What is Bitcoin?
Satochi Nakamoto Created A Peer-To-Peer Electronic Cash System.
Bitcoin is the original cryptocurrency which was launched by the mysterious ‘Satochi Nakamoto’. While nobody knows who he or she or they are, Satochi Nakamoto has given the world a tremendous gift.
“The gift of decentralised money or a Peer-To-Peer Electronic cash system as described in the original ‘White Paper’.
You can read the original words of the white paper here for yourself. While we do not intend to go into the drama of the Bitcoin forks, Bitcoin (BTC) VS Bitcoin Cash (BCH) Vs Bitcoin Satochi’s Vision (BSV), and so on, we do think it is important for anyone discussing the issue to at least have read the bitcoin white paper.
Digging a little deeper into the concept of cryptocurrencies, and the true reason for their existence, is not only valuable for your own financial education, it will help you understand what decentralised finance is, and by extension teach you what a decentralised world & blockchain truly is all about.
Here at OnchainGuru, we subscribe to the idea that it does not matter which single cryptocurrency or set of currencies eventually win the battle for our hearts & minds. We simply believe that a globally accepted & trusted decentralised digital means of exchange and or store of value could become the base layer(s) for an alternative financial and economic system which could prevail for the next couple of centuries. While Bitcoin is the ‘Killer App’ in many ways, it’s the ‘blockchain’ which can propel our civilisation into the next dimension. Let us break this all down a little further.
So, what is a cryptocurrency?
If you are still wondering what cryptocurrencies really are or why they are needed, it might be helpful to start with an idea which humanity has already accepted as a concept, namely ‘digital currency‘. It’s the currency we are seeing written down on our bank accounts, credit cards, and so on. The thing you need to understand though, is that banks historically used to actually keep your paper currency or cash ‘as cash or backed by gold’, 1 for 1 in the bank. The biggest risk back then was probably a plain old bank robbery.
Nowadays however, banks only hold a fraction of your deposit in cash and everything else is basically just a ‘database’ entry or numbers on a screen. There is practically no more cash and banks do not have enough assets to back up all the ‘digital currency’ in existence on their books. We live in a ‘debt’ based financial system!
This is where you should stop and think for a second! If the cash is not there, and there are no real assets backing up your digital Euro’s, Dollar’s, Pounds, etc.., which you hold in the bank, then what are you really owning? It’s a debt based currency, it is NOT money! It’s the promise of value, but it is not backed by any real assets. The only counterpart is someone else’s debt! You are trusting the concept of ‘fiat money’ which can be created at will by governments or gets created with every new extended loan in our banking system. The truth of the matter is that most, if not all banks are essentially insolvent. The only thing which is maintaining this house of cards in place is the trust we place in the value of this currency which is being created out of thin air.
What would you think if one day you’d wake up and be denied access to your bank account? What happens if someone decides that you should work hard for your money but that they can just create a database entry and award themselves money they did not earn? Would you consider this fair? Honest? Democratic? Probably not… The fact of the matter is that you we are not in control of our own finances. Every time we buy food & groceries with your credit card in the store or have a drink in a bar, we are essentially asking permission to our bank to access our own, hard earned fiat money. Without this permission, you ‘own’ nothing!
Now, whether we like it or not, this is the current state of affairs. The current banking system and governments work hand in hand to do just that. This is where humanity is pushing towards another kind of monetary system where its citizens are actually in control when it comes to money creation and access to money. This is where the idea of accountability & Bitcoin comes in!
Bitcoin – The Invention of Decentralised Money
Advantage # one – Decentralised
In stark contrast to the banks who basically store all the information regarding your finances on a private and centralised server, Bitcoin offers its users a decentralised network which does not have a single point of failure. The Bitcoin you own is basically an entry on the public blockchain and each Bitcoin miner is essentially keeping an updated copy or permanent record of the ‘shared database’.
So why does a miner what to help ‘securing’ the blockchain? It’s simple! Bitcoin miners are earning new minted bitcoin every 10 minutes.
Advantage # two – Permissionless
So, we established that instead of trusting 1 bank with our data & assets, it makes more sense to trust in a system which has thousands of backups across the world in different jurisdictions to protect our wealth & data.
Now, let’s discuss a second advantage of the Bitcoin peer-to-peer cash system! Instead of having to ask permission to a third party to access our funds, we can transfer value on a permission-less basis. Within the current banking system we actually need to ask permission to access the payment transfer highway, so to speak. Bitcoin already has the payment system built-in, which in itself is revolutionary and in our humble opinion the singe most important aspect of Bitcoin in order to advance its adoption.
Advantage # Three – Money Creation
The reason fiat currency loses value over time has to do with the manner in which currency is created. While most people still don’t understand the mechanics of this process, currency creation in our current monetary system lies at the heart of many of our societal problems. Wars, dictatorships, they are all financed with this ‘funny monopoly money’ and the endless currency creation ends up destroying the underlying society over time as it eventually collapses in some way, shape or form.
To illustrate this further…, there’s this beautiful Disney story about the three little piggies and the big bad wolf. In that story it’s the little piggy who worked hard to build his house based on solid foundations which eventually is regarded as the moral winner as he can withstand the attack of the big bad wolf.
In our western collective mind we’d have this story ingrained as as an example of how hard work leads to safety and long-term prosperity. Now, If you would have to draw a parallel to an ideal monetary system, it should be ‘sound money’ prevailing! However, in our current monetary system the opposite it true. Those who are able to steal the fruits of your labor are really in control. Value creation is the labour of fools in a world where you can simply print money for free. Didn’t Donald Trump just offer to purchase Greenland from Denmark? While some laugh at this idea, he’d be absolutely right to do this while the US dollar is still worth something.
Bitcoin on the other hand, is based on the idea of ‘sound money’. Only 21 million units will ever be in existence. This means that as value is created by people’s labour, every Bitcoin theoretically would soak up that added value and due to Bitcoin’s scarcity price would rise.
The ‘blockchain genie is out of the bottle’ so to speak, but what does that mean?
To be continued…