Bitcoin. What is it?

Other articles in this series:
Bitcoin: How does it work?
Bitcoin: What is its core value proposition?

As a store of value, fiat currencies have failed.

Holding fiat, I can be pretty sure what I’m holding today, but instinctively we all know that it’s better not to hold it long term. Either spend it or, if you can afford to, invest it. Definitely don’t stuff it under your mattress. There it’ll only grow mould.

If you want your money to grow in value, you must invest it. Because with fiat I don’t know what I’m holding in ten, twenty or thirty years from now. At least if I buy a house, I can be pretty sure that I can still live in it ten years from now. However, as a form of investment, even that is somewhat uncertain.

And not even gold is guaranteed. We may discover massive new deposits. Extraction technologies may be improved or maybe we start mining asteroids. Who knows?

Bitcoin is different because there is more certainty than there is with anything else. That being said, there are off course no guarantees. Life itself is uncertain. But what the creator(s) of Bitcoin did was to to take as much uncertainty out of the monetary equation as possible.

Like gold, Bitcoin cannot simply be created. Not by anyone. No matter how powerful you are, you are not an Alchemist. Like gold, Bitcoin requires the expenditure of real work in order to be extracted. Even better than gold, the supply of new Bitcoin is completely predictable and steadily deflationary over a very long period of time.

However, unlike gold, and more in-line with what we’ve come to expect from modern banking services, Bitcoin can transfer large sums of value quickly and very easily. In fact, Bitcoin improves upon that too, transferring value anywhere in the world faster than any bank could ever accomplish.

Bitcoin is also not controlled by any one entity and even for the world’s largest governments, at this point in time it will be near impossible to take control of the network in any meaningful way. No one controls it, and yet its internal rules of governance is rock solid.

Bitcoin is essentially a computer program, running simultaneously on thousands of ordinary computers all around the world. All these computers are connected to the Internet and the Bitcoin protocol (program) enables every computer to connect to and communicate with the rest of the network.

The Bitcoin protocol is maintained by a group of programmers from all around the world. While all of them start out by volunteering, some of them may later receive subsidies from businesses who benefit form the Bitcoin protocol. Others continue working on a voluntary basis, and some even refuse to receive any monetary reward whatsoever. Some are also early adopters and possibly accumulated a significant amount of Bitcoin before prices were driven higher.

Anyone can join this group of Bitcoin developers because anyone can download and modify the code and, if enough of the network participants agree to implement the modified version of the code, that modification then becomes part of the core protocol. This process is called consensus and it is the mechanism by which changes to the protocol are implemented.

Sure, I could download the Bitcoin protocol and change it to award myself dictatorial control over the network, so that I can create more Bitcoin for myself. But would anyone else agree to run my version of the software? Probably not. And if so, my newly created version of Bitcoin would be worthless.

This exact same scenario has played itself out in various different ways in the short history of Bitcoin. And every time the network has emerged stronger than before.

Those who believe that self-governance is impossible, take note.

The market value of all Bitcoin in existence have for years exceeded 100 Billion US Dollars. Not an insignificant amount. And its model of self governance has been put to the test numerous times without a single failure. Bad actors have tried to exploit the network, to no avail.

Bitcoin is a system that was designed to achieve the impossible: self governance, without central authority. And so far it’s proven very successful.

In practice, extrapolating the same approach to other networks (such as entire societies) will be more difficult, but in principle the world’s first real world example of self governance has proved itself highly reliable.

Running on a network valued at over 100 billion US Dollars no less.

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