Presented By: Longform Saturdays
The problem with the question “What is Bitcoin?” is that people expect a clear answer. Bitcoin is an enigma wrapped in a riddle, hidden in some dark corner of the internet. Bitcoin is either too sketchy or too volatile or too complicated or too frustrating. Hodler’s and cypherpunks and memer’s of the printer goes brrrrrr twittersphere profess Bitcoin to be anything from freedom to gold with magical transportation properties to a nest of cyber hornets constantly protecting the hive. Most people have no idea what that last sentence means. Nor should they have to understand it to be excited about Bitcoin.
So, if you understood the excerpt about cyber hornets and magical gold and are feeling super cool about understanding Bitcoin better than everyone else… this essay is for you. Because those explanations make no sense unless your seven books down and thirty hours of podcasts deep into Austrian Economics. We need to figure out a way to explain Bitcoin in a ~normal~ way, if we want Bitcoin to maximize its potential.
And if you have been super confused for the last paragraph… this essay is for you. I am setting out to explain Bitcoin in the big picture. This is board strokes Bitcoin. Not granular.
Here’s the number one thing you have to understand: everyone brings their own perspective to Bitcoin. There is no right answer for what Bitcoin is. It’s one of those simple questions that proves impossible to answer. How many licks does it take to reach the center of a tootsie pop? What is the purpose of life? Why do we not have an electronic ballot system?
Everyone is going to have a different answer. Everyone is going to have different unanswerable questions. Everyone is going to come to Bitcoin with different expectations and concerns:
“I hear that this Bitcoin thing is used to buy *drugs*,” my Grandma whispers. “You’re not doing that are you?” she asks, glancing up from her knitting, giving me quite a ~look~.
“You can’t trust something with such a volatile price!” neighbor Ned lectures from across the street when I tell him about my recent journey down the Bitcoin rabbit hole. “Schwab does a great job with mutual funds… I hope you aren’t going all in on that crypto thing. Seems like a fad.” He says it with a smile and a swig from a miller lite can. He means well. He might be right.
“Dude, this shit is too complicated, hahahaha,” my friends say. “I don’t really care that much. I’m good with just normal money bro. Like, a private key? What? Mining? Huh? All I need is venmo and I’m good. ” I can’t say I blame them. This shit is complicated.
“So what is Bitcoin?” They ask.
Here’s how it usually goes.
I stammer. Then I stutter.
“It’s digital money. But also a store of value. Ok let me talk to you about Blockchain. That’s where miners come in. It’s a trusted, decentralized ledger! What’s decentralization have to do with this? Nevermind that for now. The production of bitcoins (lower case b) are deflationary! How cool is that. So satoshi nakamoto, nobody knows who he is! But yeah, he’s the inventor of Bitcoin. You can buy bitcoin on a bunch of exchanges but they’re quite sketchy. Private keys! Lots of possibilities and it’s protected by this cool cryptographic hash function. Easier to pick a grain of sand from the entire milky way galaxy full of sand than to guess someone’s private key.”
My eyes roll back into my head. My mouth is somewhat frothy. Hyperventilation is near. I’ve suddenly turned into a vegan posting about veganism on Facebook. I’ve turned into the one thing I promised myself I would never be. A Facebook Vegan.
I’m a Real Life Crazy Bitcoin Person.
They (whoever asked) backs away slowly. Like you would do if you came across a hungry bear in the forest and realized you were standing in front of a sweet berry bush.
I wish I would just shut up and ask questions. Spin their story back at them. If someone is interested in Bitcoin… they are going to have to think for themselves and be able to question their predisposition. I wish my conversations with people about Bitcoin would go more like this:
“So what is money?” I respond (remember when I talked about simple questions being the hardest to answer).
They look at me blankly. I smile.
“I hear this cash thing is used to buy *drugs*,” I whisper to my Grandma. “You’re not doing that… are you?” I ask, giving her a ~look~.
