The Significance of Bitcoin in exactly 500 words
The battle between Big Brother and Satoshi.
If democracy and free-market capitalism had a child, they’d call it Bitcoin.
Money and Power
To understand the significance of Bitcoin, you must understand the history of money.
Early human societies used shells, grains, and other collectibles as money.
As societies began to trade at a larger scale, these collectibles were replaced by precious metals.
Later, instead of using metals, people began using paper to represent stores of metals.
Eventually, governments decided that even this was too troublesome. They got rid of metals and forced people to transact with paper even though it was intrinsically worthless.
With this move, money became intertwined with state power.
Humans went from trusting the value of something – collectibles & precious metals, to being forced to trust someone - the state. If the state printed more money and reduced the value of yours - tough luck. If it banned some types of money on a whim - too bad.
Technology makes it worse
As time passed, humans figured out how to digitize currency. Online transactions and card transactions became the norm.
To ensure that people didn’t duplicate digital currency the way they duplicated digital music, banks were entrusted with the responsibility of verifying and approving transactions. They did this by maintaining a centralized ledger to record transactions.
This entangled money and power even further.
Governments controlled the banks that controlled digital currency. Unlike paper transactions that were relatively private, digital transactions could be monitored. The government could freeze your account if it had problems with you, or debit your account if you owed it money. It could also determine who you could or couldn’t transact with.
Big Brother would always be watching.
Satoshi, the Savior
In 2008, a pseudonymous person called Satoshi Nakamoto invented a peer-to-peer digital currency to solve the problems created by the entanglement of money and state. He called it Bitcoin.
Bitcoin verifies transactions without the need for banks or a central authority. It uses a decentralized ledger known as the blockchain that exists simultaneously on a network of thousands of computers. No single person owns the network and transactions can’t be censored.
Anyone can join the network, maintain a copy of the ledger, and be rewarded with Bitcoins for their effort. Privacy and security are maintained through anonymity and decentralization. The supply of Bitcoin is capped at 21 million, so inflation will never be a concern.
All this was possible due to smart algorithms, the internet, and a dollop of human ingenuity.
While Satoshi’s story sounds lovely, Bitcoin remains fraught with uncertainty. Governments will fight to keep control of money supply like a possessive parent fights to keep control of an adult child.
Eventually, though, it is likely that the child will break free.
The technicalities of Bitcoin are complex, but just like you don’t need to understand how the internet works in order to read this article, you don’t need to understand Bitcoin's technicalities to use it.
You just need to believe in the future that it promises.
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