Bitcoin Is Sound, Digital Money


People think about Bitcoin in a number of ways. What is bitcoin? Right now, it is widely viewed as digital gold, or Gold 2.0, which refers to its use as a store of value.  In the future, it will likely transition to be used as a transactional currency, meaning you can spend it as you would spend any other currency.  There are some hurdles, such as scale and volatility, that Bitcoin is working to overcome in the meantime.

The best approach for understanding what Bitcoin is and why it is important requires a base level of understanding about what money is. Money, as a technology, makes our wealth today available for consumption tomorrow.  At its core, money is something used to represent value.  In order for something to represent value, people have to trust that the thing is valuable and will stay valuable long enough to exchange that value in the future.  We don’t actually care about the money itself, but about what the money can do for us in the future – what we can trade it for.

 

“Bitcoin can be best understood as distributed software that allows for transfer of value using a currency protected from unexpected inflation without relying on trusted third parties” – Saifedean Ammous, The Bitcoin Standard

What is Money?


In a recent podcast with Preston Pysh, Robert Breedlove breaks down money into having five important properties.  Good money needs to be:

  1. Divisible, allowing us to transact at varying scales.
  2. Durable, meaning it persists over time.
  3. Recognizable, which lets us quickly determine its value and verify it is not counterfeit.
  4. Portable, making it easy to secure and move across space.
  5. Scarce, providing resistance to supply inflation and counterfeiting.

While many different things have been used as money throughout history, gold and other precious metals were used most recently.  The paper money we use today was backed by gold until 1971 (wtfhappenedin1971.com).  Today’s dollar does not have significant intrinsic value, but derives value from broad market and government use.  

Bitcoin excels at Breedlove’s properties of money.  The key property for most bitcoiners is the absolute scarcity of bitcoin.  There will only ever be a maximum of 21 million bitcoin.  It is this absolute scarcity that makes it such a great money technology.  The digital nature of bitcoin also makes it easily portable, verifiable and durable.  

One unique property of bitcoin is that it is decentralized, meaning it is not controlled by one person, company or government.  In addition to its scarcity, this is another critical characteristic of bitcoin.  There is no authority or middleman, such as a bank or corporation, that approves or denies your transactions.  You have complete control, which also means you are ultimately responsible for your bitcoin.  “Not your keys, not your coins” is a common mantra in the bitcoin world.  

The rabbit hole of what bitcoin is and how it works is deep.  There are many experts that dive into the various aspects of bitcoin.  The number one recommended book for getting a foundational understanding is “The Bitcoin Standard” by Saifedean Ammous.  “Gradually then Suddenly” is a great series of articles by Parker Lewis on the subject of bitcoin.  Finally, explore the video and podcast areas of the site for other great bitcoin resources. 

What is Bitcoin?

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