What is Bitcoin? Simply put, Bitcoin is a cryptocurrency that operates on a blockchain. Of course, that doesn’t seem to make the answer any simpler. To understand what Bitcoin is, you must possess a basic understanding of economic theories, governmental regulations, and computational science. Let us start with the simplest one first.
Currency
A currency is a medium that allows for the sale of goods and services. Before the use of currency, all commerce would have been conducted by way of bargaining. Suffice it to say, currency is a more convenient way to trade for all parties. But have you ever wondered if that quarter in your hand is worth 25 cents? Before the abandonment of the gold standard, all cash was required in the US to be redeemable in gold. This meant that if you went to a bank with $100 cash, the bank teller was required by law to exchange it for $100 in gold. The rationale for this was strong financial stability because gold as a stock does not tend to suffer financially. However, new wealth creation was slower because the Federal Reserve was only printing money in relation to its gold reserves. Ultimately, cryptocurrencies became a theoretical possibility in 1933 when America abandoned the gold standard because the American dollar no longer required a physical asset.
Cryptocurrency
Most countries of the world maintain a strangle hold on what organizations are allowed to print money. This is to prevent international fraud, as well as to protect national resources. But most currency now is in fact digital, with banks acting as middlemen to verify that a company does in fact «have» money. Unless you are working under the table, all your paychecks are exactly that, a check or a direct deposit, a digital currency. Bitcoin is exclusively digital, with the only «minted» bitcoins are for promotional use. But Bitcoin is neither printed or minted, it is mined. Mining Bitcoin only requires a computer that can solve complex mathematical equations. So in theory, anyone with a computer could mine Bitcoin. This means that Bitcoin is a decentralized currency with no governing authority to decide who gets what, or how much can be mined at any given time. This is the defining feature of all cryptocurrencies, that it is decentralized, digital, public.
Value
As of this writing, one Bitcoin (XBT) is worth 9760.37 American dollars (USD). What gives Bitcoin so much value in comparison to what it physically is? The rules of supply and demand strongly apply here. The demand is incredibly high, while the supply is incredibly small, but more importantly will always be small. Supply and demand also applies to the value of national currencies. The USD isn’t just strong because of American industry and business, but also because many merchants around the world want and prefer to business in American dollars. This increases the value of the USD as a commodity. The value of XBT peaked on December 17 2017 when on XBT was worth 20,089 USD. It should be noted that on October 12 2009, the first time Bitcoin had financial value, one XBT was worth 0.0009 USD, making it worth less than dirt. It’s rise in value is attributed to it’s popularity as a useful digital currency as well as due to ongoing mining operations.
Bitcoin Mining & Blockchains
The surge in value of Bitcoin led to a number of young and tech savvy individuals becoming millionaires overnight. But who is to say how many Bitcoins an individual possesses in their digital wallets? Bitcoin operates on a blockchain, which is a public ledger of all Bitcoin transactions and mining operations. This ledger determines who owns units of Bitcoins, which accounts Bitcoin are coming and going into, and who is currently mining for new Bitcoin. A new block is created every ten minutes that is linked to the previous block on the chain. This keeps financial information both consistent and incredibly secure from criminal hackers and government cyber warfare experts. Once 2016 blocks have been added to the chain, the Bitcoin network will adjust the difficulty of mining new bitcoin.
What this means in practicality is that the more mining operations that are going on make it harder for the network to recognize new Bitcoin. So the more Bitcoin that exists, the harder it is to mine for it. This ensures that no one person, company, organization, or country can control the majority of Bitcoin out there. Conversely, if Bitcoin were to lose all public interest and most mining operations halted, those who continued mining would have a much easier time and would create new Bitcoin much quicker.
The Usage Of Bitcoin
So what is the use of decentralized cryptocurrencies like Bitcoin? Unfortunately for the average person there is little use for Bitcoin. The initial reason is that supporting the Bitcoin blockchain, as well as mining new Bitcoin is an extremely computationally labor intensive task. Big Bitcoin mining operations literally have thousands of computers dedicated to mining and adding to the blockchain. That means you would be lucky to mine enough Bitcoin to afford a cup of coffee every two weeks if you used your home pc. But the bigger problem for your average Joe is that there is hardly anywhere online you can spend Bitcoin. You cannot go to most major online merchants and purchase a product with Bitcoin. Typically, but not exclusively, the only «merchants» that allow the purchase of their products with Bitcoin are gangsters.
This will always remain in the dark history of Bitcoin that it’s rise in popularity started from the support of criminal elements that were selling narcotics, soliciting prostitution, and distributing child pornography. However, in the defense of Bitcoin, printed American dollars have all been used for the same thing. The American dollar did not suffer because it was the currency of choice for Colombia cartels.
If someone is interested in investing in Bitcoin, and using it for legal purposes, they should think of it as a commodity or stock, and not as a currency. Since mining is an unrealistic prospect for most, Bitcoin is mostly received by trades and exchanges. You buy when its value is low and sell when its value is high. But despite that Bitcoin is publicly traded at a number of stock exchanges around the world, there is completely no governmental oversight. This is off course by design, and viewed by some as a benefit and not a problem. However, 23 countries have banned the ownership and transactions of Bitcoin.
Who Is Bitcoin For?
Given all this information, who is Bitcoin intended for? You can be the judge of whether it is a worthwhile investment, but the creation of Bitcoin will always be rooted in anti-authoritarian ideology. Cryptocurrencies are a form of pure free market capitalism with anarchists on the left and libertarians on the right all crying out, «we do not need your nation’s money! We will make our own!» Even if you are not one of these young ideologues, when you use Bitcoin, you are always acting outside the law, but not necessarily against the law. Bitcoin is for those who wish to remain on the outside.
Written by: DLBrulotte