“You can’t trust anything with such a volatile price!” I shout from across the street, pulling up my Schwab portfolio… “I’ve had three 10%+ swing weeks in the last six months. Stocks are going up while the world is shut down! Hope you aren’t going all in on that stock market thing. You need an inflation hedge with all this stimulus money pouring in.” I say it with a smile. Neighbor Ned isn’t convinced. That’s ok. Maybe next time. It’s time to grab a Truly.
“Dude this shit is too complicated, hahahahah” I throw my hands in the air. “The internet says good money has 14 characteristics, but my econ textbook says it has 4. Apparently digital payments and credit cards and venmo aren’t actually instant transactions. Interest rates? What? Inflation? Credit scores? Huh? All I need is somewhere to safely secure my money.”
Understanding Bitcoin starts with understanding the concept of money… or at least, value.
The idea of looking at money (be it cash/gold/numbers in a bank account) from multiple perspectives is a wild idea. Money is so ingrained in our society it is taken as an absolute truth. Five dollars is five dollars is five dollars. It’s not something to question. My five dollars can go buy me three tacos from Taco Bell or entrance to my local high school football game or shipping for my next impulse purchase on Amazon. Five dollars is five dollars is five dollars… Until you ask… why is five dollars five dollars?
Here is where you take a break from reading this article to search up the characteristics that make good money. You should come across some scary list like: durability, portability, divisibility, uniformity, limited supply, and acceptability.
Basic idea is that good money can be used as:
- Medium of exchange
- Unit of account
- Store of value
Your five dollars is five dollars because that five dollars is trusted to function to some degree as a medium of exchange, unit of account, and store of value.
So what is Bitcoin, you ask?
First and foremost, I believe Bitcoin is the cross section between money and technology.
Bitcoin is so perfectly named. It’s almost too perfect. At its core, Bitcoin is exactly that… a piece of code (the bit), housed on the internet, that can be used as a medium of exchange, unit of account, and a store of value (the coin).
The fundamental concept of Bitcoin is easy to understand. It’s a digital form of value. A network of money. The internet of exchange.
My favorite Bitcoin thought experiment has nothing to do with the technicalities of Bitcoin. I believe you can understand the importance of Bitcoin without understanding how Bitcoin works. A lot of people disagree with me on this. Many people believe that Bitcoin only has intrinsic value if you understand the revolutionary nature of money being wrangled into digital form.
These people would include a bunch of diagrams and charts in an article like this examining the dying purchasing power of the U.S. dollar due to inflation. Or maybe they would throw in a table showing how the ‘blocks’ of the blockchain are connected to each other. There would be much talk about nodes and the first system of decentralized, monetary trust. I’m sure I am forgetting a bunch of really cool stuff about Bitcoin. If you’re interested in that sort of thing (aka the Bitcoin Rabbit Hole) go follow Pierre Rochard, The Winklevoss Twins, Peter Mckormack, and Michael Saylor on Twitter.
I’m not concerned with the technicalities. I’m a broad strokes kind of guy.
Bitcoin is a form of money. With strengths and weaknesses just as cash, gold, and those numbers in your bank account are forms of money with strengths and weaknesses. Bitcoin can be used as a medium of exchange, store of value, and unit of account to varying degrees of success.
Here’s the thought experiment you have to run:
In fifty years, in one hundred years, you choose the time table, will your investment in cash, gold, stocks, tech, real estate, etc., be able to match the opportunity cost of missing out on investing EARLY in the first form of digital money? Ask yourself that question. Fully think through it. Contemplate.
Bitcoin is the FIRST and largest (by several multiples) DIGITAL FORM OF MONEY in a world turning more digital by the minute. Probably by the second. This fact cannot be overstated.
If that doesn’t make you wildly excited… then me explaining the intricacies of hash rate, halvenings, deflationary mining, private keys, or decentralization isn’t going to convince you.
But if it does make you excited. If your interest is piqued. It’s time to buckle up. You’re in for a wild ride. Hopefully to the moon.
I can’t promise you that Bitcoin will succeed. It’s only worth 1/40th of Gold’s market cap and has only been around for 10 years. There is risk. There will be volatility and uncertainty. Yet I think it is worth a small bet most days. Some days I think it’s worth a huge bet.
Who knows. I don’t know. I can barely explain what Bitcoin is.
KRAM 