This website and the information contained within should not be treated as investment advice or guidance. The website aims to provide an overview of a new technology. Any investments in speculative assets is done so at one's own risk.
The story so far...​
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Bitcoin was born at a time of maximum pain and despair during the 2008 financial crisis.
The world needed a new financial system; it just needed to be invented.
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For many years since the invention of the Internet, computer scientists hypothesised, fantasised and experimented with the idea that a digital internet currency may one day exist and replace traditional currency. This was no easy task. One key issue that perplexed everyone who attempted to realise it was how to make a system where users can't cheat the system and spend their money twice or artificially create more. Both huge problems with our current financial system.
On 31st October 2008, the anonymous Satoshi Nakomoto broadcast a white paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System' to a small group of computer programmers and cryptographers. The white paper outlined the plan to members of the cryptography mailing list. It proclaimed to have solved their problem. After a slow start, various members commented and interacted with Satoshi, via email, prior to the open source protocol (public rules) being released.
On 3rd January 2009 the first transaction was made and the first block mined.
This was the birth of a new form of money, for a new Information Age.
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Our Current System
Right now the world has a big problem and it affects every single person. We currently use a centralised monetary system that is debt based, infinitely expandable and backed by nothing but a government 'promise'. The US dollar is the world reserve (fiat) currency and is not underpinned by anything of value. Once fully backed by gold, the gold standard was craftily removed, hollowing out the real value behind the paper notes that people now trust to store value. The truth is that the dollar has lost almost all of its purchasing power over the last century and is a terrible store of wealth (as seen below). Bear in mind that the dollar is one of the strongest currencies in history. Most fiat currencies returned to their intrinsic value of zero and disappeared from circulation, to be replaced by a new imagined fiat currency. Many still believe the dollar is backed by gold but this just shows how little many people understand about the object they spend a whole life working to acquire.
The benefit to having a currency that is backed by nothing but words is that here is little to no cost in artificially increasing the currency supply and therefore the distribution of wealth. People who hold the currency as savings find that they lose their purchasing power as more currency is created, through no fault of their own. This in turn contributes to huge asset valuation bubbles, as people look for a place to store value and find a return away from depreciating currency. It also devalues the efforts, skill and labour of those who are actually creating real value to others and society. The current system relies on the decisions of a few, who are meant to act to benefit the majority but often this isn't the case. Whether intentionally or unintentionally, humans are always liable to exercise poor judgement, make poor decisions, and consciously or unconsciously, act in their own self interest. As we will discuss, it appears impossible to run a fair and equal society where one can print money at will and direct artificial wealth creation to whom and where they desire.
There must be a better way forward. The world needs a new monetary system.
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Before Government Issued Currency
For thousands of years gold and silver were money. They served the role as a unit of account and medium of exchange very well for many reasons. One pivotal reason for the success of precious metals was that they were exactly that: precious! It is very hard to counterfeit or debase (add to supply of) gold or silver without great expense, time and effort. Because gold has scarcity and could not be created out of thin air it carried immense value and could act as a stable way for humanity to measure and transfer value. Over the centuries empires rose and fell but a commonality they often shared, as they crumbled, was the debasing of their hard currency with other metals. It would occur slowly at first and then all at once.
As an example, in Ancient Greece, being one of the first modern civilisations, gold money was gradually debased with easily sourced copper. Initially the population didn't notice or care too much but as it became more obvious the free market rejected the increasingly common copper coins by spending them first and storing the real gold as their savings to hold value and spend as a last resort. Exactly the same thing is happening right now with modern fiat (government printed) currency. This is called Gresham's Law, where good money drives out bad.
More and more people see Bitcoin as a better store of wealth and form of money. Individuals are starting to understand when central banks print currency it doesn't find the groups in need but effectively enriches the already enriched, to at least maintain their wealth.
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To add to this, we live in a world where there are multiple currencies that create huge frictions in the financial system. Much of the system is antiquated and is designed to extract as much value as possible, often providing very little positive value to users. Basically charging fees to exchange different pieces of paper so people can do business globally. Cryptocurrencies will reduce this friction.
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If you need a little help with visualising all the money and currency in the world check out the infographics on this website... It's mind-bending!
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Back to Bitcoin though!
How does it actually solve these problems?
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Understanding the qualities of Bitcoin and its similarities to gold are key. At present, bitcoin can be seen as a potential store of value ​but Satoshi's vision was for it to be developed as a form of sound money that offers transactions on every level without sacrificing security.
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For something to be used as money it has to satisfy several criteria. It needs:
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- Divisibility (can be divided into many small pieces)
- Portability (can be transported easily through time and space)
- Durability (hard to destroy or corrode)
- Acceptability (populations associate it with value)
- Fungibility (all units are the same and indistinguishable)
- Store of Value (can hold value over long periods of time)
- Limited in supply - Can't be debased or counterfeited
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Bitcoin fulfils all of the above. The one aspect that needs development is the acceptability. At the moment it can be seen as clunky and not user-friendly for everyday transactions (similar to email many years ago). This however is being addressed with 'second layer' solutions and as the infrastructure beneath it grows the usability grows with it. This leads to more participants and increased adoption. Adoption comes from speculation but also individuals trying to protect purchasing power. More recently Bitcoin use can be seen in countries suffering from hyper-inflation.
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Security
The Bitcoin network is incredibly secure. Security can be measured by the miner hash power (computer power) used on the network and is far greater than any other cryptocurrency. After 11 years Bitcoin is almost completely impenetrable. The ability for a person, group, organisation or government to destroy it is near impossible. Because the network has grown to be so large and rewards participation through mining and value appreciation, the cost in time, finance and resources to launch an attack would be exceptionally costly with no guarantee of success. If in the almost impossible circumstance it was breached or corrupted, in theory users could still go back to the last true copy of the ledger and continue from there. In terms of its resilience there are even Bitcoin nodes (transaction verifiers different to miners) that operate in outer space and even in a nuclear war the ledger would continue to live on. Obviously, we hope that this won't be the case.
Volatility
Despite being 11 years old, Bitcoin is still relatively new and not used by most of the world. This means that the amount of money in the system is relatively low. This is known as low liquidity, which encourages larger price swings when large quantities are bought and sold as the market tries to determine fair value. As liquidity increases the price will fluctuate less on average but this is still several years into the future as development and adoption continues.
Bitcoin is money for the people.
Constructive criticism and comments are welcomed to improve and develop the website.
Where referral links are used we often generate a small commission, which supports the site. The following address can also be used for any donations to continue development.
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