What is the big deal about crypto currencies and Bitcoin in particular? Bitcoin is on our newsfeeds every day it seems, not least because Elon Musk – who is undoubtedly the Renaissance man of our times – indicated he bought about $1.5bln worth of Bitcoin and that Tesla would start accepting Bitcoin as payment for its cars. That was enough to put Bitcoin’s price up to new heights.
So, what is Bitcoin really? Bitcoin is one of the first and ‘oldest’ digital only currencies, created in 2009 by an unknown person under the alias Satoshi Nakamoto and started trading in July 2010 at a price of $0.08 (!) per coin.
Satoshi Nakamoto is alleged to be the person who wrote the code for Bitcoin, but the world has never been able to establish the identity of Satoshi, despite many efforts to do so. Was Satoshi a man? Was he Japanese? Was he a person operating alone or part of a group? The world became obsessed with finding him. Many respected newspapers and magazines committed time and money to investigate the whereabouts of Satoshi. No one ever even came close. A former SpaceX employee was convinced that Satoshi was in fact Elon Musk, but Elon Musk denied this in late 2017 (via Tweet of course).
The inability of the world to find Satoshi has only attributed to the mystery of Bitcoin. Most people at the time did not get what the fuss was about and why Bitcoin even mattered. But Bitcoin galvanised a small army of computer geeks and early adopters, who believed Bitcoin to be novel, revolutionary and liberating. These Bitcoin ‘miners’ became the backbone of the Bitcoin community and were rewarded for their pioneering work in, guess what, Bitcoin, making millionaires of many of them.
But most of the establishment dismissed Bitcoin as a ruse and one can understand why. After all, it was (and maybe is) hard to wrap your head around something that was: (1) intangible; (2) invisible; (3) unusable as a currency; (4) created by an invisible and unidentifiable person; and (5) had no apparent value. The only logical conclusion was that it had to be fake.
History proved that the majority was wrong. Bitcoin and other cryptocurrencies in its wake have changed everything and set in motion a series of events that have become the foundation of our digital transformation. They may even replace real currencies in the near future.
How does a crypto currency differ from a real currency?
The main difference between crypto and real currencies, is that real (tangible) currencies are centralised, i.e fully controlled by Central Banks. Central Banks control the amount of money in circulation, with the objective to achieve balanced economic growth as well as a stable currency and job market. The main tool in executing this monetary policy is through interest rates. Central banks are still the undisputed centre of monetary power (read our article on inflation).
Bitcoin, on the other hand, is intangible. It is a computer file sent from one computer to another, from digital wallet to digital wallet. Bitcoin is a decentralised currency, existing without links to the established order. It is not controlled by any Central Bank and unaffected by interest rates or currency fluctuations. Satoshi, in inventing Bitcoin, aimed to establish a monetary system, where people are in charge of their own destiny away from the existing power structures. Not surprisingly, Central Banks and governments do not like Bitcoin and cryptocurrencies in general. At times, they even depict Bitcoin as ‘dangerous’.
Henry Ford said, decades ago, that, “it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe, there would be a revolution before tomorrow morning.”
It has taken Bitcoin a bit longer to create a monetary ‘revolution’, but over time it has created a paradigm shift in the perception of what currencies or monetary value mean. Central Banks these days are scrambling to counter this revolution and maintain power. The Bank of England recently even proposed to issue its ‘own’ digital currency (which of course totally defies the purpose). But the crypto cat is most definitely out of the bag.
Another nice ‘Satoshi touch’ with regards to Bitcoin is, and the reason why its price keeps going up, that the amount of ‘coins’ that can be mined is finite. Satoshi made sure, from the start, that only a total of 21 million Bitcoins could be mined. Once this number is reached, supply will be tapped out. There are currently already 18.7 million Bitcoins in circulation. It seems that the price for Bitcoin therefore is infinite. Just a quick look at the latest prices supports that statement. Bitcoin has come a long way from its original $0.08 value per coin to a value of around $55,000 today (and rising). Maybe it is time to own a bit, of a bit, of Bitcoin. Just in case….
Recommended links:
https://www.wired.com/story/would-you-trade-bitcoin-tesla/
https://finance.yahoo.com/quote/BTC-USD/
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