Bitcoin, chances are you’ll have come across the word one way or another through various medium. Either through news outlet where commentary reports about Bitcoin were mentioned, or within your social network where friends and family mentioned and/or discussed about it. While everyone has a take on what Bitcoin is, but its still somewhat challenging to explain Bitcoin in layman’s term for the average Joe. I experienced the same too, whenever I’m asked by family and friends, what is Bitcoin, what does it do? How does Bitcoin has any value? Those are all legitimate questions, and through this article I look to answering all those questions.
What is Bitcoin?
Bitcoin, is a cryptocurrency(token) powered by blockchain technology, through permissionless peer-to-peer network, thereby forming the Bitcoin Network. Bitcoin is often used by the community as a store of value due that has similar properties as gold.
Verifiable: Bitcoin operates on the blockchain network which essentially is an open ledger that allows for anyone to verify its entry.
Fungible: Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Thus 1 unit of Bitcoin is the same as another unit of Bitcoin. This is the same for Gold and Fiat currencies(paper money), as there is no difference between 1 unit of gold/money to another unit, thus making exchange/trade simple.
Portability: Bitcoin is a digital asset that can be transferred across borders seamlessly, but requires a lot more effort and security to move large amount of gold or money across distances.
Durable: An item that must be able to withstand repeated usage. This is true for Gold and Money where it can be used repeatedly which almost zero repercussion. While Bitcoin is a peer-to-peer, decentralized form of digital asset, thus it is as durable as the internet. Which was created as a fail-safe, global network with no ‘single point of failure’. If one part goes down, data takes another route and nothing is lost.
Divisible: A Bitcoin can be divided up to 8 decimal points, and if required the protocol and software can be modified to handle up to 100billion smaller units. While money is divisible up to 2 decimal points and to divide gold it requires a lot more effort.
Scarcity: The total supply of Bitcoin is capped at 21million units. This is hard-coded into the protocol level of Bitcoin and is verifiable by the public. While we know gold is scare, however we do not know what is the exact supply of gold, and if there will be new discovery of gold that would significantly increase its available supply. Central banks have the authority to increase the supply of money in circulation as we’ve witnessed on multiple occasions with quantitative easing in many countries.
Established history: Bitcoin was first introduced to the world by Satoshi Nakamoto when he released the Bitcoin Whitepaper on 31st October 2008. The discovery of gold was dated 6000BC and fiat currencies have been around for centuries.
Censorship Resistant: Bitcoin is censosrship resistant due to the nature of the technology that is powering it, a decentralized blockchain network that is fully open source and transaction on the network is entirely permissionless and do not require a third party. This is critical because by utilizing a third party to conduct a transaction, it possesses censorship risks. For example, if you’d like to transfer money from Bank A in the United States to Bank B in Iran, due to various political reasons, Bank A may reject your transaction and thus you’re unable to make the transfer. This will not happen on the Bitcoin network, as it is secure multiple parties on the network, distributed across the globe.
Unforeable Costliness: Immutability(means unchangeability) is one of the key features of Bitcoin and blockchain technology. Immutable transactions make it impossible for any entity (for example, a government or corporation) to manipulate, replace, or falsify data stored on the network. As all historical transactions can be audited at all times, it enables high degree of data integrity on the Bitcoin Network. Immutability applies to gold as well, as it is very costly to forge gold, however that is not the case for fiat currencies, where fake notes are quite common in certain economies.
Openly Programmable: Is a feature that is made possible by blockchain technology, where scripting language is built into the protocol layer of the blockchain, thereby allowing developers to build applications ontop of the blockchain protocol layer. This opens up a whole new area of new use cases where we see a closer integration between software and digital assets.
Decentralize: Bitcoin is powered by a peer-to-peer decentralized network, where there is no single point of failure on the network. This is somewhat true for gold as well, however jurisdiction can implement restrictions on the usage of gold there by governing it. While for fiat currencies are soley controlled by the central bank and thus is centralized.
