What is bitcoin? Bitcoin is a cryptocurrency (digital currency/asset) which was invented in 2008. The person or group behind the invention was using the name Satoshi Nakamoto. The bitcoin project went live in 2009. This is the time when the implementation was released as open-source software.
What is money?
Before we can really talk about Bitcoin, we need to take a moment and talk about what money is exactly. If you think about money, you think about value. People can pay you money when you work for them. That money can be used to get something valuable in the future.
Over time money has taken many forms. The most well-known one is of course gold. This means that people placed their trust in something. This ‘thing’ needs to be trusted so much that people believe it will remain valuable enough so its value can be redeemed in the future.
Ultimately, people did not want to walk around with gold bars (or any other form of money) to be able to pay for stuff. This is when paper money was invented. First, the bank or government would take your bar of gold and in exchange, they gave you paper certificates. This way you could easily buy stuff and if you wanted, you could always go back to the bank and redeem these certificates for actual gold. Eventually, the gold standard was broken.
This is when people didn’t need to trust the valuable thing anymore. They needed to trust someONE, in this case, the government. As long as we trust our governments, their money will be valuable. This money is called Fiat money.
Fiat money
Fiat money is also known as ‘legal tender‘. This means that these coins or banknotes must be accepted if they are offered as payment. Fiat currencies have some major drawbacks though.
- It is centralized. This means that there is a central authority that controls it. This can lead to corruption, of which there are many examples. It can also lead to mismanagement. The central authority can, for example, print a lot of money to bail out failing companies. This is something we are can see happening right now due to COVID. Whether this is ‘mismanagement’ is debatable of course.
- There is no limit to how much a government or central bank can print. The problem with printing money is that this causes the currency to lose its value. This also why prices of goods continue to rise over the years.
Over the years fiat money has become more and more digital. We all use debit and credit cards or services like PayPal. Compared to digital money, physical money is almost meaningless. Now that most of our money is digital there is another problem. The ‘double spend problem‘. The solution here is that banks keep a ledger on their computers which basically keeps track of who owns how much money. So we all have to trust the bank/government
What is Bitcoin?
Now we can start talking about what makes Bitcoin different and interesting. Bitcoin basically has a transparent ledger that is not centrally authorized. This means that Bitcoin is pseudo-anonymous. Every transaction is publicly trackable, but you don’t know who is behind the transaction itself. There is also no centralized ledger. Every computer that participates in the network/system also keeps a copy of the ledger. This is also known as the blockchain. If someone would want to take down the system they need to take down thousands of computers.
In this way, Bitcoin is completely different than the current banking system. There is no need for a middlemen to control transactions. If the network agrees you have enough funds to make a transaction, the transaction goes through and is added to the blockchain.
You also have complete control over your own money. You and only you can access your funds. No bank or government can freeze your assets or take away your holdings.
Conclusion
After reading this you should probably know more about Bitcoin than most people around you. Bitcoin was designed for a specific reason. It provides you with a secure way to control your money without the need for a central authority to keep track of transactions.
Do you want to buy Bitcoin yourself? I buy my cryptocurrencies on a platform called Coinbase. I have another post going more in-depth on how I buy Bitcoin every month. Feel free to check it out. If you have any other questions, don’t hesitate to reach out!
When moon, sir?
Hi Vincent! 🙂
You could argue it is currently on its way!
Hello Michiel,
I was curious to hear your thoughts on crypto interest companies like BlockFi, would you use it to get some additional returns?
Hi,
I believe BlockFi is a reputable company. I actually used them in the past for a very short time. I, myself, just feel safer with my coins in my hardware wallet! If you use such services, be sure you can trust the company behind it.
Kind regards,
Michiel
I see! Thank you for your answer!
I wish you great luck with the investing journey! Keep us posted!