At this point, most people have heard of Bitcoin, but the most common question I get is: "should I buy Bitcoin."
I'm no financial adviser and I will definitely tell you Bitcoin is no "sure thing" investment. What Bitcoin does offer is a savings instrument to preserve your wealth. It's also a technology and a movement to depower authoritarians, increase economic freedom, and build a future that's worth being excited about.
It's a complex topic, so let's start with "What is Bitcoin?"
What actually is Bitcoin?
Bitcoin is an scarce, digital asset
Digital scarcity is hard. If I have a PDF, I can copy that PDF endlessly and share it for very low cost. It's the same with pretty much everything digital. You get to a point with file size where it's difficult to transfer, but it's still not difficult to duplicate.
Bitcoin was built so that there will only ever be 21 million Bitcoin. It's extremely difficult to even attempt to change Bitcoin, succeeding without the consent of a vast majority of Bitcoin owners is nigh on impossible at this point.
How Bitcoin achieved digital scarcity is a whole thing on its own, but assuming I'm telling you the truth, why does that matter?
Bitcoin is (becoming) money
Money is a technology that humans developed to help solve the problems that arise from many humans with specialized labor trying to exchanges goods and services. It has had many iterations throughout history, but some money has been far superior to other money.
What makes a good money is that it's scarce AND hard to make more of it. Salt, silver, and spices were all good money at some point until technology enabled us to make more of it, which decreased the value of all the existing "money" in circulation.
The best money in history was gold, because it's been scarce throughout human history and we've never found a way to mine more of it. The annual rate of increase in gold in circulation has been ~1% through all that time.
The problem with gold is that it doesn't hold up in the modern economy.
- It's physical (hard to transfer at the speed of online transactions)
- It's heavy (expensive to transport)
- It's far easier to make fake gold than it is to verify authenticity of gold
- It's hard to divide and combine gold into different precise amounts (paying $12.56 for lunch in gold is not easy)
Bitcoin, being inherently digital solves many of these problems (light, easy to transfer, easy to verify, divisible, etc) while remaining truly scarce.
Bitcoin isn't accepted as legal tender in many places so it's still becoming money, but it's on its way because Bitcoin as a technology is a better implementation of money.
This is a vastly oversimplified summary that's better explained in the brilliant book: The Bitcoin Standard (highly recommend)
Bitcoin is a payment system
The same mechanism that make Bitcoin scarce is also what helps Bitcoin owners transfer Bitcoin around (to pay for things, to send to friends, etc).
If your local coffee shop accepts Bitcoin for payment, you can use the Bitcoin network itself to pay the coffee shop.
How does it work?
So that's where the B word comes in.
What's a blockchain?
A blockchain is just a chain of blocks. The blocks are full of data. In the case of Bitcoin the data in the blocks is transactions (transfers of Bitcoin from one wallet to another).
Every ten minutes or so, a new block of transactions is added to the chain and that makes the transactions in the block "official." And then in another ten minutes and another block is added.
What's amazing about this is that all Bitcoin transactions that have ever happened are publicly available because the Bitcoin blockchain is something anyone can download and verify. There's an accounting for every Bitcoin transaction ever if you ever wanted to check.
The blockchain is stored by all the Bitcoin "nodes."
Bitcoin "nodes" are the computers that record the whole blockchain and validate all new blocks.
They're the ones that set the rules for Bitcoin because all the nodes have to agree what a valid block is for it to be added to the blockchain.
Mining answers the question "where do the blocks come from?" Miners are racing to be the one to add the next block; they do this because they get paid (essentially) transactions fees if they're the one that gets to add the next block.
The way a block gets added is that a miner "discovers" the answer to a puzzle first. The first to answer the puzzle of the next block gets to add the next block (and get all the financial rewards).
The answer to the puzzle is something that is incredibly difficult to guess, but the only way to know the answer is to guess. It's also easy to know if you have the right answer if you have guessed correctly.
Miners are using tons of computers (using a lot of electricity) to guess as many times as they can so they're the one to get the answer first. There are no shortcuts, it requires quite a bit of electricity and computer hardware to guess the right answer in under ten minutes.
