First is first: thank you for this excellent question! Any crypto researcher would see this question as very kind gift!
You will find, at least, two out of three friends of yours in urgent need of help to understand this question very soon, probably in the coming one or two years. Those who can answer constitute a minority even now. However, even the few best connoisseurs who have mastered Bitcoin and Blockchain technologies, may forget that it is highly indispensable to answer this elementary question again and again from different angles. “What is Bitcoin?” Is it a game? Is it an application? Is it a type of share from the stock market? It is crucial to re-explain what Bitcoin is thousands of times. Those who investigate Bitcoin and cryptocurrencies will want to try to come up each and every day with newer explanatory models that are more and more digestible for the millions of new users in need to consume explanations.
Every week and every month, the very nature of the answers evolves and the nature of Bitcoin becomes clearer. The number of news associated with Bitcoin rises exponentially with each sunset. Definitely, as with any new disruptive technology, you can not completely define it during its first years of life. However, it is possible to describe and explain the current achievements of this technology. Also, we can share with new adopters the hopes that we embrace for the future of Bitcoin in particular or for the future of all the legitimate decentralized currencies that take Bitcoin’s example for the sake of a better world. For now, a short answer to the question “what is Bitcoin?” can be this: Bitcoin is the future of money!
During history, money has been an abstract social concept backed by arithmetical principles. It has, nonetheless, always taken some material form on different substances: seeds, gold or paper, for example. We know of civilizations that used cocoa seeds as currency. We also have knowledge about the use of gold as money throughout the world. Gold, in fact, is still valid today. And, as a matter of a common fact, the current system is based on money made of fancy paper and issued by each nation through central banks. Experts in finance or in computational technology call each of these historical experiments “iterations”: new attempts to go beyond the limitations of previous forms of money. Bitcoin, according to its millions of users or “hodlers”, is the most advanced iteration of all the money technologies that had existed in history, at least until 2009.
It is very useful to start by understanding Bitcoin, however, as a radically novel type of financial technology that is only 10 years and a few months old. Bitcoin is software that started running in January 2009. It is a very new invention naturally experimenting its childhood in this moment. It’s a distributed computer program that started running one decade ago. Since then, Bitcoin has never stopped! We say Bitcoin’s software is “distributed” because, unlike the computer programs that you use to access your bank account, or even unlike the apps you use for receiving and writing messages, Bitcoin does not run on just one isolated machine. It runs on hundreds of thousands or in millions of computers at the same time. All these computers are interconnected. Together they control the financial system in an autonomous way. No single human or organization controls Bitcoin. Bitcoin is controlled by self-running code and by laws of Cryptography and Math that dictate the truths of the system.
For you to make a payment with Bitcoin, or for you to – let’s say – receive one dollar in Bitcoin from a friend in Tokyo or in Washington, thousands or even millions of computers should verify the transaction. They all establish a “truth” together as a result of a mathematical consensus. Those millions of computers that are linked as a super network to form the great web of Bitcoin, are not limited by political barriers, like the borders of a country. Bitcoin has no borders. Essentially speaking, for Bitcoin, countries do not exist, neither cultures nor differences among ethnic groups, creeds or ideologies. Bitcoin has no nationality or locality. And one of the wonders of this network of computers, as that are scattered throughout the planet, is that none of the computers can seize the control or government of the network. None of the machines, individually, has any actual probability to dictate laws, change the rules of the game or even cheat. In Bitcoin, every transaction is verified through mathematically – cryptographically – enforced network consensus.
In Bitcoin, therefore, the ruling power is not in a single supercomputer or in a specific location. Bitcoin is not like Google or Facebook. It is not in one place. The power is in the rules of the game – in the code – and this power is distributed throughout the network. Code is law! Consensus is power! We call this type of distributed power “Decentralization”. If you want to understand Bitcoin correctly, it is infinitely important that you understand what Decentralization means and what benefits this new phenomenon of distributed power brings to society. If you interpret Bitcoin solely as a new type of fancy money, you will be ignoring the most important part. Bitcoin represents a new paradigm of real political power. Bitcoin represents a shift from an old system of immense economic power in the hands of a few governments and bankers, to a new system where power lies in many hands: the new hands are the millions of Bitcoin nodes. Bitcoin is one of the fathers of the new Decentralization: a political-economic system that puts governance and the benefits of power in the hands of users.
Wait a moment! Now it seems to be, already, time to do a little recap! Many things have been said in the previous paragraphs: Bitcoin is a new form of money better than paper money and gold, Bitcoin is a new financial system, Bitcoin is not controlled by anyone in the world, Bitcoin is a totally borderless financial network, Bitcoin cannot have a central power that manages it, Bitcoin is not in one place but distributed all over the world, Bitcoin is a power different from governmental power and different from banks since it sits in the hands of all users, and so on. All this is a lot of information! It may also sound a little like an SFX movie. Bitcoin might sound like money from a science fiction novel. Yes! That’s how it sounds! However, it is tangible and real. It’s already been a decade now. And currently, a number of transactions worth billions of dollars are executed per day within the distributed Bitcoin system.
