#1: Bitcoin explained like-you're-5
This article will give you the fundamental understanding of what Bitcoin is, how it came about and whether you should consider investing in it.
The second time I heard about the Web3 space was about three months ago when I started conversations about potentially joining Stack Shift, a talent company that runs a fellowship program focused on making it easier for Nigerian tech talents to transition between and into Web 3.0 roles.
The first few times that I heard about Web3.0 was the many times that I had seen tweets about it on my Twitter timeline. I never paid close attention to learning about it.
As I considered joining Stack Shift, I decided to learn about the Web3.0 space. I started by watching YouTube videos and reading resources on it online. I can’t say now that I fully understand Web3.0 in its entirety. I am, however, nowhere near as clueless as I was three months ago. By the way, I eventually joined Stack Shift as a part of the Talent Operations team.
I got a better understanding of Bitcoin when I listened to a podcast by Jordan B Peterson titled “The Immaculate Conception: Bitcoin vs Fiat Standard”. The podcast guest was Dr Saifedean Ammous. He is the author of the books The Bitcoin Standard and the Fiat Standard. This podcast episode had Jordan Peterson ask Dr Saifedean questions about Bitcoin and how it came to become the hardest currency. I hope that this article helps you to understand Bitcoin fundamentals and how it came to be.
To understand Bitcoin, you need to have a good understanding of the history of money and how it has evolved.
The concept of money
Money is an abstract store of value. Its value depends on the importance placed on it. Historically, seashells, glass beads, and limestones were used as money. Industrialisation contributed to increasing their supply, so these money forms became devalued. Money that is easily produced and distributed tends to be disproportionately supplied to the economy by the people in charge. Money that is easily produced and distributed is known as easy money. And as you can imagine, they are not a good store of wealth for the future.
Gold as a hard money
Gold has existed for more than 5000 years. It is the currency that has accompanied the rise of human progress in all its disciplines. No government in the world declared gold as money. Gold independently emerged as money because of its unique properties. Gold has technical, physical, and rarity characteristics. Its chemistry naturally gives it that property. The properties of gold that have made it valuable as a currency is that it cannot be easily produced or extracted. It is indestructible. It is also relatively limited in quantity - so the more the price rises, the more incentive to get more of it. That's why gold is regarded as hard money.
Hardness here refers to the difficulty of making more currency to add to the existing supply. Looking historically at money, you will find that it has always been a contest of survival of the hardest. People are always looking for the hardest money available. The ones that manage to find the hardest money get to store their wealth in it. If you store wealth in easy money, you could watch your wealth dissipate. We have seen this happen over time, so the result is that more and more wealth will be concentrated in the area of hard money. As a result of gold's accumulation over the past 5000 years, the amount produced is not as much per year. This scarcity is why its value keeps appreciating.
Bitcoin: the hardest money?
Bitcoin is a digital currency, also called cryptocurrency. Cryptocurrency does not rely on any financial institution or bank to verify transactions. Bitcoin relies on the radical idea of changing the control of money from the government to the people.
Bitcoin has been operating for 12 years so far. The algorithm for making bitcoin work is set at producing a certain amount of bitcoin. It will end at 21 million, and there is no way that more bitcoin can be produced. The quantity of Bitcoin being 21 million is as good as any number. The quantity does not matter (even though scarcity is a key attribute). The value does. There is no limit to the value that the Bitcoin network can have but there is a limit to the number of tokens that represent that value. Bitcoin is also hard to counterfeit.
Bitcoin exists within a decentralized network called the blockchain, the same way all the websites in the world exist only within the decentralized network known as the Internet.
Bitcoin is not the first cryptocurrency that has been created. People have been trying to build digital money for decades. However, the founder who goes under the pseudonym Satoshi Nakamoto solved a critical problem - the Byzantine Generals' problem. This solution ushered in a new age of blockchain technology and decentralized digital currencies. Satoshi figured out a solution using the proof-of-work system. He essentially figured out how to get all the different nodes on the blockchain network to agree without having a central command authority.
The Bitcoin founder envisioned digital gold - a new kind of universally accepted money that everyone owns. Like gold, Bitcoin was initially worth nothing but as people began to recognise its value, there has been significant appreciation in the price of Bitcoin. As of Nov. 26, 2021, the combined market value of the world's bitcoins totalled over $1.03 trillion.
Should You Invest in Bitcoin?
Pro: Bitcoin is global. It has no borders. It is easily accessible and versatile. It can be used to purchase goods and services from the ever-growing list of places accepting it. Bitcoin can also be easily sold at any moment.
Con: Bitcoin is very volatile and is subject to market crashes. It is a risky investment. So it is advisable to conduct your due diligence and only invest money that you don’t mind losing.