Bitcoin. AKA, the world’s first digital form of money (or something like that).
I think learning about Bitcoin might change your life because I think it might change the world.
This may sound like a rather bold proclamation for the second paragraph of an essay, but I’m going with it (and so are institutional investors (to the tune of $30 billion (more on that later)).
Scoff all you want. Please. Let’s get those scoffings out of the way. Scoff like you are the world’s foremost candle casanova and you have 5000 years of proof that fire is the best source of light. That Ben Frank guy and his ‘electricity’ fad will never catch on. Scoff like you’re a successful horse drawn carriage tycoon after the first car was invented. Those silly hunks of metal will never take over the tried and true method of hoof on dirt! Scoff like you were the CEO of Motorola (or Blackberry) back in 2002. Ain’t no way anything could be better than such cutting edge mobile devices! Scoff like you’re an old school basketball fan who loves the art of the mid-range jump shot. Three pointers are bad shots and a jump shooting team (cough GS Warriors cough) could never win the NBA championship! …
Now come back from the scoffing precipice. Re-adjust your glasses. Take a sip of coffee. Boomshakalaka. The price of Bitcoin has probably risen like 5% since I wrote that scoffing paragraph. You need to get movin, cuz right now you’re early to the Bitcoin party, but you’re not that early. You are like 5 minutes away from being right on time.
All I ask of you is a bit (pun intended) of your time and a couple ounces of your full #attention. I want to tell you about this Bitcoin thing. Ya know, the one you keep hearing about. Maybe in a news clip there. Or an article in the newspaper here. Possibly you ran into it through a post on social media over yonder. It could be that you overheard a random conversation on the subway. Who knows where ya heard it first, but you’ve probably heard of it.
Let me tell you more about it. So you can sound smart and in the know and also so I can get some of this information out of my head and into the world.
Section 0: The Prologue to the Monologue
We’ll start with a trio of miscellaneous musings (mostly because I like the alliteration).
*Bitcoin is not a:
Stock
Currency
Company
Bitcoin is a something that can be:
- traded like stock
- used as a currency
- held by a company
It is both internet and money but not just internet and money.
Calling it a fake piece of digital money is not wrong, but it’s not, not wrong.
*You can buy a little bit of Bitcoin or a lot a bit of Bitcoin. One Bitcoin can be broken into 100 million pieces. We call those really small pieces Satoshi’s (don’t worry about why (yet)).
The ratio of 1 satoshi to 1 Bitcoin is the same as 1 cent is to 1 million dollars.
So don’t be sad when you see the price of Bitcoin at ~20,000+, thinking you are priced out of the market. You can buy small pieces or big pieces, whatever fills your moat.
*Bitcoin is:
- confusing
- hard to explain
- and confusing
Did I mention that it is confusing?
There is no easy question to “what is Bitcoin?” It is to you what it is to you and it is to me what it is to me and it is to random guy on the internet what it is to some random guy on the internet.
Here’s the main problem, in the opinion of me, myself, and I —> everyone who understands and uses Bitcoin is way too smart to explain Bitcoin in a way regular people (like me!) can “get.”
This here is an attempt to explain Bitcoin in a way that is
A) educational
B) somewhat fun
C) non-technical
D) correct
I wrote this baby in 10 sections.
Breakdown of the Sections:
- Uno y dos are a warm up, a sneak peak into the Bitcoin-verse (which sounded way better in my head, I should’ve just written Bitcoin universe).
- Sections 3 and 4 were written to make you sound smarter and use big words.
- The fifth and sixth portions of this rather long monologue try to clear up some of the muddy waters surrounding Bitcoin.
- VII is just there to confuse you.
- Ocho, 9, and ten should get you excited (if you make it that far).
We’ll start with the warm up.
~Drum roll please~
start reading in a Morgan Freeman voice
Section 1: The first and most important rule of Bitcoin is…
There will only ever be 21 million bitcoins created.
Context time! There are over 46 million millionaires in the World (according to Google, which is better than according to Facebook but worse than according to the one news outlet you trust because the ~other~ guys are so biased).
You do the math (or pull out your phone because mental math is soooooo 1983). Ok, ok, I’ll do the math: there are not even enough Bitcoins for those stuffy millionaires to each have one. Moral of the story: 21 million Bitcoins is really not that many Bitcoins.
More math! Let’s assume that Bitcoin becomes popular enough that everybody who uses Uber decides to throw some money into Bitcoin. People who Uber seem like the kind of hip, in the know people who would be interested in digital money.
Guess how many people use Uber? The internet says 78 million people. 78 million people use a car sharing service that was started less than ten years ago and has been surrounded by controversy (shoutout to Lyft, more people should use Lyft).
That means each Uber user would only get (quick mental math) less than a third of a Bitcoin.
- now please forget about the Uber comparison from here on out because Bitcoin has nothing to do with Uber. It is just a good example of new technology catching on quickly and successfully
Bitcoin. Is. Scarce.
Get your ticket before they run out. Right now you can buy a Bitcoin for ~20,000 dollars. That’s with only 25 million owners (type in “how many people own bitcoin?” on Google, don’t trust my silly internet words).
What happens when every Uber user decides to use their hip, in the know-ness to buy a coin? That almost triples the demand! I may not be the smartest cookie in the Tiff’s Treats box, but I did get an A- in Econ 101.
When demand increases, price increases, until supply rises to match demand (look up Supply-Demand curves on Youtube for a refresher if this is giving you Freshman year PTSD).
If the supply is capped at 21 million, what will make that supply curve move? The price!!! As the demand for Bitcoin rises, the price will keep pushing higher and higher and higher because supply cannot be increased through production.
The only way to convince someone to sell their Bitcoin is to bid higher and higher prices, because there will only ever be a certain amount made.
Section 2: Why does Bitcoin’s Price Chart Look Like a Mountain Range?
Bitcoin is volatile. Crazy volatile. Like oh my gosh there is the possibility that I lose all of my money volatile. The price jumps around like a second grader forced into a double dutch jump roping competition in gym class on a particularly rude Tuesday morning. The price can fall unexpectedly, then jump right back up with exuberant resilience, and then find a groove until the next time it gets tripped up (shoutout to Mt. Gox for being a particularly terrible double dutch partner).