Bitcoin is not “a plan” for a new form of money, because it is already here, it already exists, it is already being used and it has already accumulated high value. Bitcoin is not a prototype in its trial period. Bitcoin has already passed all the tests many years ago and is now in full use. Bitcoin does not need to be approved by any government, nor does it need that laws be issued in order to be usable or to be able to fuel all sorts of economic activities. On the contrary, Bitcoin does not recognize any government, has no borders and does not need the support of any political system. Rather, it is foreseeable that, in time, most powerful countries would be looking for a way to adopt Bitcoin, at least to some extent. Bitcoin is a new form of super power of the citizens of the world. It represents immense distributed power. In Bitcoin, people become the real World Bank. Governments will soon try to acquire some protection and help from this power, because this is the power of many millions of citizens of the world who want to issue their own money: sound money.
If you have had the experience of reading in the newspapers, maybe during the last few years, some news saying that your government does not want to accept Bitcoin, or that your country has not determined a clear future for Bitcoin, or perhaps even that your politicians are planning to ban Bitcoin; please do not worry! The millions of owners of the Bitcoin network care little about this. Bitcoin has no borders. Bitcoin is not located in any country. Bitcoin is not in one certain place. Bitcoin is a computer software that spans the entire planet. It behaves like the huge population of millions of bird colonies of the world. Birds do not know human political boundaries, because these boundaries are imaginary. Bitcoin is totally free from frontiers in the same way. Bitcoin is a distributed system that is incorporated into more and more millions of computers every day, every week, every month. Bitcoin, however, is not in one specific place. Bitcoin is everywhere by being nowhere! One cannot remove Bitcoin from one’s location. One can only remove one’s self from Bitcoin.
If you feel curiosity and you’d like to know about Bitcoin or, even more, if you are interested in holding some Bitcoin, please do not hesitate! Try it! You can hold one dollar, ten dollars or one hundred dollars worth of Bitcoin, if you wish. The amount does not matter! The experience is worth your time and the learning curve! You do not lose much by learning and by holding maybe $1.00 in Bitcoin. You lose more if you remove your self from the platform! Remember Bitcoin is wherever you are. Your country might want to keep you away from Bitcoin by making you feel doubts or fear. They can’t ban Bitcoin, though! Do not expect the press, traditional banks or your government to say “Bitcoin is good” in order to give it a try. The press, the government and the banks have their own interests and their own agenda. Do not let newspapers in your country or international news tell you what Bitcoin is. Ask, please, the owners of the Bitcoin Network, or the experienced users. They are not afraid of the news. They are very calm because they know that Bitcoin is protected by the unbreakable laws of Math and by computer cryptography. They all sleep in peace, because they know for certain that Bitcoin is humanly unstoppable.
If you’ve read all of the above, you should be inferring by now that Bitcoin is more or less the opposite of the money that your own country issues. Probably, in your nation, there is a central bank that creates the currency you have used during your entire life, since you were born. And probably this same central bank, with its power centralized in a small group of people, decides to whom they want to distribute this money they print, and to what extent their money will benefit some particular elites. At this moment, you will already imagine that this does not exist in Bitcoin. Well, you already know that, in Bitcoin, there is no power like the central bank. In fact, any person or any group of people who has the resources to put together enough computing power, can become one of the nodes that manage the Bitcoin Network. In the past, this job could be done by any PC. Now, for the sake of the security of the network, this job can only be done with big computers. But, there is no restriction on participation. Anyone who has a computer with enough power can connect it to the platform and participate in the management of the entire Bitcoin system. This is Bitcoin’s distributed system of democracy. Bitcoin, in other words, implies a total change of mentality. Bitcoin has brought a revolution to the world’s financial system.
You may say, however, that you have heard about some troublesome issues that Bitcoin is accused of. Possibly you have heard that Bitcoin is used for illegal activities, that Bitcoin is not safe, that some Bitcoin exchanges have been hacked, that Bitcoin damages the environment or that Bitcoin is a bubble without a real economic model. There are thousands of examples of negative information that you may have heard about Bitcoin and, of course, about the many other cryptocurrencies in the same way. Why are there so many negative informations about Bitcoin? Well, experienced users who have been leveraging Bitcoin Network for years understand the problem in this way: Bitcoin represents real Democracy; Bitcoin represents the power of the people and not the power of the wealthy; it is normal, then, for politicians and for the wealthy to be afraid of Bitcoin. Anyway, in this article, it seems valuable to debunk some of the negative positions for educational purposes, for new Bitcoin users or for anyone who is interested. Let’s see, at least 10 common accusations that come from the side of the status quo. You may want not to be misguided by these fallacies.
i. Real money like Dollars, Euros or Yens, is backed by governments but nothing backs Bitcoin!
