Bitcoin 101: The Revolution is Now
I get asked all the time about Bitcoin. Just in the last two weeks I have discussed Bitcoin with a 45 year old woman at my church, a portfolio manager, and a room full of accountants, lawyers, and financial advisors. If you are interested in Bitcoin, welcome to the revolution. I say revolution simply because the technology that makes Bitcoin possible is truly revolutionary, but before we get too deep into why that is, watch this short video explaining Bitcoin.
The reason that Bitcoin (and more specifically the blockchain) is revolutionary is that we now have the ability to exchange value with anyone in the world almost instantaneously without a centralized authority being in the middle of the exchange such as a government, a corporation, or other middle man.
Why is eliminating the middle man so valuable? To reduce the risk of a government destroying the country’s currency. Zimbabwe and Venezuela are the most recent examples of hyperinflation destroying the value of a country’s currency. Don’t be fooled by the size of those two nations – hyperinflation can hit the largest of nations. Germany, Greece, and China have each in the last one hundred years experienced hyperinflation. See this recent Business Insider story on hyperinflation for more examples. The takeaway here is that there are billions of people that would rather wipe their… nose with the government currency because said dollar bill wouldn’t buy them a single roll of toiler paper. Enter Bitcoin – a decentralized (i.e. no government middle man) digital currency that literally only requires an internet connection once to acquire and then it can be traded via a laptop or even via a piece of paper.
As a quick aside, in Zimbabwe there is a Bitcoin exchange, BitcoinFundi. I just pulled up the website and Bitcoin trades at a 50% premium to the rest of the world. Why? Because Zimbabweans want to trade their garbage currency for Bitcoin. If you want to see the price for yourself, click here to see BitcoinFundi’s latest price quote. At the time of writing this post, a BTC on Coinbase (U.S. Exchange) is around $4000. On BitcoinFundi, almost $7000.
Bitcoin has a fixed supply of 21M coins. These can be subdivided so it is possible to have 0.00000001 Bitcoin (BTC). The limited supply of Bitcoin is significant because previously creating digital scarcity was very difficult. I mean think about Napster and other peer to peer protocols that allowed us to essentially copy any song, movie, or other digital asset. Bitcoin can’t be copied due to the decentralized security provided by the network of nodes and miners. Suffice it to say that the Bitcoin network itself is extremely secure.
In short, Bitcoin is the first real use case that demonstrates the power of a blockchain and a decentralized network. This model is revolutionary. Think of the internet in the 1990s. I’m talking HUUUGGEEE.