This is to be expected. Bitcoin is ten years old. TEN. Guess how old gold is (it’s around 200 million years old according to a sketchy website I found using Bing because sometimes you need to use Bing to remind yourself that the grass isn’t always greener on the other side).
Bitcoin is a child compared to Gold or money or any other ~money thing~ you are currently thinking about like “ohhh but Bitcoin is so volatile compared to this thing I think is so cool” (cough stock market people).
I say all of this as a warning because a lot of people have lost their money, especially if they invested in 2017.
But do keep in mind that Bitcoin has been the best performing asset of the decade (internet search “best performing asset of decade” to fact check me). It has grown an average of 363% per year over the last four years. If you have bought and held, you are almost definitely in the green.
Bitcoin may be volatile, but it usually trends upward.
I like to think of Bitcoin as the illegitimate child of the internet and money.
The internet, as we know the internet, has been around since the mid 90s. The internet revolutionized the way we communicate (email), shop (Amazon), entertain (streaming/Netflix), work (Zoom), and interact (aka we stare at our phones the whole time doing our best to pretend the real world doesn’t exist).
Money has been around since, ummm, forever. It’s part of life. We use it every day and probably don’t even think about what money actually is. Like seriously, why do ten pieces of paper stamped with George Washington’s weird haircut let me purchase ten tacos from Taco Bell? It’s literally a green piece of paper with a dead dude on it.
Well, it’s because (time for Econ 101) we trust that ten dollars is ten dollars is ten dollars. It’s ingrained in society (it’s actually because we trust the United States to keep ten dollars worth ten dollars and that paper bills do a good job as a store of value, medium of exchange, and all those other Econ 101 terms about characteristics of money… but that is just too complicated and hurts the brain).
Bitcoin is the internet version of money! The dollar bill, be it a piece of physical cash or that number sitting in your bank account, Venmo balance, or wherever you keep your money, is a legacy of the old, paper based system of money (if you’re going to become a Bitcoiner, start calling dollars “fiat” in a really condescending tone).
Bitcoin is the cross section between money and technology.
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.
The way we use the dollar is outdated. Cash is Blockbuster and Bitcoin is Netflix. The Dollar is the U.S Postal Service, Bitcoin is e-mail. The faces of George and Ben and Andrew and all of those dead old fellas found on those green pieces of paper you so love are going to be no match for the digital wave of money that Bitcoin has pioneered.
But…
It’s going to take a long time for this new money to find its value. We are living in the VERY beginning of Bitcoin’s existence.
Thought experiment (not based on historical accuracy but also not, not based on historical accuracy): what do you think happened when Gold was first introduced as a currency? The first piece of gold was probably bought for like two shells. And then the next week as the utility of gold as money was found to be pretty freaking good, I bet the price of gold skyrocketed to like five shells and a lamb. Or something like that. This is what we call price discovery.
Volatility is to be expected during the phase of price discovery. It should make you excited. There is opportunity here to 5x your shells and lambs. There is also the possibility of losing your shells and lambs.
~This is a very, VERY simplified version of price discovery. The real process of an asset finding its price is much harder to understand and involves a lot of math (ew). On top of that, the history of gold is rife with he said, she said, they said and it would take at least 10 pages of boring background information to really flesh out this example. So just do the thought experiment and move on 🙂 ~
All that being said, I would recommend only investing an amount of shells and lambs that you can lose without going hungry in your hut until you understand Bitcoin enough to sell your hut to buy Bitcoin.
So buckle up. Download some apps to watch the price. Buy the dips and hold the highs.
Section 3: A Peek Behind the Curtain
The technology behind Bitcoin is called Blockchain and you should remember that name. Blockchain is what makes Bitcoin such a game changer, it’s also what makes Bitcoin so gosh darn confusing. That’s because it’s technical. It uses words like nodes and hash rate and mining and decentralization. Ew.
Here is what you need to know about Blockchain. Blockchain is the way Bitcoin holds your money/value. Blockchain holds together Bitcoin like the internet holds together Facebook/Amazon/Apple/Google/etc. Without the internet bringing information and power from a million different places, those services wouldn’t exist. Same with Bitcoin. Bitcoin would not exist without the blockchain constantly holding it together.
Sooo, the question is: what is blockchain?
In broad strokes, the blockchain is THE journal maintained by hundreds and thousands of computers across the world working together to record each and every Bitcoin transaction.
I hope you read that sentence and thought to yourself: “self, doesn’t that just sound like how the internet works? Also, isn’t that how normal banks do their banking things?”
The answer is yes.
Here is where I will go full info-mercial on you. Queue the “but wait… there’s more” and roll out the boat that I’m going to saw in half and then glue back together using flex seal (if this allusion is lost on you… click this link https://www.youtube.com/watch?v=httSHnNXN10).
The Bitcoin blockchain is ~special~ because nobody is in charge of it! Gasp. Seriously. Nobody is in charge of your bitcoins. Bitcoin let’s the blockchain decide who has what bitcoins.
Bitcoin is decentralized. That is a big word that basically means you are trusting thousands and thousands of computers to run a constant audit of who owns which bitcoins instead of trusting say, Wells Fargo, to hold your money. It’s freaking magical.
Now the question becomes whether you would rather have Kurt from Wells Fargo (Jake from State Farm’s cousin) handling your money or a nameless set of thousands of computers across the world. Both are weird when you think about it. Both involve a lot of trust.
I mean, I am sure that Kurt is a great dude… but Wells Fargo? How can we be sure they are making correct decision s with our money or how can we be sure that they actually have our money for withdrawal when we go ask for it? When you really sit down to think about it, it is kinda of scary.
That is why I think the blockchain is so cool. It takes the qualitative human characteristic of trust and turns it into a few lines of code. Instead of relying on Kurt from Wells Fargo, you can look at this open ledger of value and bet on the computers in the network to make sure your money safe and in the right place. And lets be honest, computers are much better at math than us silly homosapiens.
