Bitcoin is many things to many people. It is a technology, it is an investment and it is money to some. The interesting thing is investments and money always was tied to technology from the dawn of the invention of money. Money is a human construct and fully an abstraction of the people that participate in a trade of their time and energy for an exchange of it.
Through human history people have accepted just about anything as a currency with real or perceived value with or without the support of the king, nobles, or politicians. Bitcoin is just one example of this human trait and thus has moved from pennies to over $20,000 and down to $3000 on a roller coaster ride. Yet like anything that has mutual human agreement, it is sustains based on perhaps just the agreement alone.
Bitcoin is an Internet-wide distributed ledger. You buy into the ledger by purchasing one of a fixed number of alpha numeric sequence slots, either with cash or by selling a product and service for Bitcoin, there are just 21 million bitcoin and about 18 million have been mined. You sell out of the ledger by trading your Bitcoin to someone else who wants to buy into the ledger.
Anyone in the world can buy into or sell out of the ledger any time they want, with no approval needed, and with no or very low fees. The Bitcoin “coins” themselves are simply alpha numeric sequence in the ledger, analogous in some ways to seats on a stock exchange, except much more broadly applicable to real world transactions.
The Bitcoin ledger is a new kind of payment system, communication system and accounting system. Anyone in the world can pay and notify anyone else in the world any amount of value of Bitcoin by simply transferring ownership of the corresponding alpha numeric sequence slot in the ledger.Put value in, transfer it, the recipient gets value out, no authorization required, and in many cases, no fees.
That last part is enormously important. Bitcoin is the first Internet-wide payment system where transactions can happen with no fees or very low fees, down to fractions of pennies. Existing payment systems like Visa and MasterCard charge fees of about 2% to 3% in the technological world. In lots of other parts of the world, there either are no modern payment systems or the rates are significantly higher.
Bitcoin is also a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust: A string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks, this is the part that is literally like cash, if you have the money or the asset, you can pay with it; if you don’t, you can’t. This is new concept. This has never existed in digital form before.
Bitcoin is also a digital currency, whose value is based directly on two things: use of the payment system today, volume and velocity of payments running through the ledger, and speculation on future use of the payment system. This is one part that is confusing people. Bitcoin as a currency or investment has an arbitrary value and people are trading with it and as a result it has value.
Bitcoin as a currency and an investment is based on speculation not payment volume of transaction amounts payment volume, but this is true of any investment including stocks and bonds. The Bitcoin currency had to be worth something before it could bear any amount of real-world payment volume. This was the classic “chicken and egg” problem with new technology: new technology is not worth much until it’s worth a lot and is now in full network effect mode in 2020. Bitcoin has risen in value in part because of speculation is making the reality of its usefulness arrive much faster than it would have otherwise.
But why ultimately is it rising? I will share a quick and easy overview on this and explore the next 48 months in Member-Only Executive article. If you are a member, thank you. To become a member, please click on the link below and join us.
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