What Is Bitcoin?

With Bitcoin making headline news as the future of currency, 24 hour trading ability, and unlike the US Dollar, a finite supply, Bitcoin is on everyone's list of topics of conversation. How's the weather? What are you watching on Netflix? How's your Bitcoin doing? Today we are going to take a look into the history of Bitcoin and how Bitcoin has and is changing the face of the global financial markets, but first,

What Is Bitcoin?

According to the BBC, "Bitcoin is a computer file which is stored in a 'digital wallet' app on a smartphone or computer." But this author feels that the definition given is both too broad and not precise enough to do the cryptocurrency justice. Bitcoin is created on the blockchain which is mined and there is a finite amount of Bitcoin that exists. Bitcoin in the simplest terms is a limited algorithm that has a value due to the limited supply and therefore, has become a tradeable asset.

Much like the US Dollar or gold, Bitcoin has emerged as a way to trade for products and services. Also, due to it's limited supply, people have expressed a trust in Bitcoin because there is an assigned value that has tangible backing unlike the US Dollar which used to be backed by gold until we went off of the gold standard in the 1970s.

It is also of interest that Bitcoin is not minted by a central authority like a country's government and therefore is not influenced by local political and economic upheaval: See the current currency crisis in Myanmar, formerly Burma.

Who Invented Bitcoin?

In August 2008, bitcoin.org was registered and later the same year, the paper entitled, "Bitcoin: A Peer-to-Peer Electronic Cash System" by Satoshi Nakamoto was sent into distribution that outlined the idea of a person to person currency that was independent of governments, was backed by scarcity, and facilitated trade using electronic platforms.

Who Is Satoshi Nakamoto?

While the illusive Satoshi Nakamoto remains essentially anonymous. Nakamoto's claim to fame is that well, he created Bitcoin. Some researchers believe that Satoshi Nakamoto is a pseudonym for the person who created Bitcoin. Others believe that Satoshi Nakamoto is a larger pseudonym for more than one person or even an organization that created Bitcoin in order to disrupt the current monetary systems.

It is speculated that Nakamoto's net worth is hovering around a minimum of $40 billion. That would be a minimum. Hell, that's good money even split 70 ways.

Bitcoin As A Response To Fractional Reserve Lending

Fractional reserve lending is the policy that allows banks to lend money to both themselves as well as to you (and I am keeping this very basic for the purpose of comprehension for my readers who may not have an extensive financial or economic background, you can look at other articles of mine to see a more indepth look of our current economic system to dive deeper).

The average person believes that the bank has all of the money on hand when they go to get a loan whether it be for a car, a boat, or a house. This is not so. A bank only has to hold 10% of the loan value in cash. Best example is below:

Bank A holds $100 million in cash assets like savings accounts, Certificates of Deposit, and Money Market Accounts.

Bank A can now lend $1 billion in loans (with interest of course) therefore creating $1 billion of cash that is used to purchase assets when they in fact only hold $100 million in cash.

See the problem?

Except it wasn't a problem while everyone could make payment or remittance on the money owed. Well until that little thing referred to as the Great Recession. Because the banks did not have cash reserves to withstand a large percentage default rate, it sent the United States economy and global economy into a tailspin. One broker was cited as saying "if we had not bailed out the banks, we would have faced a global economy crisis that would have rendered daily living impossible." And although it is a sensational statement, this author is compelled to agree.

Fractional Reserve Lending and The Gold Standard

Fractional reserve lending worked because the US Dollar which is the reserve currency of the world, is backed by, well nothing. Just the belief that it is worth something. Yep. It's essentially as real as the tooth fairy or a man with good dick and good credit at the same time.

Historically, the US Dollar was backed by the current price of gold and was more stable. The United States abandoned the Gold Standard in the 1970s. By going off of the Gold Standard, banks and the US government were able to kinda just print money with a few lax guidelines.

Just my opinion, but I believe that Bitcoin was created to stabilize markets and prevent another Great Recession or even worse.

How Does Bitcoin Work?

Bitcoin is a decentralized currency meaning it is independent of governments to mint and produce, or in Bitcoin's case, mine the currency. You buy, sell, and exchange without the use of a bank or other financial intermediary.

Ever wonder why when you get a refund on for something at a store they say it will take 3-5 business days to process? That is because the banks act as the intermediary for exchange as well as the Federal Reserve (more on that at another time). Bitcoin exchanges are direct and sometime use a platform such as crypto.com, binance, or coinbase.

One noteable fact that I found especially intriguing is that EVERY SINGLE transaction ever made using Bitcoin is recorded on a ledger that is available to the public. No funny money with BTC.

Is Bitcoin Legal?

At the time of writing, Bitcoin is legal in the United States, United Kingdom, and honestly most of the world. China and other countries are attempting to heavily regulate and/or ban Bitcoin. Again, an opinion from me, is this is due to China's release of their own state created cryptocurrency that they are pushing very heavily.

As faith in fiat currencies (or traditional government issued currency) continues to decline I believe governments will continue to place restrictions and regulations on the mining and trading of Bitcoin in order to try to maintain control over trade and currency.

Is Bitcoin A Good Investment?

At the time of writing, Bitcoin's value was hovering in the mid $40,000 USD mark per 1 BTC. Do I think it will go higher? Yes I do. Based on Bitcoin trends from the time of creation, we should see a large gain on Bitcoin value within the next 6 to 12 months. As Bitcoin ATMs are becoming commonplace in larger cities, large purchases can be made with Bitcoin, and some companies are even giving the option for employees to be paid in cryptocurrency i.e. Bitcoin, it only makes sense to see the value of a finitely backed coin like Bitcoin to increase astronomically.

I call Bitcoin as a buy. And you can even buy it on Cashapp if that tells you anything.