Don’t let people scare you away with a scary word like blockchain. It’s simple. It is a new way to store data, in the case of Bitcoin, to store value. It is an open journal of transactions showing who owns which bitcoins, constantly being secured by thousands of computers around the world without relying on a bank or middleman. Woah.
Section 4: Calling in the IT Guy
To understand Blockchain… you have to get a little technical.
Dear non computer people,
Please hang in there. I am going to try and make this painless. Or not that painful. I am going to try and make this the mouth swab covid test compared to the sharp-pointy-needle-from-hell nasal swab test from an angry Walgreens worker. It’s still going to suck, but it’s not going to suck quite as much (hopefully!).
To understand Blockchain, you have to get a little technical… but you can also just start asking questions.
Here is a question you probably have: Why are there only 21 million bitcoins and how are they created (remember, from number 1!!!!)?
Here is another question you have probably asked yourself by now: why is it called blockchain? This seems neither blocky nor chainy. What do these chained blocks have to do with these vague journal things. What the heck.
Here is the third question you most definitely have bouncing around that brain of yours: how do we know that those transactions are correct in those silly weird journal things? Just because a computer says it’s so doesn’t mean it’s so.
Welcome to the dark side of blockchain. The nitty gritty. The settings of your iPhone. The input button on your living room remote. The instructions on how to unjam your constantly jammed printer. Oof.
The blockchain of bitcoin (the decentralized transaction thingy that is super cool) is generally structured by the concepts below.
I already gave you a hint to rule numero uno: there will only ever be twenty one million Bitcoins ever made. It’s a super cool idea. A hard capped asset. Woot woot.
So, how are they made? Well, Bitcoin, like gold, is mined. Mined!!! Except instead of having a bunch of fellow human beings doing manual labor to find chunks of cool looking metal, Bitcoins are mined in a computer race.
It’s kind of complicated, how this race works. Here is the main idea: mining is a raffle, using computer power to buy tickets. The more computer power (aka electricity and specialized equipment with cool names like Asics) the better the chance of winning the raffle.
The winner of the raffle is first computer to solve a super complex and difficult math problem. The math problem is so hard, in fact, that the only way a computer can solve the equation is by the tried and true method of guess and check.
The more computer power you have, the more guesses (computations) you can do per second, giving you a better chance of finding the answer to the super crazy math problem. That’s why I call it a raffle. Miners are basically purchasing crazy amounts of electricity and equipment in order to have the best chance at finding a random number.
The race takes roughly ten minutes to complete (because the BTC source code says so). One lucky computer, the winner of the raffle, is rewarded with Bitcoin!! This is how Bitcoin is made. It is a reward for winning a weird math raffle race. Gosh, Bitcoin is nerdy.
When Bitcoin was first invented, there were 50 Bitcoins awarded every 10 minutes.
Every 4 years, the reward gets cut in half (why… because source code!!). We call those days Halvenings because we are weird people. Right now, a miner is awarded with 6.25 Bitcoin every 10 minutes.
Here is where the question of “why the heck are there only 21 million bitcoin” merges with the question of “I still have no idea what blockchain is can you please just get to the dang point?”
The blockchain, as I talked about above, is a decentralized journal of transactions that nobody is in charge of (but actually everyone is in charge of… it’s complicated like Ross and Rachel on a break complicated).
The blockchain, the place that stores all of the transaction data, is updated every ten minutes… coinciding with… dot dot dot … a new set of rewards for a miner!!
The miner who won the raffle has a second duty. The winning miner, that cool cat, sends out their version of the public ledger with all of the new Bitcoin transactions that happened in the last ten minutes along with their reward.
If these transactions are accepted by the community (aka a bunch of computers spread across the world, trained in the art of the audit), then that BLOCK of transactions is accepted and the Bitcoins are sent criss crossing the world (for a small fee that also goes to the winning miner). These BLOCKS are put together every ten minutes, creating a CHAIN of transactions that can be tracked from the beginning of Bitcoin’s life.
Once a block is created and accepted, it is final and irreversible. Like Game of Thrones season 1 irreversible (like Ned Stark head is still rolling somewhere irreversible).
Woah this section is getting long. We’re almost done. Sort of. Kinda. Maybe. I don’t know.
Welcome to the inception chapter. The dream within a dream. Within a dream. Cue the spinning top (if you do not get this reference… ok boomer).
What does 21 million coins, math raffle tickets, and a blockchain being audited every ten minutes have in common?
Absolutely nothing! Lol jk.
It has to do with trust! The hardest part about this whole Bitcoin thing is trust. Bitcoin is basically just a few lines of code (and code is just a bunch of rules for computers to follow).
The moral of the story is that you have to trust the code. You have to trust the rules of the system. There will be 21 million bitcoins and only 21 million bitcoins. The blockchain is decentralized and can be audited every ten minutes. The transactions on the blockchain are correct because a bunch of computers came together and decided they are correct. Once a set of transactions are on the blockchain, they are irreversible and forever.
Is that crazy? Yes. Is it crazier than using your computer to send mail or a robot to automatically add something to your grocery list? Maybe, maybe not.
Blockchain is complicated. I only went into the barest of details. I didn’t use weird terms like hash rate or proof of work consensus or double spending or Byzantine general or SHA 256 or timestamp, or anything like that. That stuff is good to know, but not NECESSARY in understanding Bitcoin.
If you remember anything about Blockchain just remember that it does three things super well. (LIST TIME… I LOVE LISTS):
a. Blockchain tracks ownership of goods (aka data). Items on a blockchain are immutably and irreversibly owned (don’t make me bring up forks right now, put ur damn utensils away and keep reading). What does this mean? It means that any piece of information on the blockchain cannot be copied, stolen, or recreated without the entire system breaking down.
For Bitcoin, this means that Bitcoins can only be owned, spent, and transferred by a single person (or entity) to another and then that person, and that person alone, can own, spend, or transfer said Bitcoin.
