Ok, so what is Bitcoin? Allow me to spell it out for you, since others can’t seem to do it properly.
As a technology so revolutionary, controversial, and misunderstood, you’d think that the community surrounding Bitcoin would refine their definitions and arguments about it– at least before presenting themselves to the mainstream. At a minimum, they need only answer a fundamental question: What is Bitcoin?
Yet to my dismay, this is still not the case.
I rediscovered this recently after catching wind of a special episode of the Jordan B Peterson podcast. For this show, Dr. Peterson brought on a panel of four high-profile Bitcoin influencers and supporters to discuss its merits.
One of these guests name’s was Gigi. Now don’t get me wrong– I quite like Gigi (at least as I know him on Twitter). But while his and the other guests’ contributions made for an engaging episode altogether, when directly asked by Peterson to explain what bitcoin is, he completely dropped the ball:
- Jordan: Do you want to fill us in on what Bitcoin is, and why you think its significant? What’s revolutionary about it?
- Gigi: We always try to zero in on something that doesn’t just melt away and that we can use as money- and historically, as we just discussed, gold and silver as precious metals were very good at that because… (rambles about scarcity and copying digital files and an “intricate dance of computer systems around the world“).
- Jordan: …So can you get extremely simple and describe what Bitcoin is?
- Gigi: (Laughs) Yeah, that’s the 21 million Bitcoin question. I’m afraid that there is no simple answer
So… What is Bitcoin, Again?
Ugh. I hate when people answer like that. “There is no simple answer”.
Then find one!
You’re the ‘expert’. It’s your job to to simplify complicated ideas. You must be able to encourage the average to person utilize it, or simply take an interest in it.
Telling people “there is no simple answer” sends exactly the wrong message.
- You’re too stupid to use this technology, that I can’t possibly explain why its useful to you, and that you should leave this alone and let the internet experts take care of it.
I know that’s not what Gigi intended– otherwise, he wouldn’t be on a podcast outside of the crypto community to discuss this. Nevertheless, it had that effect. Presentation is key, and if we’re not prepared to answer the most basic question of all in a satisfactory way, then our message will never land.
That’s why I’m gonna take a crack at it today. Let this be the definitive resource for every noob that needs an answer to the “21 million Bitcoin question”: What is Bitcoin?
Will I do this answer the justice it deserves? Probably not. But I have to try. It’s my job to try!
What is Bitcoin? (Lets Check the Whitepaper)
Who better to ask than the creator? Though we don’t know exactly who “Satoshi Nakamoto” is or was, we’ll always have his original whitepaper that brought Bitcoin to life. Here’s how he described Bitcoin in the title of that document:
Bitcoin: A Peer-to-Peer Electronic Cash System
We’re already off to a great start. So far, we’ve established that Bitcoin is a system intended to be money– specifically, that it is to be cash.
Cash usually refers to money in its raw, physical form- either as a bank note (a paper bill) or coin (a monetary metal). This is as opposed to other forms of “money” which include digital payment methods like plastic debit cards and credit cards, or highly liquid derivatives like futures contracts, bonds, and securities.
This may appear to contradict the previous word in the title: “Electronic”. Isn’t “electronic cash” an oxymoron?
This is where the truly innovative aspect of Bitcoin is highlighted. As we continue reading, we’ll discover that what Nakamoto has developed is the first electronic money that retains the benefits of hard cash– most notably in that it is part of a peer to peer network. Each of these three important details will be elaborated upon below.
1. Peer to Peer
The first passage of the Bitcoin whitepaper reads as follows:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending”.
A peer-to-peer network is one in which computer systems do not rely upon a central server to access files, and can instead each act as a server for other computers. In the context of money, this refers to a monetary network that does not rely upon central financial institutions to intermediate payments between people and business.
Until now, payments in the digital realm have necessitated the use of such an intermediary. This is because digital property can be infinitely duplicated, presenting the critical the problem of “double spending”.
