What is Bitcoin?

It’s now May 2021, more than 11 years after Satoshi Nakamoto mined the genesis block of the Bitcoin blockchain. You’ve probably heard about bitcoin in some way or another at this point, most likely in the form of a price update, which isn’t surprising, considering how the BTC to USD price chart has evolved:

The price of 1 bitcoin reached as high as $64,700 in April 2021.

Today, the market capitalization, or “total value” of the Bitcoin blockchain network exceeds $1 trillion USD. Although market cap is a simplistic way of measuring a blockchain, it’s useful to compare this number to the market caps of big corporations that we may already be familiar with for the sake of understanding the significance of where we’re at in Bitcoin’s journey. Bitcoin being worth more than $1T USD means that there is more value being held in this network than the market caps of Chase Bank ($471.4B), Home Depot ($357.8B), McDonald’s ($174.5B), and American Airlines ($13.7B), combined.

Alright, so you already know that Bitcoin is a serious thing today, but you may still be wondering:

1. Why should I care about all of this? a.k.a. Will I get rich if I buy Bitcoin?
2. How do I buy Bitcoin?
3. How is Bitcoin even worth anything?
4. Where did Bitcoin come from?
5. Who controls Bitcoin?
6. Can I use Bitcoin to buy things?

If any of these questions apply to you, then buckle up, because we’re going on an adventure.

In this post, I’ll share some historical context on the evolution of money, talk about why Bitcoin is the greatest form of money we have today, and link you to resources to aid you in your search down the crypto rabbit hole and help you get some Bitcoin yourself. By the end, we’ll have answers to all of the questions above.

Ready?! Let’s go..

What is money?

Money is a representation of value. You can exchange work for money, like when people work at a 9–5 job to get paid a salary. You can then exchange your money for other things of value, such as food.

Historically, people have used lots of different items as money, things like: salt, wheat, shells, and of course, gold. The key quality about each of these items that gave them value as money is that people trusted in their value as money. The supply was limited, but the item was useful, and people knew that others would trade them for it. Thus, the trust in the money came from the inherent properties of the item itself.

As banking systems developed, paper money gained popularity because pieces of paper were much easier to split up and carry around than bricks of gold. We trusted that banks held onto gold for us and that we would be able to redeem our paper bills for the actual gold held by the bank. Our trust in the banks allowed paper bills to hold real value. This was known as the gold standard.

Fiat Money

In 1971 the US government announced that it would no longer convert dollars into gold, killing the gold standard and giving birth to fiat currency, or money “by decree”. The dollar (USD) as we know it today is fiat money, and the value comes from the government ordering that USD must be accepted if offered as a form of payment. Before, the value of our money came our trust in a thing (salt, shells, gold). Today, it’s our trust in the government, a central authority, gives the fiat money real value.

Downsides of fiat money:

1. It’s centralized — a government controls and issues the currency, and can decide where the currency is accepted.
2. It’s unlimited — the government can print as much of this currency as needed, which can cause inflation and decrease the unit value of each dollar.

Digital Money

Once fiat money became standardized, the move to digital money was pretty easy. Since we already have a central authority controlling the money, why don’t we have them maintain a ledger of who owns how much money, and then transact our money electronically? In fact, most of the money that changes hands today is moved digitally: credit cards, PayPal, wire transfers, gift cards, etc. Only a tiny percentage of money exists in physical form.

But wait.. if money is digital can’t I just copy it? If I have a file that represents a dollar, why can’t I just copy it a billion times so that I get a billion dollars, and then only use my newly copied dollars so that I have infinite money to spend?

This is known as the “double spend problem”. Banks solve the double spend problem in a centralized way, by keeping a ledger on their computer that remembers how much money each account should have. Since everyone trusts the bank, and the bank checks their ledger every time someone wants to send money to someone else, they can ensure that no one is sending fake copies of money.

In the past, many projects (before bitcoin) tried to create alternative digital currencies, but none of them could solve the double spend problem without setting up a central authority like a bank.

Issues with Centralized Money

Here are some reasons how centralized money can be harmful to you and society in general:

1. Loss of Control — when you give away control over the value you’ve accumulated from your hard work, and store it away with a bank, your account can be frozen for whatever reason, preventing you from accessing your money.
2. Mismanagement — governments may enact monetary policies that decrease the value of the currency, for example the bank bailout of 2008 introduced $700B into circulation, causing inflation, which leads to the price of everyday goods rising, decreasing your ability to afford things.
3. Corruption —because banks and governments control money, they control the flow of value around the world. This power can lead to unscrupulous behavior, such as Wells Fargo employees committing fraud to reach sales goals, BNY Mellon overcharging clients on currency trades, and Goldman Sachs attempting to bribe foreign officials in exchange for underwriting bond deals.

Bitcoin

In 2009, some person calling themselves Satoshi Nakamoto released the Bitcoin Whitepaper, explaining a new system of digital currency that solves the double spend problem with using a centralized authority.

Bitcoin is the world’s first transparent, decentralized, digital ledger.

Transparent: With Bitcoin, there is no central authority, and you can see the entire ledger of transactions detailing the flow of money since the introduction of the system, whereas a central bank has exclusive control over its private ledger.

Decentralized: When you take down a bank’s ledger, you take down all of the accounts that the bank supports, and no one can access their funds any longer. With Bitcoin, you would need to take down thousands of computers in order to bring down the network and affect other people’s ability to move money.

Digital: There are no physical coins. When you “own” a bitcoin, you own the right to receive funds and send funds from a Bitcoin account address. This makes bitcoin extremely easy to transport.

So why is Bitcoin such big news?

It’s an alternative to fiat money, something that no government or bank can control. Similar to how the internet allowed media to be decentralized, allowing more and more people and companies to produce news and content, Bitcoin allows money to be decentralized, allowing more and more people around the world to participate in the global economy.

What can you do with BTC?

Today there are more and more merchants accepting BTC and other cryptocurrencies as a valid form of payment. Big companies include: Microsoft, Home Depot, and Starbucks, which means you can use Bitcoin to buy Xbox store credits, plywood, and coffee. You can buy tickets from sports teams such as the NBA’s Dallas Mavericks and the NFL’s Miami Dolphins using cryptocurrencies. If you don’t want to spend, there are decentralized protocols that allow you to earn interest by lending your money out, without having to go through a bank.

All in all, there are tons of use cases that have already developed over the past decade, and we can only expect more to come, as institutional investors and big corporations around the world take interest in Bitcoin.

Will buying BTC make me rich?

The price of Bitcoin isn’t something that anyone can predict. There are a lot of reasons for it to go up, but also many risks that can prevent the technology from succeeding. The way I see it, investing in Bitcoin right now is a way for me to learn, participate, and help develop one of the most exciting innovations of our time. If Bitcoin and other blockchain technologies continue to succeed, we will not only be able to upgrade banking infrastructure into more efficient, inclusive systems, but we’ll also see brand new forms of economic activity and investment that have never been able to exist before, and having some Bitcoin and cryptocurrencies in my portfolio would position me well for the future we’re building towards.

In summary, Bitcoin:

1. gives you complete control of your funds
2. reduces middlemen, making the currency much cheaper to use than fiat
3. provides a programmable, “smart” money that allows new financial applications to be developed
4. creates open commerce for everyone with internet access to participate

If you’d like to buy some Bitcoin, use my referral link to check out Coinbase: https://www.coinbase.com/join/hu_8xr