This is wild. Seriously, put your thinking cap on: what is the biggest problem for creators on the internet? Owning their art, music, or content. Blockchain allows for unique and verified pieces of digital property! WOAH. I think blockchain is truly a revolutionary invention.
b. Blockchain sounds cool. Hahahah, just kidding. Well, I mean, it does sound cool and makes you sound smart if you use it in a sentence. Any sentence. It doesn’t even need to make blockchain (see, I proved it by replacing “sense” with the word blockchain and you just went with it). The name is so cool it gets its own section on this list. I make the rules. Deal with it.
c. Blockchain decreases slippage. Uh-oh, big words again. What the heck is slippage? Slippage is error. Slippage occurs when you have complex structures with multiple points of connection. At these points of connection two things usually happen: the complex structure gets bogged down and clogged OR the complex structure starts getting rid of information in order to run on time.
Think of any inefficient system. Struggling to come up with one? Here are two examples: sending money overseas and voting.
-Sending money overseas is as simple as clicking a button and waiting 10 minutes (for the blockchain to do its blockchain thing), instead of the weeklong, bank-bank-custodian-bank-custodian-bank-bank-each-takes-their-own-percentage-cut thing that is generally accepted as overseas wire transfers. Blockchains take away the banks most powerful weapon for making money: no more middleman. And when there are no more middlemen, then transaction costs go down, which means you have more money (woohoo!).
-Voting for our President is as easy as confirming identity and hitting the “Screw it, Kanye West 2024” button, instead of watching middle aged white men touch their maps for three days straight on the scary TV in order to decipher who won which gerrymandered county. By capturing transactions on a blockchain, governments could have a verifiable, auditable trail, where no votes could be changed, removed, or illegitimate. The technicalities of such a system are probably crazy and still five years away from being five years away, but it is a possibility.
Blockchain puts banking, supply chains, and data directly onto the internet. Before the invention of Bitcoin, there was no such thing as digital scarcity, nor digital ownership. Bitcoin changes everything because it proves that blockchain is a valid way of owning something on the internet. I’m not smart enough to figure out the all the implications of that sentence, but it sounds pretty damn awesome.
Anyways.
Section 5: The Mysterious Mr. Nakamoto
The guy who invented is named Satoshi Nakamoto.
P.S. Congratulations for making it through Blockchain. That stuff can get ~tiresome~
P.P.S. It’s about to get weirder.
Nobody knows who invented Bitcoin. We have a name. Satoshi Nakamoto. We have a bunch of emails, a white paper (which you should DEFINITELY read), and a lot of blog posts with titles like “Satoshi Nakamoto Lived in London While Working on Bitcoin. Here’s How We Know.” Articles like that crack me up.
Anyways. Back to my dude (or dudette?) Satoshi.
Here is what we know for sure about Satoshi: he/she/they/them/ wrote the white paper and registered Bitcoin.org in August of 2008. In January of 2009 the code went live and the first ever block of bitcoins were mined by Satoshi. This is called the Genesis Block, which is such a perfect freaking name.
In this genesis block, Satoshi left a message (encoded, obviously). Don’t worry about how he/she/them/they encoded a message in a block on the blockchain. Just… accept it like you accept those terms and conditions on your Netflix account every month when your subscription automatically renews… with blind faith.
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
This is a reference to the cover story of The Times on Jan. 3, 2009. Nobody knows for SURE why Mr. Nakamoto decided to include this little tidbit in the genesis block of the first secure form of digital money ever created.
But I’m pretty sure it’s the most aggressive-aggressive subtweet of all time.
Bitcoin was born into the post 2008 hellfire and brimstone economy, rife with debt and bloated with government funded bailouts. At least, that is what I gathered from Margot Robbie in “The Big Short” (it’s a movie about how f’d up the economy got because of greedy banks and bad loans and a crazy housing market). I was 10 during the 2008 crash.
The Genesis Block is Satoshi’s checkmate, his ultimate flex. By creating this little piece of digital gold, Satoshi created an escape route from the current monetary system. No longer does the world rely on governments to act responsibly to protect the value of money. Satoshi gave us Bitcoin, a fully independent system of money.
After the Genesis Block, Satoshi kind of faded away. His responses to emails dwindled and his involvement with coding dissipated. Nobody knows who he/she/they/them are. Lot’s of people have tried to figure out who it is behind the white paper.
I honestly don’t care. Like, do I know who invented the internet? No (I mean I could look it up… but, ummmm, who cares?).
Do I know who came up with the idea of money? No.
So why should I care about who invented internet money?
Great question.
Authors note —> Apparently I missed a perfect opportunity to make an Al Gore inventing the internet joke about 4 lines ago. I went back to try and slide it in, but I couldn’t quite make it work, so I’m leaving it here. Sorry
Section 6: The Difference Between a Somebody and a Nobody
Bitcoin is NOT anonymous. Bitcoin is psuedyonmous.
One of the biggest arguments I hear against Bitcoin is that it’s some sort of black market money where,
basically, the people using Bitcoin to purchase illegal drugs are getting away scot-free. Scotch-free. I don’t really know what that saying means or where it came from.
This is not true. Well it is kind of true. In reality, Bitcoin is much more like cash than cash would like to admit. It leaves a trail, but a trail that is harder to follow than a basic credit card transaction that goes directly to your bank account.
Everyone who interacts with Bitcoin leaves a digital trail. Remember that confusing thing called blockchain? Remember the concept of a gigantic, public journal that constantly records transactions every ten minutes? If not, go re-read the section that looks two paragraphs too long.
No, seriously, go re-read it, I’m not re-writing it.
Ok, glad you’re back. Anyways.
The blockchain records each and every Bitcoin transaction (though for some big transactions on exchanges or for small transactions on Lightning it gets more complicated). How does it record these transactions? Great question. Can you tell I love rhetorical questions?
Research project: go to google or bing (you animal) or duckgo or wherever you type things like “what will the weather be like today?” and type in “blockchain.com/blocks”
Then click on the first blue set of numbers in the “Height” column.
You should be looking at a screen named “Block 66xxxx” with a bunch of weird categories like hash, confirmations, timestamp, and merkle root. If you are confused, you are in the right place. If you are not confused, stop reading this article and do something more productive with your time like build a rocket you rocket scientist.
Ignore all those really confusing words and keep scrolling down until you find the “Block Transactions” section of the webpage.
Now look at the transactions. Look real closely. Squint. Deduce. Think.