The miners are also verifying all the transactions so that each block of transactions is valid. Once they've discovered the answer to the puzzle, they create the next block (attaching the answer to the puzzle) and they tell all the other miners about the new block. The other miners heavily scrutinize the block (because if it's invalid or the answer to the puzzle is wrong, then they're still in the race!). If the block is valid then they throw up their hands and start mining the next block (better luck next time!)
This system of "mining" blocks is called "proof of work" which is a system that is good at preventing bad actors from breaking the Bitcoin. Because there are no shortcuts, the only way to break Bitcoin would be to add as much mining capacity as the whole existing network (a 51% attack).
For reference, as of today the amount of electricity consumed to mine Bitcoin is the equivalent output of the country of Malaysia, and rising. The cost is just too high now for anyone but the largest players to even attempt.
Why go through all this trouble?
I can hear the gears turning in your head. Something like: "hasn't Paypal been doing payments without all the muss and fuss for decades?" The answer is a "yes, but"
Paypal, Zelle, Venmo, CashApp, etc have been making digital payments happen for a while. They use commonly accepted currencies (dollars, euros, pounds, yen, etc) and they can do the transfers without waiting ten minutes.
What they cannot do is transfers without trust.
All the existing players require you to trust them with your money. You "deposit" dollars into Venmo and then you trust that they lie about your balance, they won't freeze your funds, they won't take your money and spend it on a yacht and refuse to give it back. Regulations help to force these institutions to operate with more rigor, but you're still trusting someone at the end of the day.
The system of Bitcoin wallets (holders of Bitcoin), Bitcoin nodes (the protectors of Bitcoin), and Bitcoin miners (the block creators) means there is no central party that you have to trust in order to hold and transfer money.
Bitcoin is yours. If you have the keys to the wallet, the Bitcoin in the wallet is yours. There's no way for your bank or the government to freeze it, or take it away.
AND you can transfer it without permission. If you have an internet connection and the keys to the wallet you can send that Bitcoin to anyone you want.
It's freedom money: it's censorship resistant, it's scarce, it's digital, it's yours.
It may seem subtle but because all these things are true, it's a revolution that has the potential to improve the lives of everyone on Earth. Especially those living under oppressive regimes, and those living in countries with a currency that steals from them via inflation.
Where is Bitcoin going?
A new gold standard (maybe)
Check out my blog post on The Endgames of Bitcoin for more details on what I mean by this.
In summary, because Bitcoin is a better money than gold AND can keep up with the modern economy: Bitcoin is a natural choice for the asset to back currencies in the future.
There's a path for that to happen through countries that are fed up with the way the US dollar is weaponized (Bitcoin is anti-colonial) and don't want to swap US-led financial weaponization to Chinese-led financial weaponization. These countries are tempted to back their currency with Gold or some other asset (source) but would be better off backing their currency with Bitcoin because of all the advantages.
If this happens there will be many great implications for most humans on Earth. The Gold Standard (of which a Bitcoin-backed version would have the same effect) has been attributed with improving the welfare of workers, reducing war, and reducing authoritarianism (source).
The best digital payments system ever (maybe)
International remittances: Many immigrants send money home to their family. Because of how money works right now, many are forced to use very expensive services like Western Union to get their dollars from working in the US (for example) to family back in Vietnam or Nigeria in the local currency.
Existing players are incredibly extractive taking up to 15% of the money just to transfer it. Transferring Bitcoin is far cheaper than any of these services.
So there are companies like Strike who are working to make it easy to have any currency and send to any country in their local currency for very little cost. All they use Bitcoin under the hood and because Bitcoin is already a good payment system that's very easily able to cross borders.
Lightning Network: Visa alone does ~270 Billion transactions per year (source) and Bitcoin can do ~150 million per year (source for transactions per day). Bitcoin must be able to handle about 4 orders of magnitude more transactions than it currently does to be the primary payment system of the world.
That's where the Lightning Network comes in. The Lightning Network is a system built on top of Bitcoin that requires a little more trust from its users (where Bitcoin by itself requires none). What it looses in trustlessness it gains manyfold in speed and cost savings.