In a purely peer-to-peer digital monetary network, users could endlessly copy their existing funds in their Bitcoin wallet and send them to other users. This would infinitely dilute the money supply without anyone knowing the wiser.
Bitcoin lifts this restriction.
Bitcoin uses a “distributed timestamp server to generate computational proof of the chronological order of transactions”. The “timestamp server” is commonly referred to today as the “blockchain”.
This blockchain is a record of every transaction ever executed on the network. Thousands of distributed network nodes contain a copy of it. These nodes then verify the legitimacy of all transactions against that record, and reject them if they are fraudulent.
Therefore, Bitcoin allows for transactions on a peer-to-peer network that are don’t risk being double-spent.
With the complicated part out of the way, let’s examine the implications of electronic cash.
2. Electronic
The word “electronic” can easily be substituted for the word “digital” in this context. When we do this, the benefits of “digital” cash are fairly self-explanatory.
Digital items are weightless. They are infinitely divisible. They exist permanently in cyber space. Most importantly, they can be transferred to anyone in the world with the press of a button. This makes electronic money far more convenient than using gold or paper money to execute transactions. That’s why over three quarters of todays payments are settled electronically.
Furthermore, digital items are programmable. They can operate in an indescribable number of ways. Other cryptocurrency networks– such as Ethereum– take advantage of this fact using smart contracts. Smart contracts are programs that automatically execute trading, lending, and other forms of finance.
With Bitcoin, we can experience the advantages of digital payment while overcoming the double-spending problem.
3. Cash
Alongside its digital features, Bitcoin still maintain 3 key advantages of physical cash: Privacy, Freedom, and Authenticity.
Privacy
Before using a bank, people must provide their personal information. The bank can then link their personal information to every transaction they’ve ever made. Therefore, those who wished t keep their transactions private were forced to operate using cash.
However, Bitcoin provides another option for private transfers. Though every transaction is recorded on the blockchain, they aren’t filed under personal names. Each transaction is instead attached to a public address with of unrelated numbers and letters.
It is still possible for the tech savvy to track some transactions back to a specific person, using this system. However, it provides a surface level of identity protection, which will be further strengthened in an oncoming update.
Freedom
When transferring money through a bank, they have the power to censor or reverse one’s payments. Some assume this is a good thing, as it allows them to prevent money laundering and funds lost to ransomware attacks.
However, this power can also be used to prevent transactions made to institutions or countries that the bank doesn’t approve of. These can range from Wikileaks to Cuba.
Bitcoin is for those who believe one should have full control of how and where they spend their money, It offers the freedom to do so without censorship.
Scarcity
One of Bitcoin’s primary benefits is that there will never be more of them. It has a fixed supply of 21 million coins– not by rule, but by law.
Again, this makes Bitcoin different from previous attempts at digital money, which could be infinitely duplicated. However, it also makes it different even from paper money, which the government regularly produces more of.
As the Federal Reserve prints more money, they weaken the purchasing power of existing money in the economy. Economists call this process “inflation”. During economic downturns, inflation tends to ramp up– theoretically to help the economy recover. However, inflation has a hidden effect of permenantly making all products in the economy nominally more expensive.
In this respect, Bitcoin is unlike either electronic or physical dollars, and more like “digital gold”. Gold is a physically scarce asset that cannot be artificially created. Due to this, it operates as an effective store of value. Bitcoin can serve the same purpose as gold, while retaining all of the benefits that come with digitization.
Conclusion
There you have it– a simplified-as-can-be explanation of what Bitcoin is, and why you should care. Bitcoin is the first effective system of decentralized digital money that has ever existed. It is uncensored, verifiably scarce, accessible by everybody, and controllable by nobody. It offers access to a store-of-value and global monetary network for people excluded from the current system. Finally, the technology has the power to standardize global money in an asset outside of government control.
In light of our new knowledge, Gigi’s explanation of Bitcoin might make a bit of sense.
But only after hearing a clear explanation first.
Now go tell your friends and family. Encourage them to HODL. Oh, and try not to mention any dancing computers.
Stay stackin,
Andrew