Ignore the “Hash,” which is on the first line. That is calculus. This is English class. Chill out.
Ignore the “Fee.” You already understand the fee. It is the price a sender of Bitcoin pays to the miner for securing their transfer. Easy stuff.
Focus on the second line.
It should look something like this:
1B1LL6LZjeoA7wp51vcJydMSQiEL6mUYp9 0.21715468 BTC —->
18zGdvQAsCXPKENEWUx6uSxq6Uz8uUCd7q 0.21615468 BTC
Explanation For Weird Looking Thing Above:
1B1LL6LZjeoA7wp51vcJydMSQiEL6mUYp9 is probably some guy named Bill in Iowa sending some Bitcoin to his son in Florida.
His son is 18zGdvQAsCXPKENEWUx6uSxq6Uz8uUCd7q.
Those really long confusing strings of letters and numbers are called public addresses. It is the address for someone’s Bitcoin wallet. It works the same way email does, except instead of a nice and easy to remember email like littlekidlover@hotmail.com (SHOUTOUT MICHAEL SCOTT), Bitcoin uses a random string of 30 alphanumeric characters.
Bitcoiners are extra. It’s what we do.
This address thing looks sketchy, I admit. However, it is not anonymous. Your public address can be linked back to you pretty easily (for companies and the government, not easy to do in general) because you had to purchase the Bitcoin using dirty fiat. You probably used Coinbase or Gemini or Kraken or River to purchase your Bitcoin and those companies can track your purchase to your new public address.
There are whole companies that do only this. Chainalysis has the best name so I will put it here as an example.
I say all of this to prove one point.
And I shall get to it soon.
I promise.
As I already said, one of the main arguments against Bitcoin is that it is drug money or that it is used on the black market. And before you start screaming SILK ROAD at the top of your lungs, I will concede the point that yes, Bitcoin did get it’s start as the currency for drugs.
Please stop here to look up Silk Road if you have never heard of it before. The gist of the story is that some Austin kid named Ross started a drugs for purchase website on the dark web that used Bitcoin as the main currency. It was a huge scandal. HUGE. Really a bad look for crypto.
However, just because some people used Bitcoin to purchase drugs, doesn’t mean ~everybody~ or even ~mostbodys~ use Bitcoin as some sort of gateway currency.
People scream from the rooftops about Bitcoin being criminal currency… and then go and use cash like it’s not the same thing. Fun fact: cash is hard to track and people use it to buy drugs! I don’t hear anyone calling for the dollar to be destroyed (I just hear the printer brrrrrr’ing, effectively destroying itself).
The way public addresses are set up makes it SEEM impossible to track who is who and what is what. It looks supercalifragilistexpialidociously confusing, when in reality it is only super confusing.
If you are new to the space, just imagine that crazy 30 character alphanumeric line as an email address written in an alien language. You don’t need to know how to translate it or anything, all you have to do is know which address is yours and which address you are attempting to transact with.
There is no difference between this characteristic of Bitcoin and how people use cash. The only difference is that Bitcoin is on the internet and cash is in ~reality~
Ok boomer.
Get over it. We don’t live in reality. We live online.
Section 7: Bitcoin isn’t cool yet, but neither was Bill Gates in High School (probably)
If Bitcoin were easy to use it would already be cool.
Don’t get me wrong… Bitcoin is super cool. But it’s not ~cool~
Here’s why: it’s a bugger to get your hands on, even more of a bugger to use, and even buggier to secure.
I’m putting this section tucked away at number 7 so you’ll hopefully skim over it and just buy some Bitcoin, but for you readers who have stuck with me through the many mediocre jokes and parentheses, here is where I bare the dirty laundry for all to smell.
I think three things make Bitcoin especially difficult to use (LIST TIME):
First things First—> there are very few places to purchase Bitcoin and even fewer places to purchase Bitcoin reputably
We call these places, the places where you can exchange your silly green pieces of paper for strong willed bundles of digitally scarce electricity, exchanges. Because you exchange your money for crypto. Sometimes it is that simple.
The main exchanges in the U.S. are Coinbase, Gemini, Kraken, and Binance. There are a few more and I bet many people would disagree with those four as being the main four. Whatever. I’ve used and interacted with those four, so I’m gonna write about them.
Here is what I will say about the exchanges: the user interface is pretty awesome and very intuitive. If you have ever used a mobile finance app (Schwab, Fidelity, Robinhood, Acorns, etc), then you will geek out at how easy these companies make it to purchase Bitcoin.
Caveat to the user experience: setting up an account requires a lot of personal information. For those of you who hate giving out personal information on the web, then you will probably blanch at the fact that Coinbase asks for your Social Security Number, Driver’s License, and bank account information.
You can look at this two ways, in my humble opinion. You can freak out and immediately stop filling out your application, shut down the computer, and go double check your bank account on your phone because GIVING OUT YOUR SOCIAL SECURITY NUMBER ON THE INTERNET IS BAD AND YOU WILL DEFINITELY BE HACKED. Or, you can freak out, close the tab, and think to yourself: “hmmmm, self, doesn’t my bank ask for that information too?”
Well, self, your bank does ask for the same information (SSN, DL, etc). These crypto companies are mandated by the U.S. to require all of that information from their customers before selling them any crypto. It’s not the exchange’s fault, even though you want it to be their fault. I’m not going to tell you these exchanges are the ~safest~ place to enter your social security number. I’m just saying that most of them have decent security and that you should, maybe, probably be ok.
Let’s get to more monologuing about the ineptitude of the exchanges. Aside from them being really nosey (social security number, really?), they are expensive. Not that expensive. But like, annoyingly expensive. Like going to a sandwich shop and paying $11.42 for a turkey sub, chips and fries instead of the $9.72 you were mentally preparing for.
Here’s the truth. You are going to have to pay roughly 1%-2.5% on each and every crypto purchase you make through an exchange. For you Robinhooders, this will hurt. For you boomers (sorry boomers, y’all are so nice, I’ll stop being so mean) this should make since because you grew up in the world of commission fees. The 70s and 80s were wild man. Or so I heard.
Anyways, those transactions fees stack up. But whatever. I’ve made up the transaction fees and much more in my time in crypto.