The average Bitcoin transactions is on the order of a few dollars to transfer (costs $3 to move $3 but it also only costs $3 to move a $1 billion). That's good for medium-large dollar amounts, but for buying a coffee...no way. It also takes ten minutes for the coffee shop to confirm that you actually sent them the money, that's a bit of non-starter.
Lightning transfers (still moving bitcoin from one wallet to another) costs less than a penny and take seconds.
No more 3% cut to Visa and Mastercard. No waiting until the end of the day to settle recents. Lightning is like a cash payment in that once the transaction is confirmed that's it, no chargebacks, it's now in the hands of whoever received the payment.
Lightning has some work to do on reliability and accessibility in everyday contexts, but it has the potential to make Bitcoin accessible to everyone in every context.
The currency of the world (maybe)
Bitcoin has a shot at becoming the only viable currency on Earth by the merits of it just being better than any other form of money. There's many technical and political challenges that must be overcome to get to a future like that, but that is possible.
The probability of this is still low because there are so many challenges to overcome, but there's a shot. If it happens, we get all the advantages of the gold standard (less authoritarianism, more ecnomic freedom, less war, etc) but we get even more.
Check out my blog post on The Endgames of Bitcoin for more details on what I mean by this.
What Bitcoin is not
A "get rich quick" or "sure thing" investment
Bitcoin has been the best performing asset in history, and there are some folks that became fabulously wealth because of buying it early. But past performance is no gurantee of future returns. And I am definitely not offering financial advice.
It's possible that Bitcoin could rise as much in the future as it has in the past. I even wrote how I think about pricing Bitcoin's true value at any given moment. But it could also fall apart and go to zero.
It's unwise to get into Bitcoin to make money. Buying Bitcoin is more about being a part of the movement. You'll probably preserve the value of your savings, and you might happen to make money in the process, but there are no gurantees.
Just another "Crypto" or "Web3" project
Since Bitcoin has launched there have been thousands of projects trying to improve Bitcoin or expand what it's capable of. These have mostly ended up as other "crypto" or "web3" projects.
Most are outright scams, built to generate hype and sell to the gullible before the price collapses because the token has no value.
Some aren't scams but don't solve the same problems as Bitcoin (Ethereum and Solana are the two I'd name). These other projects are trying to solve different problems, they just use blockchain technology under the hood because they've decided blockchains are the right technology to solve the problems they want to solve.
But remember that (as of today) Bitcoin by itself is more valuable than the rest of all cryptocurrencies combined. There's a reason for that, Bitcoin sovles a real problem today, most crypto does not.
Personally I don't have any other cryptocurrencies, because they're just not solving real problems, for real humans in any meaningful way. That may change in the future, but I haven't seen much that indicates that.
Easy for normal people to use (yet)
It's pretty easy to get on Strike, CashApp, Coinbase, etc and buy Bitcoin with dollars from your bank account. But it's not so easy to use Bitcoin to buy anything in the real world yet.
There are some apps or companies that will allow you to buy from them using Bitcoin but it's not common yet.
There are some companies that have a debit card backed by Bitcoin but you're still spending dollars or euros and selling Bitcoin to cover what you spent.
On top of that if you use Strike, CashApp, Coinbase, etc you don't hold the keys to your Bitcoin wallet. That can be dangerous because they're essentially acting like a bank, and if the bank fails you can loose all your Bitcoin. This happened a lot over the last few years (with Celsius, FTX, Blockfi, etc) and many people lost a lot of their crypto to these reckless companies.
That's why there's this phrase in Bitcoin "not your keys, not your Bitcoin." If you want to truly own your bitcoin you need to "self custody." I may write about this in the future but here's a good set of instructions if you're interested.
All of this is a lot of work and education for regular people to do, but it's not so much different than learning about and buying gold coins as a savings method.
But this is why Bitcoiners need to keep building ways to make it easier to buy, send, and hold Bitcoin; as well as continue to educate their friends.
Is there more?
Hell yes, so much more. If you are curious hit me up on Twitter @gregorygmwhite