurdle.

“The Bitcoin ledger of transactions might just be the only objective set of facts in the world” Saifedean Ammous

Borderless

You can access your BTC funds in any country and spend them in any country for no extra cost. You won’t have to worry about monstrous exchange rates when overseas. You can spend BTC when buying coffee in Siberia just as you could in sub-Saharan Africa. Yet, if you take your GBP to Siberia and nations within Southern Africa, you can bet you won’t be able to spend your money. No other currency boasts this trait, which again makes BTC all the more unique. To summarise this section, BTC is safe, easy and cheap to store whilst remaining usable anywhere in the world. It is the first truly global money.

Open Source

One extremely valuable perk of Bitcoin is that it is open-source software. In other words, it is open to innovation and improvements. “You think you can make Bitcoin better? Please do!” We have seen this with the work of the team at Lightning Labs. In the peak of Bitcoin’s popularity in December 2017, the cost of completing a single BTC transaction soared to $40! However, as Bitcoin is Open-Source, a group of developers working at Lightning Labs were able to provide a solution to the problem. They created an improvement which allowed for Bitcoin transfers to process instantaneously and at a negligible cost. Fantastic. In contrast, fiat currencies are rigid and outdated currencies that are not open to innovation. I cannot explain the invaluable importance of open-source technology better than Piotr Gaczkowski can so if you wish to learn more, go have a read.

Do you not think that in a world where our cars, our light bulbs, our shopping habits and our source of entertainment (especially VR) are digital, would it not be more efficient to have natively digital money? With the rise of the Internet of Things (IoT), we have to ask ourselves this question. Is it optimal for our smart devices to transact value to one another via an archaic fiat currency? Imagine a scenario where your smart fridge recognizes a trend that you like to pop open a cold beer every night once arriving home from work at 8 pm. But wait, it is Thursday and you have 1 more beer left, how will you enjoy your beer tomorrow night? The smart fridge recognizes this and automatically purchases a pack of beers via Amazon so that it arrives in time. Yes, it is possible to use fiat currencies but you have to include countless middle-men who will stress the transaction with increased costs, time delay and friction. Would it not be better to use natively digital peer-to-peer (p2p) money that cooperates perfectly with these digital devices? No PayPal. No bank. No custodian. No FX converter. In 200 years, we’ll be racing around the galaxy in our millennial falcons. Do you really think we’ll be using tangible gold and cash to transact with one another?

“The average user should pick up bitcoin to experience the future of money. To gain a glimpse into an exciting technology. To learn about how money could be in the future and also become aware of how limited money and banks are today.”

Bitcoin’s shortfall is that it has only been around for a decade. It has no reputable history of serving as an efficient store of value whereas gold has been used by mankind for millennia. More optimistically, let us look at what the Bitcoin network has achieved in just its first ten years of life. Note, Bitcoin has no CEO, no board of directors, no marketing team, no business strategy, no raised capital and therefore, no agenda. Its fate is dependent on what we (the community) do with it. Despite that, in the last decade, BTC has been the best-performing asset in the world (+250,000%) and has enabled the ill-treated people in nations like Venezuela to store their wealth in a robust asset that hasn’t suffered from exploitation and unearthly inflation. It has empowered your average Joe by granting him/her the ability to send value anywhere in the world, over any border, anonymously, in just ten minutes for a negligible cost regardless of the amount being sent and has allowed controversial yet wondrous companies like WikiLeaks to stay afloat.

As what WikiLeaks is doing is clearly against the government, they have prohibited anyone to transact with WikiLeaks and have denied their access to participate within the global money network. The anonymity of Bitcoin and the fact that its censorship-resistant allowed WikiLeaks to take donations from their readers in the form of BTC. For years WikiLeaks stayed alive because of the generous and anonymous Bitcoin donations that readers gave.

But still, I want to emphasize that BTC is currently NOT an efficient store-of-value. Its nascency makes it prone to volatility (which is perfectly normal and seen in every scenario of creative destruction). In a hypothetical scenario where BTC gains traction and volume multiplies, the volatility it encompasses will fade away. The sole reason why BTC fluctuates as much as the tide is because Bitcoin’s Market Capitalisation is only a fraction of something relatively stable like gold and is thus prone to big moves and unfortunately, market manipulation. Bitcoin’s price volatility is a function of its nascency. Mapping the market capitalization of the above-ground gold supply (approximately $8 trillion) to a maximum Bitcoin supply of 21 million coins gives a value of approximately $380,000 per bitcoin. As of writing this, BTC is trading for $8,050.

“Bitcoin is at the same stage as the Internet in 1992–1993. At that time, it took UNIX command-line skills to send email. No way near ready for mainstream adoption.”

Bitcoin is a super-commodity that combines economics, computer science, game theory, history and cryptography into one protocol. It is often proposed that Satoshi Nakamoto deserves two of the world’s most notable awards: The Nobel Prize in Economics and the Turing Award for solving the Double Spend Problem. If you are reading this article, you are likely to be an extremely fortunate and privileged person who has been granted access to financial services. But 2 billion people are not. Bitcoin’s greatest potential impact is to serve these people of earth. To bank those who are unbanked.

I think there is no better way to round-off this piece than by ending it the way it started; quoting Satoshi Nakamoto.

“If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.”

My aim of this article is to introduce the concept of Bitcoin to others, not to convince them of it. That is for you to decide. Meanwhile, I’ll be playing my small role in helping Bitcoin develop over the coming decades.

Have a wonderful life and feel free to join me #StackingSats every Saturday.

A Summary Of Why Bitcoin Has Value:

  1. Can be used by anyone, for free. Bitcoin doesn’t discriminate

Written by Felix Yañez-Bowker throughout the weekend of 24th May 2019. If you have any questions whatsoever, don’t hesitate to reach out.

You can DM CryptoAuthority on Twitter or shoot me an email at felix.yanez.bowker@gmail.com

Resources I recommend

(Paper) The Bitcoin Whitepaper

(Video) Andreas Antonopoulos’ YouTube

(Book) The Bitcoin Standard by Saifedean Ammous

(Video) Blockchain Explained in 5 Levels of Difficulty

(Podcast) What is Proof-of-Work

(Article) Vijay Boyapati’s Bullish Case for Bitcoin

(Article) Explain Bitcoin like I’m 5

Additional Facts:

  • An estimated 4 million Bitcoins of the 21 million are thought to be lost forever.

Crypto Authority

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DigitalAsset Education ~ We also review Crypto Products https://tippin.me/@cryptoauthorit

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