Okay, but what is Bitcoin?
What is money?
Bitcoin is a technology specifically designed to be the most optimal money.
Money is a medium of exchange, something we use, instead of bartering, to facilitate economic activity. What is used as money is determined by the transactional participants, however some forms of money are more effective than others in the grand scheme of an economy. Let’s understand and evaluate what makes an effective form of money.
Money must be viable across space, scales, and time.
Space: taken with you from location to location
Scales: divisible or combinable across all sizes of transactions
Time: sufficiently holds value over the long-term
There are characteristics of money that allow us to analyze how well a monetary good performs in these areas:
Space: portability
Scales: divisibility, fungibility
Time: durability, scarcity, costly to produce
There are characteristics of money that allow the monetary network built around the monetary good to be protected and secured from manipulation and coercion:
-Verifiability
-Decentralization
-Censorship Resistance
If a money cannot be verified, it is prone to counterfeiting, which threatens the legitimacy of the entire monetary system.
If a form of money is centralized, it is subject to the exploitative influence of that centralized party, as they hold all the controlling power over the monetary system. This is why the current monetary framework (fiat currency) is broken. Central banks and governments all over the world have the ability to manipulate and create money and monetary policy whenever and however they please, leaving the rest of humanity to face the repercussions.
If a form of money can be censored, its use and function can be made obsolete. Decentralization is a key tenet in any censorship resistant monetary network.
Lastly, for a money to effectively serve as money, it must be recognized and accepted as money. If you have a form of money that you hail as being the holy grail of all currencies, but no one else accepts it as money, it is useless. This is a characteristic that cannot be engineered, at least under a real economic system, this is a result of the market deciding what is and isn't acceptable as money.
An analysis of Bitcoin across all monetary characteristics:
Portability: Bitcoins can be transported or sent anywhere in the world. Bitcoins have no physical burden, making it as portable as any monetary good can possibly be.
Divisibility: Bitcoin is digitally operated and tied to math, and math dictates that there are an infinite amount of numbers between 0 and 1, which means Bitcoins are infinitely divisible. Similarly, Bitcoins can be combined with the stroke of a digital touch to facilitate large transactions.
Fungibility: Each unit of Bitcoin is indistinguishable from and interchangeable with any other unit of Bitcoin, fulfilling the requisite property of fungibility.
Durability: Bitcoin is durable to the utmost degree. There is no physical integrity to be maintained because it does not exist in the physical realm. A Bitcoin cannot rot, it cannot deteriorate, and a Bitcoin has never been and never will be destroyed.
Scarcity: Bitcoin’s design, entrenched in code and backed by cryptographic verifiability and immutability, is such that there will never be more than 21 million bitcoins in existence. Bitcoin represents the first instance of verifiable absolute scarcity in the history of time and the universe. The significance of this cannot be understated.
Costly to produce: The process of creating new Bitcoins through computational effort requires the consumption of electric power, which incurs a real monetary cost for those that wish to create new Bitcoins, aka miners. This tethers the Bitcoin network to physics and the real world, an important but oft underlooked feature.
Verifiability: Bitcoin maintains the strongest verifiability of any money in history. This is because the Bitcoin network is built on the backs of proof and verification. Anybody is free and able to look at the Bitcoin list of transactions since the first genesis block. Bitcoins cannot be created, sent, or received without them having been verified by the network. It could be said that the Bitcoin ledger of transactions is the only objective set of facts in the world.
Decentralization: Bitcoin continues to operate flawlessly with no leaders, no employees, no head office, no CEO, no board of directors, no regulating body, no accountants, no lawyers, no masters, and no central authority. How? It is decentralized, by design. Anybody anywhere in the world can run the Bitcoin software. No single entity can create new Bitcoins or change the code that runs the Bitcoin network. It cannot be banned. Bitcoin’s incentive structure ensures this decentralization is not only maintained, but increased over time. There is no monetary network that has ever existed that has been more decentralized than the current Bitcoin network.
Censorship resistance: Censorship resistance, in terms of money, is the freedom to transact, the freedom from confiscation, and transaction immutability. No single entity can bar any bitcoin transaction, nor can they change any transaction that has been made and verified. Bitcoin is also seizure-resistant. There is no amount of physical force or legal coercion that can transfer Bitcoin from one party to another without the corresponding private keys. If private keys are stored and secured properly, they cannot be seized, only coerced from a holder. Unfortunately, coercion is a force that is unlikely to go away, no matter the form of money.
Recognizability/acceptability: Bitcoin is a commonly known term (89% of American adults have heard of Bitcoin). However, its recognition and acceptance as a medium of exchange is much less widespread. A recent survey by the Hartford Steam Boiler Inspection and Insurance Company revealed that approximately one-third of small and medium-sized businesses in the United States, or about 36%, now accept Bitcoin as a form of payment for their products and services (Sophy 2023). It is not entirely reasonable to think that Bitcoin would have become the standard medium of exchange only 14 years into its lifespan, particularly with the surrounding financial system it is opposing. Bitcoin is accepted as money in some places, however for it to best function as money, it will need to be the standard accepted form of money. This is an evolving process.
Bitcoin fulfills all of these characteristics better than any other historical form of money. Gold is bound by its physical limitations, fiat is bound by centralized manipulation.
Bitcoin is a one time innovation, much like the number zero. A digital, immutable, verifiable, absolute scarce monetary system secured by a decentralized network is a singular occurrence in the fabric of time. Anybody is free to claim that they have invented the number zero once more, but they are wasting their time, because it has already been invented. Replicate it all you want, but nobody is incentivized to use your number zero because we already have the number zero.
The characteristics of a monetary good determine it's viability in serving the functions of money.
There are three functions of money:
1) Medium of exchange
2) Unit of account (economic calculations and the pricing of goods/services)
3) Store of value
Bitcoin is the monetary good that fulfills the three functions of money as optimally as any money possibly could. That is what it was designed to do.
We can't use gold, because of its physical drawbacks, and fiat is no good because it is constantly manipulated and devalued by a central authority. Bitcoin will first get adopted as a store of value, because it is the best store of value in the universe (verifiable absolute scarcity), and then the market will increasingly realize they don't have to use the crappy fiat money machinated by governments that makes life more unaffordable, they can simply use Bitcoin.
Bitcoin will win because the people have power.
Bitcoin will win because it is better money.
Bitcoin will win because it is the best money.