Since its inception, some 12 years ago, “What is Bitcoin?” has become one of, if not the, most notorious questions in the financial world. Retail investors & financiers alike have been drawn to the nascent technology, plowing enormous amounts of money & time into Bitcoin. But why?
The most popular is easily understandable layman’s explanation is the narrative of Bitcoin is Gold 2.0. Gold has historically been associated with the storing of value. Since Bitcoin’s greatest purpose is the storage of value, equating it to gold makes the most sense (especially to the older generations). Bitcoin gets the 2.0 in that narrative because it is more portable, divisible, & arguably secure than gold. This narrative may be easier to understand but it is also not exciting enough to spark the same financial interest in the younger generations.
Sure Bitcoin being Gold 2.0 does some justice, but it does not capture the entirety of it. Gold has a supply that is constantly expanding & we now know exists in abundance throughout space. Bitcoin, on the other hand, we definitively know its supply at any given moment & that there will only ever be a total maximum of 21,000,000 Bitcoin units. This limited availability is where another narrative begins to take over; Digital Financial Real Estate.
Imagine the Bitcoin network as a web that covers the earth. If we were to plot the amount of land-acre/total amount of bitcoin, then we see that for 1BTC=~6,000 acres of land. There can only be 21,000,000 people that own 6,000 acres of land. Wouldn’t it seem like a powerful position to be in? Once everybody owns the land/BTC, then the only way to get that land/BTC is by hoping somebody will sell theirs. Typically this means at a huge premium that makes the investment of the previous owner worthwhile. ***Important to note here, Bitcoin does not replace the existing real-estate industry, it just reflects similar value propositions to those in real estate.
But there is still something much larger at play.
To entirely understand Bitcoin & its impact on the world, it is important to understand what Bitcoin does.
With Bitcoin, it is possible to do the 3 quintessential functions necessary in any monetary ecosystem:
– Store value
– Send value
– Receive value
No revolution here, bank accounts have been doing this for as long as memory serves.
The revolution begins to take place when we understand that those 3 functions are now capable of being conducted without the banks, this is where the magical buzzword “decentralization” comes into play.
This is a concept that is not always intuitive and is better understood through an example:
– If Sally has $100,000 in a Wells Fargo Account, then Wells Fargo essentially owns the money. When she goes to send money, she needs Wells Fargo to give her the OK; when she goes to receive money, then Wells Fargo would take them on her behalf & updates its Balance sheet. This is so because Wells Fargo is the single entity that owns the monetary infrastructure (servers) that hosts Sally’s money.
– If Sally has $100,000 in Bitcoin, then she, in fact, owns the money. When she sends money, she does not need an OK from anyone but her own funds; when she receives Bitcoin, then her liquid hard net worth increases directly. This is so because Bitcoin’s infrastructure is not located in any single location; rather, Bitcoin’s infrastructure exists across a large number of separate servers owned by separate entities.
Bitcoin is not just a digital asset. Bitcoin is a digital asset that exists in a distributed bitcoin network. The network uses Bitcoins as the unit of account within itself & acts as a record for all the activity (ledger). The Asset & the network work in tandem; if & when you want to participate, you would, in fact, utilize both paradigms of Bitcoin.