False. A network of computers worth billions of dollars and a network of many millions of users back Bitcoin. New technological developments in the form of advanced software and new financial tools back Bitcoin. And the most advanced mathematical developments back Bitcoin. Nobody, in the whole history of Bitcoin, has been able to cheat the system. Bitcoin is the most solid modern technology. Science backs Bitcoin. The future of money is inside computers, not in the hands of politicians and bankers. Even the future itself is backing Bitcoin. If you have any doubt, please, ask native users of computers, the generation called “Millennials”, they perceive Bitcoin as better than any other kind of money. In general, Millennials are a social power that backs Bitcoin.
ii. Bitcoin is too slow and can never be able to handle thousands of transactions per second!
False. You do not judge the future of a nascent technology based on the initial period of development. Right now, as it is natural, Bitcoin runs at a slow velocity, like the Internet in the early days in the 1990s maybe. This is not a problem! This is not a bad aspect! This is natural! Technologies grow little by little. This even has a great side: since Bitcoin has not yet arrived to its natural full potential, and since we are in an early stage, price is still at a very affordable level, like Apple stocks 3 decades ago. One day, in a few years in the future, the price of 1 Bitcoin for only 20 or 30 thousand dollars might be seen as an unbelievable dream.
iii. Bitcoin spends as much electricity as a little country now, so it is not sustainable!
False. Bitcoin is managed by a large community of millions of users including an army of thousands of Engineers. As it is also a global network composed of many machines that have the important work to ensure the maximum level of security for all users, it requires to spend electricity. However, Bitcoin has been able to move to renewable energy mostly. Eco-friendly Bitcoin is now becoming true. The community and all the contributing devs will, nevertheless, lead Bitcoin towards more and more efficient energy spending in the future. Bitcoin does not use less energy than USA in finance! Bitcoin does not even compare the energy spent in the Military. And Bitcoin does not even come close the the immense amount of energy spent in regular transportation. Some experts have estimated that “in its 10 years of existence, (Bitcoin) consumed as much energy as US cars do in 3 days”.
iv. Bitcoin is used mostly by criminals and terrorists because no government controls it!
False. Bitcoin is one of the most inconvenient currencies to be used in crime or in terrorism. Even USA authorities have acknowledged the value of Bitcoin for national security, since anybody in the world can track all Bitcoin’s transactions. On contraire, the currency that is being used widely for all kinds of criminals is the US Dollar. But nobody would say “ban the Dollar because it is the currency of terrorists!”. Bitcoin keeps track of every transaction in the planet. Wrong doers do not like being traced!
v. Bitcoin is like a video-game token, not like real money!
False. Bitcoin is electronic data. Or, in other words, Bitcoin is electronic cash. Bitcoin is not printed on some materials as old money that was printed on gold coins or in paper bills. However, this does not make it a toy-like non-serious asset, or a valueless video-game token. Let’s remember that even US Dollars, Euros, Yens and most of the legal money nowadays is printed only inside computers. Only a few of the existing “real” Dollars take the shape of physical bills or coins. Most money now exists only as electronic data. Electronic data has very serious value and is not like video-game points. Bitcoin is not even the first electronics kind of money! Electronic money is old! Visa, MasterCard or PayPal are old electronic money systems. Bitcoin did not invent electronic cash. But, Bitcoin is the first electronic cash system that is not issued or controlled by a central authority!
vi. Bitcoin can produce only 21 million coins, so it can’t face adoption at a global scale!
False. The maximum supply of Bitcoins is 21 millions coins. So, there cannot be more more than 21 million coins ever in the future. This is a very positive limit imposed by design. It is not a weakness or a flaw! Right now, there are less that 18 millions coins in existence. So, a little more than 3 million new Bitcoins can be created in the coming decades. This gives to Bitcoin the power of scarcity. Bitcoin is scarce like gold! If you understand the importance of scarcity for the value of Gold, then you will easily understand the importance of scarcity in the number of coins in Bitcoin! This is an essential aspect in Bitcoin, since it is built to be useful and rare. Scarcity gives Bitcoin great chances to become more and more valuable. This rarity does not generate any special difficulty for global adoption, since each Bitcoin is composed by 100 million subunits, Satoshis. And each Satoshi can be subdivided into even smaller units. This is analog to gold’s divisibility. Mass adoption of Bitcoin is possible even with only one or two million Bitcoins. Current supply is enough to fuel financial activities of any scale!
vii. Bitcoin is just a bubble like tulips in ancient Netherlands, just ephemeral enthusiasm!
