If a child comes to you and asks “What is the Internet?”… What would you answer? Would you be able to answer in a couple of sentences that he can understand? How about “What is money?”. And where does Bitcoin play a role in that?
Both money and the Internet are technologies that surround pretty much all of our everyday activities. Did you wake up today with the radio playing over your Alexa? Or your favorite song on Spotify? Well, then you started using the Internet today even before you opened your eyes. If you got dressed and went to the gym, right there is your first transaction, you are paying for the tram ticket to get there or the fuel in your car. And also for the privilege to work out in those facilities. These transactions are in turn trades with your past self because you traded your time and energy in the past for the money you used to pay for these things. At the same time, you are also trading with your future self, because you are making the decision to spend that money on this tram ticket or gym pass today instead of that coffee or new t-shirt your future self may want to buy.
Humans live in a constant state of trading our time and energy for the goods and services we need or want. And this is happening many times each waking hour (even sometimes while we sleep) to every single person. This is only possible because we have this technology called “money”, which has taken many forms throughout history. But, in essence, its function is to allow us to make these trades to get what we want at the time when we need it and to pay for it using our past or future time and energy.
When we talk about money most people imagine the Euro or the Dollar as the definition of what money is. However, these and other national currencies are just one sub-category of what can act as money. These are the so-called “fiat” currencies. The term “Fiat” comes from Latin, and means “let it be done” (as in “let it be light”, for example). It means that these currencies are money only because someone has decreed that they should be money. If that someone is a government (or group of them) of course the currency becomes money. However, it doesn’t mean that’s the only thing that can work as such.
Over history, many different things acted as money. From cattle to seashells, salt, and precious metals, they all were used as money in different periods of time. With time gold established itself as the universal form of money for most humans until the 19th and 20th centuries brought us the national currencies we have today as the majority forms of money. However even nowadays, many things act as money without anyone saying so, like cigarettes in prison (I think, we all saw that in movies). And I, for example, can remember football cards pretty much acting like a form of money in my schoolyard during primary school. They were precious (especially some of them) and you could get stuff in exchange if you sold them, like a basketball or someone to make your homework.
That phenomenon is what defines something as money. If others are willing to accept it from you in exchange for goods and services, then it is money, there is no discussion.
Money as technology is one of the pillars that has allowed us to thrive as a civilization. And it turns out that the choice of money we all make is pretty important because each form of money has its own rules and, if you use it, they strongly affect your present and future.
What are these rules? Who sets them? And most importantly, who can change them? These are questions we should all be asking ourselves before using a certain form of money to save our time and energy for the future.
For example, the rules that govern gold are set by its chemical and physical properties. The fact that it can very hard be destroyed and that it is quite hard to extract more means the pool of gold available is very big compared with the new gold that comes into circulation each year.
Holding any form of money implies trust. Your trust in the rules that govern how this particular form of money works and those who make them. With our example, if you save in gold it means you trust fully that its chemical properties will stay the same (a fair assumption) but also that the speed at which it is extracted will stay similar, otherwise the rules would change, and with different rules, you have a different form of money.
If you trust the Euro, it means you are placing your trust in the European Central Bank and its officials, because they are the ones who dictate the rules that govern the currency. And if you trust the Dollar, it means you are trusting the US Federal Reserve.
It means you trust:
One very important exercise you should make, regardless of what form of money you hold is to ask yourself: what or whom am I trusting by making this decision? And what choices may these people make that affect negatively the benefit I extract from the units of this money I have stored?
For example, the people making the rules that govern the USD decided to expand the supply of dollars by 30% within a bit more than a year recently. The amount of dollars in circulation is not a secret, you can see that in the website of the Federal Reserve. They probably thought they had good reason to do this, but did they really predict correctly the consequences of this decision? And do you think they had your best interests at heart when doing so?
Bitcoin solves the problem of ownership without trusting any third party. It is the only system so far discovered by humans to transfer value to someone in a digital way without having to trust another person or entity: If I have a 10€ banknote, it is clear it belongs to me. If I give it to you, then it will also be clear to everyone it belongs to you. But what if the 10€ are digital? I can’t simply send them to you, because digital information can, in practice, never be sent, only copied. If I send you an email, who has the email, you or me? Actually both, I will still have the email after you see it in your inbox. Therefore the only way who had the email first and sent it is to trust a third party.
Except with Bitcoin. Bitcoin allows all users to constantly monitor and validate that everybody else is playing by the same rules and that the balances are right. If anybody who cheats is automatically expelled, then you don’t need a central entity who acts as a referee, you simply have to play by the rules.
By removing the central authority, Bitcoin also solves the problem of the creation of new units of money (those bitcoins) by having a pre-defined unchangeable schedule that determines how many bitcoins will be created each day, from the very beginning and for eternity. Instead of having a reduced group of people who decide (who is not me or you) we simply have no one at all deciding anything. And the distribution of these new coins is done at random among those people in the world who voluntarily decide to invest their resources in securing the network, making it the very first totally fair distribution of new money units ever.
Let’s take the Euro and try to answer the following questions:
Does this sound like a “safe” currency to you?
Let’s check how it looks with Bitcoin:
What a “safe” currency really means is always a matter of trust, and this can’t be defined simply at first sight.
Every day there are more and more people who understand that Fiat currencies, although they are kind of stable in value in the short term, they always end up failing in the long term because they depend on trust in people. And we people are imperfect by nature.
With Bitcoin, we have an alternative. It is never again a question of “who do I trust?” because when you own Bitcoin you don’t ever again have to trust anyone. You can simply hold a form of money and know with absolute certainty that the same fair rules that govern it today will remain the same forever. Here you can read about the easiest way to start purchasing Bitcoin.
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