Before I move on to the second bullet point in the section of dirty laundry, I will also point on that exchanges are also a bad place to store your Bitcoin. They are big targets for hackers trying to steal your precious little portion of the 21,000,000 pieces of heaven. There have been some nasty hacks on exchanges.
Search up Mt. Gox. Read some reviews on Coinbase on the internet. Read up on Okex.
Do yo research.
Second things Second —-> using Bitcoin is pretty pointless at this point.
I’ll start with a fun problem, one that you have probably thought of, then I’ll get to some more boring stuff.
There is a little catch-22 for Bitcoin, a cryptoCURRENCY… nobody uses it as a currency yet because it is too valuable to spend. Why would I spend a few satoshis now (the smallest denomination of a Bitcoin that I mentioned a long, long time ago) for a cup of coffee when they could buy me a Ferrari in fifty years?
It’s the million dollar (in this case thousand dollar) question (ok, why am I still talking about dollars, I’m starting to sound like Fiat Fred from down the street).
I would argue an easy answer to this little problem is to think about how people use gold. It is more of a store of value than a medium of exchange, thought it can be used as a medium of exchange in dire circumstances. I think Bitcoin will be more like gold than cash in that respect: better to store value over a long period of time than to use as a quick means of obtaining a caramel machiatto from Starbucks on a chilly Tuesday morning.
But that’s not the only problem. There are actually two other big problems. Before you start shaking your head and mumbling about more problems and how confusing this all is, look at it from this perspective: insert “Bitcoin has 99 problems, but at least inflation ain’t one” joke here.
Bitcoin’s block size… is pretty small. Block size is exactly what it sounds like; the size, or magnitude, of a block on the blockchain. Each block has a certain amount of storage capability. Bitcoin’s blockchain was originally capped at 1 megabyte per block. In 2017, a bunch of nerds decided it was time to up the block size and now blocks are around 2 megabytes. What does all that mean?
It means that Bitcoin can push about 3-7 transactions through the system every second. This is pretty slow. Visa, in comparison, does roughly 65,000 transactions per second. That is a yuuuuuge difference in transaction size and another big reason why I see Bitcoin as Gold rather than cash.
Bitcoin doubles down on their small block size by also being incredibly slow.
Blocks on the blockchain settle every 10 minutes (roughly). This speed restriction is designed to allow nodes the time to mark each transaction as valid (nodes are what we call the computers on the blockchain that constantly audit the network).
It’s a rather cumbersome situation that leads to huge transaction fees and long waitlists because the miner who confirms the block and wins the reward also gets to take a fee for each transaction on the block. The price of this transaction fee is set by the demand for room in each block (the more transactions in a block, the higher the miner can set the fee). As Bitcoin scales in size, the demand for block space should skyrocket, making the fees for transactions higher and higher.
This is a real problem.
Block size and speed have probably been the most controversial aspect of Bitcoin’s source code.
People who view Bitcoin as cash and prioritize BTC as a medium of exchange argue that Bitcoin must scale in size and speed in order to be useful as a day-to-day currency.
These people have forked from Bitcoin to create a number of separate iterations of Bitcoin. Ok, sorry, that was a weird sentence. What’s a fork and what is an iteration?
A fork is when a group of people take their nodes (their computers) and modify the base code in a way that changes transactions on the blockchain. By changing the code, they create an entirely different system, splitting away from the current blockchain and becoming a new entity (basically it becomes a new coin with different characteristics and must be valued + used separately from the original (in this case Bitcoin)).
Bitcoin has a few major forks that have tried to solve this issue of speed and size. Check out Bitcoin Cash and Litecoin if you are interested. Roger Ver is the name to know in this space.
I won’t go into much detail here, because I am of the opinion that Bitcoin is more digital gold than digital cash. I do not think that we will ever live in a world where people need to send Bitcoin at a rate of 65,000 times/second… but I could be wrong.
Third things Third —-> Bitcoin is rather difficult to store. Remember, Bitcoin is called a “cryptocurrency.” The main focus on Bitcoin is usually on the “currency” part. It’s sexy and fun and easier to understand (well, sort of easier to understand).
The crypto part is important though. Really important. Super-duper important. Why? Because it allows users to own Bitcoin without relying on a third party.
Ok, so how does this work and why is it a problem? Great question, I’ll try my best to make this as unpainful as possible.
The crypto part of cryptocurrency is founded in crypotography, the art of writing or solving codes (found that definition on Merriam Webster).
Here is where public and private keys come into play. These two definitions form the basis for public key cryptography. I only use these big words because Bitcoin runs on public key cryptography. Public key cryptography = how to use/store/interact with your bitcoins.
Remember the public address I talked about in section 6 and the 30 digit alphanumeric string that looks really confusing? This is actually called the public key.
I like to call it the public address because that makes sense. The public address is, well, the address of your Bitcoin. It is pretty much the same as your routing number you use to send money to your bank account. You can also think of it like an email address if that’s easier to understand.
The public key is public and anyone can see it and your Bitcoin will be safe (like your email address is public, but your emails are safe).
The public key is paired with the super secret, highly important, incredibly complicated private key.
The private key is the secret sauce of Bitcoin. It allows users to actually interact with Bitcoin in the world. It is the password for Bitcoin. Without the private key, your Bitcoin is useless. Think of it like the ultra secret password for your Gmail account (except instead of an email password of your choosing, you get a super secure and long random password generated by Bitcoin itself).
I think the best metaphor for a private key is this: your private key is the Social Security Number for your Bitcoin. Social Security Numbers are the backbone for proving identity in the U.S. You need an SSN to get a job, file taxes, get a passport, etc. Nobody really understands where SSNs came from or how they work, we just know that our SSN is the best proof of our identity.
Bitcoin private keys are the best proof that you own the Bitcoin you think you own.
An example private key is something like “0C28FCA386C7A227600B2FE50B7CAE11EC86D3BF1FBE471BE89827E19D72AA1D.”
According to this wonderful website called getbitcoinclarity.com:
“There a lot, about 10 million million million million million million million million, or 115792089237316195423570985008687907852837564279074904382605163141518161494336 possible private keys to be exact. The number of possible keys is so large, that security of bitcoin relies on the assumption that no one will ever randomly generate the same two private keys twice.”