False. A mere bubble occurs when an asset that has no objective high value, or no real use, rises more and more in price to extreme unreasonable levels without any real benefit that could justify the insane valuation, like the famous case of the flower tulip in the Dutch Golden Age in the XVII Century. Due to overexcitement and irrational decision-making, during a bubble, people seem to be willing to pay crazy prices for an asset driven by massive hysteria. Tulip mania, for example, was so insanely irrational that “in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsworker”. Bitcoin has been compared to this kind of bubbles by people who do not understand the value of the software, the value of all the network of computers, the value of all the thousands of applications developed for Bitcoin as the value of all the institutional support, among the many factors that add value to Bitcoin. Bitcoin is high level software based on science and used by millions of people to execute decentralized governance of a distributed financial system. Its value has solid back-up.
viii. Bitcoin is not legal, so it cannot continue existing!
False. Bitcoin has proved that, thanks to the existence of software and computers, people around the globe can generate new organizations that work with liberty independently of countries and governments. Bitcoin has its own decentralized governance and rules. Bitcoin works more or less like a new kind of virtual country composed of thousand of communities of users from all our planet. The millions of people in these communities have decided to issue their own money based on fair public rules and not the rules of banks or millionaires. Bitcoin is an entire self-sufficient system. It does not requiere help or approval by a country. Just like a country that has sovereignty by the free will of its citizens, in the same way, Bitcoin users proclaim sovereignty by free will. Bitcoin has grown hugely thanks to the level of freedom and sovereignty it represents.
ix. It is not known who Satoshi Nakamoto – the creator of Bitcoin – is; Maybe he was a criminal! Bitcoin is shady!
False. A person – or a group of people – who became known under the pseudonym of “Satoshi Nakamoto” was the creator of Bitcoin and led the first steps in the development of Bitcoin as of January 2009. Satoshi had also published in October 2008 the formal document with the first details about Bitcoin, the popular “WhitePaper” of Bitcoin. Yes, it’s true that nobody seems to know who Satoshi was. We do not even know if Satoshi was a man or a woman, or if “he” was an individual or a group of people. However, we also do not know very well if Pythagoras scammed people during his life and that is no problem to use the Pythagorean theorems. Bitcoin is a scientific-technological development that does not depend on its creator. Also, Satoshi abandoned participation in the development of Bitcoin many years ago. In addition, in Bitcoin, power is decentralized. Not even developers have the power. The power is on the hands of users. Satoshi actually never had the power over Bitcoin! And now, if Satoshi is alive, he can only be one more user of the system. It does not matter who Satoshi is or was, or what Satoshi is doing, because, in Bitcoin, power is in the hands of the entire community.
x. Bitcoin is not regulated! Money must be under the control of law and order
False. Traditional money or fiduciary money – that is, fiat money – is created and controlled by countries. Typically, fiat money is issued by central banks. Executives of these central banks control the printing of fiat and its distribution – usually to private banks and to their allies -. Central banks can create all the money they want without limit. The fiat money system does not have much regulation or control. Central banks can print all the money they want and distribute it according to their convenience. In addition, although most people do not know it, central banks are usually private entities. Bitcoin, however, as a truly public platform, does have a system of rules that is recorded within its unbreakable code. Nobody in the world can alter this code. No one can cheat the rules. For example, Bitcoin has a maximum limit for its supply: 21 million coins. Nobody can change this limit. Also, Bitcoin does not see borders or discriminate cultures or types of people and nobody can change this. Bitcoin works 24 hours a day, 365 days a year, without anyone being able to change its rules or disobey its system. Bitcoin has its own law and its own order fully protected by the strongest financial technology and mathematical algorithms ever invented. Bitcoin’s laws and order are sustained by its whole community.
THE FUTURE OF MONEY
The 10 myths above are merely a small sample. There are dozens of negative myths that some people have created to damage Bitcoin’s prestige. Governments seem to have fun or enjoy through the activity of creating new myths against Bitcoin. Many large banks and traditional financial systems, in their nature of private companies, are dedicated to producing destructive information against Bitcoin. These private organizations are afraid of Bitcoin, which is a public organization without a centralized government. In general, many banks and corporations seem to be afraid. No wonder, then, if many negative myths appear in the mass media, on television or in official discourses. It’s natural! Bitcoin’s global community has an unstoppable dream: freedom with social justice! The people of the world are coming together and forming this great network, because they feel trapped in contaminated economic systems, because they feel that their money no longer has value, because they feel that their labor forces serve only the purpose of making others richer and richer, and because they feel that, many years ago, they lost all control on their own financial future. People want to regain some control. People want more opportunities for a better living. And people want transparency. That’s why more and more people are using Bitcoin, sound money issued and run by the users.