What Is Bitcoin?

First, let me distinguish between “Bitcoin” as the cryptocurrency token, that is bought and sold and traded in exchanges, with the short symbol BTC, and the bitcoin protocol, the blockchain is based on.

There are many competing cryptocurrency projects (as of this writing 1855 projects are listed on coinmarketcap), however there are not as many different underlying technological innovations. most of these cryptocurrencies rely on some form of blockchain, as described in Bitcoin Whitepaper as Bitcoin Protocol.

What is the main problem Bitcoin Protocol solves?

Prior to Bitcoin, online financial transactions were made possible by using “Trusted 3rd parties”. Like banks providing merchant accounts, credit card companies like Visa or Mastercard, or online payment service providers like Paypal or Stripe.

While this model worked for many people, it still had many problems that come with it. First, you needed to ask for permission from some of these trusted 3rd parties to do business online. This means, not everyone can start an online business. If Uncle Sam doesn’t like the country you are born in, you are doomed with practically no recourse. Second, these trusted 3rd parties also needed to act as a mediator, whenever conflicts between users arise, like chargeback or refund requests. Need for such mediation increase the cost of each transaction. Third, those trusted 3rd parties can often be imperfect, they may freeze your account on a whim, or hackers or thieves may steal your money, when your money is trusted to them. 4th, fiat currency you do your business in, may become worthless overnight, as seen in many countries experiencing hyperinflation like Zimbabwe or Venezuela.

Such limitations of centralized monetary systems that rely on trusted 3rd parties, created the need for decentralized, peer-to-peer monetary systems.

The problem is, without centralized trusted record keepers, it is a very difficult task to keep track of who has what amount of money, and which transactions are valid. In technical-accounting terms, this is called double spending.

Bitcoin protocol solves this problem by always creating chains of hashed transactions. This means, all transactions are recorded in a large, distributed ledger, with their hashed time stamped signatures. Meaning, no one can go back and change the transactions, without changing the cryptographic hash signatures also.
This innovation, for the first time in history, allows for financial systems to be decentralized, without requiring any “trusted 3rd parties” at all.

This is huge. But what does this actually mean to you, me, the average person on the street?

Bitcoin is permission-free

You want to start an online business, but your country is blacklisted by the USA? You can accept bitcoins online without asking for permissions from banks, legal authorities, or money transfer networks (like SWIFT or IBAN).

Now, this may not be true for bitcoin exchanges that exchange fiat currency to bitcoin and vice versa. Many of the exchanges are regulated with financial laws that apply to banks or foreign currency exchanges. And they may ask for your ID, address, tax # etc.

However this is not a requirement that comes from bitcoin, but the local regulations that apply to exchanges.

Bitcoin is trustless

You do not need to trust any individual person on the bitcoin network. Trust issues are solved by cryptographic algorithms. There is no “credit score”. There is no “approved account” or transaction. There are only valid and invalid transactions.

Bitcoin is global

You can be anywhere in the world, and start accepting and spending bitcoins immediately. You do not need to be in a developed country, have a good bank account, good credit score or anything like that. You only need a wallet, which you can download or generate online, free.

Bitcoin has a limited supply

This is huge where there is a real and valid concern, that your currency may soon become worthless. If you live in a place like Zimbabwe or Venezuela, or if you think your currency may soon go to 0, you may find reassurance in the fact that, that will never happen to your bitcoins. Because there will never be any more than 21,000,000 bitcoins ever.

Some people like Mike Maloney argue that one day all fiat currencies are going to collapse and have 0 value.

In fact, as more people find use in bitcoins, each bitcoin is likely to increase in value. Great news for savers and investors.

Bitcoin is pseudonymous

Bitcoin does not require ID’s, background checks, or any other such information. All bitcoin requires is, your wallet address and your private key.

Fiat-bitcoin exchanges may require such documents, but again, that is a local legal requirement, which does not come from Bitcoin protocol.

Bitcoin transactions are irreversible

This is very good news for online business owners. Because irreversible transactions simplify many things. You do not need to know a lot of information about your clients in order to make sure you’ll get paid. If the transaction is valid, you are already paid. There is no way to reverse the transaction, ask for refunds or chargebacks, no need for “reserve funds” or “waiting periods” so common to credit card transactions. Bitcoins in your wallet is simply money in your pocket.

Bitcoin is secure

As long as you keep your bitcoins in your own wallet, and not in exchanges, and as long as you keep your private key secret, your bitcoins are very safe from theft.

So far, the only type of theft that ever happened, was about hackers stealing money from bitcoin-fiat exchanges. There has never been a case where blockchain and its cryptography has been hacked.

Think about it, bitcoin is the greatest honeypot for hackers, with more than 100 billion dollars for the taking, if you can hack the cryptography and algorithms behind it.

Yet, this has never been done. It is impossible.

Conclusion

With all these advantages over “normal” Global Monetary System, Bitcoin (and all the cryptocurrencies in general), is the future of money, Money 2.0. It is only a matter of time where cryptocurrencies gain widespread acceptance. The cat is out of the bag, there is no turning back now.

It is a good idea to diversify your portfolio, and get some bitcoins (and/or some other cryptocurrencies)