Why You Don’t Understand Bitcoin

“What is Bitcoin?” You may have been one of the hundreds of thousands of people who search for this answer on Google (as of October 2017).

You probably wished you didn’t, as you were left more confused about Bitcoin than before.

Why?

Because, after landing on thousands of different answers, you realized that very few pundits could explain how Bitcoin works in a way that is easy to comprehend. It’s not supposed to be easy to understand because Bitcoin a paradigm shift.

How Bitcoin is a Paradigm Shift

Bitcoin is a paradigm shift because it is at the nexus of four distinct fields: computer networking, economics, game theory, and cryptography. The computer network lays the foundation for the Bitcoin network to be built upon while cryptography adds a layer of security and legitimacy to the network. Economic models of Bitcoin analyzes how the markets behave not so much different than the New York Stock Exchange and game theory studies how people act within the network, whether with good faith or bad intentions. These four elements constantly interact with each other in a symbiotic manner to create Bitcoin.

An example that illustrates another recent paradigm shift was the advent of the internet. In that case, the paradigm that was shifted was also in computer networking, as well as information distribution, and surveillance technology. It took nearly two decades from when the internet first began to enter the mainstream consciousness in the 1990s for the internet to reach its full potential with the development of social media. People can now stay connected and keep in touch with each other by being “friends” with them on Facebook or following them on Twitter/Instagram. Information from news events can be decimated in real time with witnesses posting pictures and testimonies of the event on their social media accounts. In addition, public and private entities can easily figure out an individual’s profile and interest by analyzing their social media accounts.

The lifeblood of the internet is information, which is being circulated faster and freely more than ever before relative to the previous paradigm of media conglomerates having monopolies over print, television, and radio. Bitcoin and other cryptocurrencies are the lifeblood of a new emerging paradigm that will allow money to flow faster and more freely without the need for central control of banks and governments.

When you invest in cryptocurrency like Bitcoin, you take your money out of the centrally controlled world banking system and into a grassroots crypto-economic one. Bitcoin has no ‘leader,’ rather it has different parties (miners, developers, users, merchants, node operators) who constantly communicate compromise with each other to advance the development of the Bitcoin client software. In the end, it is you who is in control of your money, and if you lose it, that’s your problem.

The Paradigm Shift Is Coming Here/Proof That Bitcoin’s Paradigm Shift Is Already Here

Bitcoin, cryptocurrency, and other blockchain technology is a paradigm shift in that there is a need to create a new vocabulary to describe the universe of it. This is nothing new in the evolution of technology, as one can say similar events happened in the past.

Take the Industrial Revolution, for example. When it was in full-steam (pun absolutely intended), new terms came into existence to articulate what was happening around new technology with factories, trains, cars, etc. A simple phrase such as “I took my car to the mechanic for an oil change” could never have been conceptualized by people who did not live that experience.

In blockchain, we see that words and phrases that have either not commonly used (hard fork, replay protection, proof of work) or words that already have a commonly agreed upon definitions take on entirely new meanings (wallet, address, smart contract).

This lack of conceptualization is only temporary. As more people learn about Bitcoin and cryptocurrency, then the discrepancy in education will get smaller.

Where Is Bitcoin Now?

So, what have the results been for Bitcoin? Well, Bitcoin has risen from being worth a few dollars to know worth $6,600 in a matter of seven years. In the past year, it has risen in value by over 800%.

The rise of Bitcoin has not been smooth, though. It has come with its fair share of bubbles and downturns, most notably in 2013-2014 culminating with the collapse of Mt. Gox.

However, even with nearly 180 articles declaring Bitcoin’s demise, it has still found ways to bounce back and show perseverance through times of adversity.

 

 

 

How To Perceive Bitcoin Through Understanding Money and Content

Bitcoin has been around for nearly a decade, and yet, it is still a mystery to many people how it works. After listening to several experts speak about the nature of Bitcoin, I noticed that in order to understand it, you need to deprogram how you think about money.

The Different Functions of Currency

Depending on who you ask, money has several definitions and functions.

  1. Money is an efficient medium of exchange that avoids the need for bartering
  2. store of value that holds wealth for long periods of time
  3. unit of measurement

One can argue that money has become a system of control, but that is not the point of this article, rather, it is to show how money is a form of content that instrumental for societies to function.

How We Live in an Ocean of Content

Content is an outside force in which you can interact and absorb information from. This definition extends to anything that can make you reflect on yourself including but not limited to media, people, and substances. The way I view the world is that we are surrounded by content the same way fish are surrounded by water, and when people share commonalities among content, that is how culture forms. From reading your Facebook feed to posting a Snapchat story, there are plenty of simple ways of posting and absorbing content. Another form of content that is a level more complex is having a debate with someone about ideas; you are simultaneously creating and absorbing information at once. One of the most powerful forms of absorbing content is through drugs and alcohol. The reason why I call drugs a form of content because of the way the chemical composition of them drugs interact your brain. There are uppers, downers, psychedelics, and everything in between that temporarily but drastically changes your perception, and consistent use can have an effect on who you are. It is not a coincidence that drugs are the most regulated forms of content by governments. Who knows what the world would look like with unfiltered access to them? Similar to how fish do not question what water is, people do not question what content is either because we are engulfed by it.

Money is a form of undefined content; it can become anything. By being accepted is the foundational medium of exchange by society, money is reserved potential that can become anything you choose it to be. Spending money to attend a concert is using that potential reserve into a memorable experience or buying drinks at a bar with the intent of getting drunk is transferring your funds in order to change your state of mind. There is something about money, and its ability to become anything makes people’s imaginations launch into the stratosphere. Especially true in American culture, money has been elevated to a holy status. Money is a major theme in the vast majority music we listen to and entertainment we consume. Americans are chasing dollars due to it being the ultimate sign of success in the United States’s capitalist system, but rarely ask where money gets its value in the first place.

Why the Dollar has Value

In the international monetary system, the US Dollar holds a special place among the world’s currencies because it acts as the world reserve currency, meaning that governments are required to hold some of it in order to participate in global finance. The dollar used to be backed by gold, but since Nixon decided to leave the gold standard in 1971 in favor of a fiat system, the only thing that has been backing the dollar is the sheer size of the US Economy and the faith that the US Government can pay back its debts.

Dollars come into existence through the policies of the Federal Reserve System. The Federal Reserve is the Central Bank of the United States and is sanctioned to issue currency and set monetary policy. The Federal Reserve lends money to banks like Goldman Sachs and JP Morgan who then lend it to business. Quite simply, the Federal Reserve is the bank’s bank; they are the gatekeepers of what I like to call the faucet that floods our world with undefined content.

Bitcoin differs from the Federal Reserve and other central banks because the faucet of creation is not controlled by a centralized group of bankers but a decentralized network of computers solving complex problems. What gives Bitcoin its value is that it possesses all three essential traits to be classified as currency. The blockchain technology seamlessly keeps track of every transaction to ensure accuracy, wallets serve as one’s own bank account that is free from government scrutiny, and Bitcoin is becoming widely accepted among merchants, most notably Expedia and Overstock. Every ten minutes, you can be sure that a new Bitcoin block will be mined and added to the chain.

Conclusion

Just as the internet decentralized publishing allowing anyone to share their work to the world, Bitcoin and cryptocurrency will do the same with banking. There is something powerful about decentralizing the faucet of the uncertain potential of money because it will shift the world monetary system from being fiat-based to crypto-based. That is not to say that fiat money will just disappear, but rather that Bitcoin will play a much more substantial role in the global economy.