That is as pretty secure password. Much better than “password” or “insertdogsnamehere” or “namebirthdayexclamationpoint” or “birthdaybirthdaydollarsign.”
Here’s the catch: if you lose that private key, you lose your Bitcoin. It’s gone. Poof. Locked away forever. There are probably a million+ Bitcoin out in the world, lost forever, because people either lost their private key or forgot it or can’t figure it out.
This is where wallets come in.
There are two types of wallets: hot wallets and cold storage wallets.
Most beginners start with software wallets (aka hot wallets). Difficult words that basically describe apps for storing Bitcoin. Some people call them digital wallets and we like those people. You can download a hot wallet on any device connected to the internet (beside your TV… because that would be strange). Digital wallets are great because they make your public address easily accessible (you can copy and paste in two clicks) and they give you a seed phrase.
What’s a seed phrase? A seed phrase is a list of 12-24 words that are cryptographically linked to your private key (weird sentence, I know —> some smart person made a program that changes private keys to random words… JUST GO WITH IT) SO, instead of memorizing some random list of random letters + numbers, you get 12 -24 normal words that you can write down in a journal or lock away in a safe or tattoo on your butt. Whatever you’re into will be accepted by us coiners.
The funny thing about private keys is that you don’t really use them very often. Most software wallets remember private keys automatically for you. Once you log in and save your private key, the app will keep your wallet open, much like a website that automatically logs you in instead of asking for your password. It’s real nifty.
Except when you change phones or accidentally delete the app and have to re-enter your private key (which is now a seed phrase (sorry, this is confusing)).
Then, the catch still exists: if you lose the seed phrase, you lose your Bitcoin. It’s gone. Poof. Locked away forever.
If all of this sounds super confusing just ask someone under the age of 25 to download a wallet app for you and figure it out. Actually, you should probably just send this to someone under the age of 25 and let them buy you the Bitcoin for a small fee.
I won’t go into hardware wallets here, but they do exist. Imagine a really sleek looking hard drive that keeps your super secret private key safe from everyone, even the internet. If you are going to buy a lot of Bitcoin, hardware wallets may be the place for you to go, though there a a bunch of companies that now offer secure BTC storage (for a cost). Hardware wallets (aka cold storage devices) are for large investors or very techy people. If you get to the point where you are interested in a hardware wallet, then you should be reading much more in depth pieces than this thing you are still reading for some reason.
Private/public key confusion is the number one limiting factor in Bitcoin becoming cool (in my opinion). It is not intuitive. It actually makes little to no sense normal humans without a tech background.
Do not be alarmed if this section was confusing. It should be confusing. The moral of the story for Bitcoin is to start slow and get used to the technology and terminology.
It can be super easy to make a mistake (mix up your addresses, send to the wrong address, lose your seed phrase, etc).
This is a good thing! It means you are early to the party. If BTC was easy, everyone would already own and use it. We are just the beginning. So buckle up. Get ready for some mistakes and general clunkiness. The reinvention of money is upon us.
Now onto some more fun stuff.
Section 8: Ummmm, so what’s it worth?
Bitcoin could be worth nothing but it could also be worth a bajillion dollars.
There are a so many different ways to value Bitcoin. There are no right ways and no wrong ways. This ain’t Mandalore, this is not the way (if you do not get this reference, you are not a Star Wars fan and you probably don’t even know that something as cute as Baby Yoda exists and that makes me sad).
I would say the most widely accepted valuation of Bitcoin is based on gold.
Lot’s of smart people, people much smarter than me, have been pushing the Bitcoin as Gold 2.0 narrative.
I like that comparison.
Bitcoin is gold but with magical transportation properties.
The people who hoard gold because
a) they don’t trust the government or
b) have a conspiracy theorist “the world is going to end in my lifetime” streak in them or
c) like owning a “hard” currency or
d) believe that the government is constantly devaluing the dollar through inflation or
e) all of the above or whatever other weird reason to own a precious metal
are probably going to come around on Bitcoin.
Bitcoin can be owned like gold, used as a hedge against inflation like gold, and can be used as a medium of exchange like gold (in a pinch).
Anyways, let’s get back to the moon math. I call any type of math that tries to guess a future price of Bitcoin moon math because it usually ends up being some crazy number.
Anyways x2, the total market cap for Gold is 10 trillion dollars.
Bitcoin’s current market cap is currently around $300 million. The current price of a Bitcoin is around $22,000 (remember when you were reading the Uber portion of this article and it was $20,000… these things move quickly).
Let’s say that Bitcoin ends up being 1/5th of Gold (that’s 2 trillion dollars for those of you who hate math).
Go ahead and type “2 trillion/21 million” into Google.
I’ll give you a hint, the answer will be roughly 3x-4x bigger than the current valuation of BTC (I’ll give you a better hint, the answer is $95,238.09).
If Bitcoin ends up matching the market cap of Gold, a single Bitcoin hits ~$500k.
Moon math is fun, isn’t it? (YES)
But what happens if Bitcoin really, really hits it mainstream? Cuz, gold isn’t really mainstream. Nobody really has a good handle for how many Americans own gold, most surveys guess between 2-5% of Americans (do your own research here cuz I typed “how many people own gold” into google, bing, yahoo, and google maps and nothing good came up). That is a minuscule amount of people (2 million – 20 million).
Gold has some very limiting limiting factors: it requires physical storage, physical transportation, it’s cumbersome, and stuff like that. Ew.
What if, in say 100 years, Planet Earth has been swayed by the idea of Bitcoin as digital gold.
What are the limiting factors to people purchasing Bitcoin outside of the ease of use issue I talked about earlier? Internet access and a bank account (while a bank account is not necessary, it makes it much easier).
Internet and banking access are only going to grow in the next 100 years (for each old person who passes away comes a millennial’s baby born with an iPhone in hand). Gold’s limiting factors are going to become more restricting while Bitcoin’s limiting factors are only going to decrease.
I think the Bitcoin market cap could swell far past 10 trillion because Bitcoin has this thing called the network effect. Something gold could never have.
