Why Bitcoin Matters
The fuss over fake internet money
I won’t exhaust you with the nitty gritty of what Bitcoin is… partly because we’re still figuring that out. Instead, let’s try to see why it all matters.
1. Better money
Helping you get what you want
Money originated from a barter system. But unfortunately, people realized that not everyone that has what you want also wants what you have *sighs deeply*. So, people began to use widely desired items to get what they want. If lots of people like fish, you could acquire fish to exchange it for items you actually want. You don’t want money; you want the things money can buy.
The idea of using widely desired items for exchange spread like a wildfire. The invention of money sparked a frenzy to speculate on and acquire the best kind of money. “With this, I can get anything from anybody I want.”
Special items like shells, beads, and bones competed for acceptance in exchange for goods and services. Through this competition, we can observe common properties that contributed to a money’s success. Superior monetary properties include durability, portability, divisibility, and fungibility. Bitcoin outperforms other forms of money in each of these categories.
2. Scarce
They ain’t makin’ any more of it!
Another important monetary property is scarcity. Increases in supply decrease the market value of an item. If a money can be easily produced, then it’s sure to lose value over time. People preferred to use money that preserved its value over time.
Precious metals began to dominate as money, since they strongly satisfy each monetary property. However, gold de-monetized all other metals over time to become the global reserve currency. Plenty of metals are tougher and shinier, so why gold? Many believe gold’s supreme scarcity contributed to its monetary dominance.
Sometimes, governments dilute their national currencies to encourage spending. Money becomes less valuable, so people opt to spend cash and hoard assets, which accelerates price inflation. Hyperinflation occurs when governments print so much money that people lose faith in their national currency. Eventually, this hyperinflation leads to people wheeling around mountains of trillion dollar bills.
People trust items like gold and land to store value, since “they ain’t making any more of it!” Scarce commodities provide a hedge against inflationary cash. Citizens of corrupt governments — with national currencies prone to dilution— find freedom in a scarce resource like Bitcoin.
Digital scarcity is hard. An item is not valuable if someone can copy and distribute it at will. Copy+Paste makes digital items infinitely copyable. This is how Napster undermined the music industry using digital music files and the Internet.
However, thousands of people around the world audit Bitcoin’s ledger. These people validate each transaction that is submitted to the network. Bitcoin’s supply schedule is declared in its source code, and users reject any transaction that invalidly mints new tokens. This validation ensures a max supply of 21 million tokens.
Digital scarcity enables digital assets with real value, even as money. Bitcoin’s primary innovation is digital scarcity.
3. Unstoppable
Nobody controls it; Everybody controls it
Traditional networks are client-server by design. In most systems today, a central authority like Facebook or a central bank manages the network and coordinates users. This is efficient, but creates a single point of failure. Instead of a client-server model, Bitcoin’s network is peer-to-peer.
In a centralized system, you trust the competence and integrity of a central authority. This system is inherently vulnerable to hacks and corruption.
In Bitcoin, instead of trusting any single third party to manage transactions, you trust a distributed network of its users. These users have a financial interest in maintaining the integrity of Bitcoin’s ledger. If a majority of its users want to protect the network against malicious transactions, the network remains secure.
Bitcoin is peer-to-peer money, not client-server. A protocol, not a platform.
Conclusion
Now, most people aren’t willing to sacrifice convenience for security. But, it’s about us having that option in the first place. That’s why Bitcoin matters.
