After writing Bitcoin vs Your Dollar, I knew it would be necessary to go back to the beginning and give you the fundamentals and basics of what Bitcoin is. It all began on October 31, 2008 when a document was published by a still-mysterious person or group going by the alias of Satoshi Nakamoto. The document often called the “white paper” was titled, Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin was not the first digital currency created, however, it was the first to solve the double spend problem (please use link to learn more on double spend). This 9-page document did not get much attention at first, but, nearly 12 years later Bitcoin has a value of nearly $11k and a total market cap of $201.8 Billion (7.28.20). Curiously, I find the timing of Bitcoin as the most notable thing about its creation. The white paper was released 28 days after the Emergency Economic Stabilization Act of 2008 or better known as “The bank bailout of 2008” was passed. For reference, this was a bill that allowed the government to buy up to $700 billion of troubled assets from corrupt banks and fronted you and I the bill, but I digress…
On the most high-level of understanding, Bitcoin is a systematic software that keeps a ledger (record) of where each Bitcoin is. There are three major parts to this system: the user, miners, and nodes.
The users, you, and I, send Bitcoin to one another's Bitcoin wallet address.
The miners, which are computers that utilize graphic processing units (GPUs), conduct the calculations to approve/verify you have the Bitcoin you claim to be sending.
Lastly, the node is where all the records of transactions are held. This makes Bitcoin an open and transparent monetary system because we can verify and account for the entire circulating supply.
This makes Bitcoin an open and transparent monetary system because we can verify and account for the entire circulating supply. You can view every single transaction that has occurred in the Bitcoin network from January 3rd, 2009 to present day. Although the transactions are transparent and open, we do not necessarily know who owns the individual addresses that are sending and receiving Bitcoin. Because of this anonymity, Bitcoin often takes a lot of criticism that it can be used for criminal activities. While I do agree that criminal activities is how Bitcoin became so successful, this criticism is short sided as Pablo Escobar did just fine operating long before the invention of Bitcoin.
As of right now, there are only 18,445,250 Bitcoin in circulation and there will only end up being 21 million by the year 2140. Currently, 900 Bitcoin are being added to the ecosystem everyday by the miners and that number will cut in half every four years. This is a built in disinflation tool that was designed to adjust the total supply and demand over a long period time to avoid centralized control of the asset up front. Today, Bitcoin is hovering around $11,000 but it is important to note that you do not have to buy a whole Bitcoin. Bitcoin is divisible by 8 decimals, so you can easily buy/sell/trade $5, $10, $20 of Bitcoin if needed, for example: current Bitcoin price $11,000, $5=0.00046~ Bitcoin. Since Bitcoin’s value has risen so high and people do not like decimals, the community has decided to present this in another way: there are 100,000,000 Satoshis in one Bitcoin. Therefor, $5 = 46,000~ Satoshis. Think of 100 cents in a dollar.
Now that you have a high-level understanding on how the Bitcoin system operates, lets focus on some of the usability factors. One of the major differences between transacting in Bitcoin vs transacting online with your dollars, is all Bitcoin transactions are permanent. If you are like me, I only transact with credit cards in case someone steals my information and goes on a shopping spree, they are spending the bank’s money, not mine. From there I can call up the bank and let them know that the charges are fraudulent and in almost every situation the bank will either handle it or write it off as a loss. Bitcoin is different, if you send your Bitcoin to another address, there are no third parties to intervene or save you, ITS GONE. This does include being hacked. Bitcoin itself has not and will not be hacked, however you are responsible for your personal keys (more on this in the future), which can be hacked. Having full independence of your money is not for everyone and in America allowing a third party to handle your money is a part of our culture and generally safe due to our dollar being the world reserve currency. However, nearly two billion people worldwide do not have a bank account or access to a financial institution, but two-thirds of these individuals own a mobile phone. Bitcoin can help bridge the gap for billions of people as all you need is a mobile phone to transact.
Bitcoin is not guaranteed to become the asset that we universally accept across the globe, but it has the lead and best prospects. It is the most decentralized network in the world and is not controlled by any governments and these are not characteristics that are easily duplicated. In my opinion, Bitcoin is the greatest economic experiment in man-kind’s history. I am not someone who will predict price, but if Bitcoin is successful, there are 7.5 billion people now and will only ever be 21 million Bitcoin. SUPPLY AND DEMAND.
Disclosure: I own Bitcoin and other Cryptocurrencies. Please note that Bitcoin and other cryptocurrencies are highly speculative, and this is not investment advice.