The network effect is simple: the more people on a network, the more valuable and useful the network.
The easiest example of this is the internet. The more users, the better the experience (ex: more content produced, more people to connect with, more security, etc).
The relative ease of access for Bitcoin and the internet based origin story will push Bitcoin’s price through the roof, in my opinion. I think 10 trillion dollars is a pittance when talking about Bitcoin.
If I told you that someone had remastered gold and wrote it into the internet… would you guess that it would be more or less valuable than physical gold?
That’s for you to answer, but I am probably going with the internet thing (cuz Netflix > Blockbuster, Amazon > Storefronts, Google > Libraries, Phones > Face 2 Face, Social Media > Social, DIGITAL > Physical).
Authors Note —> Many of you reading this section are probably frustrated because I didn’t break down what makes Bitcoin valuable. I only wrote about Bitcoin’s valuation in regards to the “digital gold” narrative. I did this on purpose. I am not smart enough to make the case for Bitcoin’s value proposition because I am neither a world class economist nor a historian. To truly understand the value of Bitcoin you have to ask yourself two questions; “what is money?” and “do I think Bitcoin fits that definition?”
The value of Bitcoin is that it is money. The risk of Bitcoin is that it is not money. I can’t tell you how to think. I can only tell you what questions to ask.
Section 9: Various 30 for 30 Introductions
Bitcoin has been trending in 2020.
What if I told you that Bitcoin has seen it’s price cut in half and then tripled within the same year?
What if I told you that you can now buy Bitcoin using your Paypal account?
What if I told you that a company listed on NASDAQ has purchased over $700 million in Bitcoin and already reaped returns of over 40%?
What if I told you that one of the fastest growing payment companies named after your favorite shape has invested $50 million into Bitcoin?
What if I told you that an insurance company, one with over $250 billion in assets, founded in 1869, just purchased $100 million in Bitcoin?
What if I told you that Wyoming just elected the first Senator to hold (hodl for those in the know) Bitcoin?
What if I told you that Wyoming has already given out charters for two crypto-banks?
What if I told you that the Head of the OCC, a really important financial position in the U.S., was a former C-level executive at Coinbase?
What if I told you that a crypto-exchange (Gemini) has something called a “Bitlicense”? (a BitLicense is landmark regulatory framework issued by the New York Department of Financial Services allowing)
Should I have started with this section? Maybe.
Bitcoin is here. It is happening.
Three large companies have purchased Bitcoin as a reserve asset (which means instead of holding cash they are now holding some BTC).
Microstrategy, a software-consulting firm, has purchased over $750 million in Bitcoin. Their CE0, Michael Saylor, is a must follow on Twitter. He invented the term “cyber hornet” and for that I will always love him.
Square, a payments company, purchased $50 million in Bitcoin a few months ago. Their CEO, Jack Dorsey (yes the same Jack Dorsey that invented Twitter), is an absolute Bitcoin fanatic. Along with their purchase (which is exactly 1% of their cash holdings), Square has created an open-source Bitcoin development platform.
MassMutual, an insurance company with a 150 year history of being rather conservative, invested $100 million into Bitcoin in early December. AN INSURANCE COMPANY. Let that sink in.
Institutions are accepting Bitcoin. So are investors.
Look up Grayscale. They own $12 billion in digital assets. Demand for their ETF that isn’t an ETF (exchange traded fund… a rich person way to invest in something without owning/storing it themselves) has skyrocketed.
Paul Tudor Jones. Look him up too. He’s one of the most well respected macro investors in the US. He’s pro-bitcoin. I believe he called it something like the “fastest horse” in the race. So giddy up.
Fidelity recently came out with a report advising their customers to invest ~5% of their assets into BTC. FIDELITY. (They also filed for their own crypto-ETF …)
JP Morgan and Goldman Sachs have done a 180 on Bitcoin in the last year.
Bitcoin is here. It is changing the world.
And it looks like at just the right time.
Did I mention that the U.S. government has printed roughly 30% of THE ENTIRE MONEY SUPPLY THIS YEAR?
Remember when I said $10 was $10 because we trusted the government to make sure that $10 was $10?
Well, I for one, don’t really trust the government to keep $10, $10. I think they are devaluing our currency.
If only there was a decentralized and deflationary store of value that I could move my money into.
Darn. I guess I’ll just have to keep my money in my savings account as the government printer goes brrrrrrrrrr.
I’m sure Biden’s choice of Janet Yellen for Treasury Secretary will cut the spending over the next four years (go look at her wikipedia page, she is described as someone who “advocates for monetary policy in stabilizing the economy” … ~gulp~).
checks the news right after finishing this section
Oh, another round of stimulus is being proposed?
Interesting.
Sounds like another advertisement for BTC.
Section 10: It all comes back to you
Do your own research.
Don’t trust me. This document I just wrote is incredibly fallible. I got an A- in microeconomics for goodness sake. I don’t know anything.
Here’s where I would start if I were you.
Read Nathaniel Popper’s “Digital Gold.”
Then read “Bitcoin Billionaires” by Ben Mezrich.
Those are two good books for beginners. If you like Michael Lewis books (Moneyball, Blind Side, etc), then you will like DG and BB.
Once you have read those two books, start listening to “The Pomp Podcast” and “What Bitcoin Did.”
Download an app to buy Bitcoin and buy just a little bit. Get used to the app. Get used to the fees. Get used to holding some Bitcoin.
Download a wallet and try to send your newly purchased Bitcoin from the exchange app to the wallet app. You will probably mess it up at least once.
Then start down the rabbit hole.
I recommend crypto twitter:
Dan Held
Tyler Winklevoss
Cameron Winklevoss
Blockfolio
Ryan Selkis
Michael Saylor
Peter McCormack
Girl Gone Crypto
Find ^^ those people. They are good people.
Once you can read this paper and laugh at it’s simplicity, you are ready for bigger purchases and harder wallets.
You are ready for the world of crypto.
Ethereum.
Uniswap.
Tether.
Polkadot.
DeFi.
Check out some of those names on the internet.
But start with Bitcoin. It’s the King of Crypto.
KRAM 