Bitcoin Basics

In just 11 years, Bitcoin has evolved from an experimental technology operated by cypherpunks to a resilient, thriving global network on which users exchange an average of $12.8 billion in daily volume.

Despite its meteoric rise, Bitcoin still has a way to go before it becomes entrenched in the mainstream. According to blockchain.com, there are currently around 42 million Bitcoin wallets. If we make a generous assumption that each wallet has a unique owner, that would mean that only 0.6% of the world’s population have engaged with the Bitcoin network.

However, more and more individuals are beginning to realize the unique characteristics of Bitcoin that make it the soundest money ever created.

Evolving Money

As Bitcoin continued its rise to prominence over the first decade of its life, many people found themselves asking this fundamental question in an attempt to understand the real value proposition behind Satoshi Nakamoto’s invention.

In prehistoric times, people relied on barter to conduct their business. A caveman specializing in hunting deer would exchange his deer meat for some fruit collected by the neighboring tribe.

Eventually, the cavemen realized that for commerce to scale, they would need a universal means of representing wealth that would allow them to buy and sell as they wish, without having to rely on direct barter. Shells, beads and other collectibles began serving as the way in which value was transferred.

People began exchanging salt, grains, weapons, cattle, tools, clothes, and practically everything else, based on their perception of the exchanged items’ comparative value. Soon, commodity-based financial systems, such as coffee and wheat, quickly became dependent on harvesting conditions which made it susceptible to severe inflationary cycles.

When gold came around in the fourth millennium BC, the shiny metal quickly displaced other forms of money as the preferred store of value, first in raw form and eventually as minted coins. Eventually, bankers began to realize that they could issue notes that represented gold bars locked in a vault, making money easier to transport and exchange.

As a precious metal, it is no surprise that gold served as a peg for these national currencies, including the US Dollar. Gold supply has never increased by more than around 2.5% a year in the modern era and does not corrode or decay easily, ensuring it maintains its scarcity and value.

However, in 1971, US President Richard Nixon decided to unpeg the dollar from gold, creating the world’s first free-floating fiat currency.

The problem with fiat currency is that, absent a tangible commodity that serves as a peg, its supply can be endlessly inflated by reserve bank governors who are prone to political pressures and misjudgments.

Bitcoin represents the next phase in the evolution of money - a fixed, scarce digital asset with a predictable supply schedule that can be sent anywhere in the world without the help of governments and banks.

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Unfortunately, the abstraction of money brought about by Bitcoin is hard to grasp for most. Many people, especially those raised in earlier generations, have trouble understanding how something intangible can have any monetary value. Even though most fiat money exists merely as digital bits on a bank’s ledger, bills and coins give us a physical reference point to which we can ascribe value.

Furthermore, even for those who can conceptually understand Bitcoin, the journey to buying, transferring, and storing (or even trading a futures contract) is unfriendly to beginners. New users exposed to Bitcoin for the first time are overwhelmed by the difficulties of navigating the various wallets, exchanges, and merchants in the space.

In addition to the natural challenges associated with exploring entirely new technology, Bitcoin freshmen must contend with a significant number of disreputable sites and products that seek to exploit their ignorance for illicit financial gain.

With the price of Bitcoin increasing some 200% since yearly lows, it's only a matter of time before the next cohort of users discovers the unique qualities of Bitcoin. As the next cohort of adopters join the existing Bitcoin user base, an information portal that simplifies the complexities of the technology becomes ever-more crucial.