Everyone new to crypto feels the need to seek a bitcoin for dummies explanation. The idea of a currency controlled by no one, insured by cryptography, issued by miners, and secured by a worldwide network of nodes is foreign to how we think of money. The idea of an asset being decentralized – what does that even mean? – is foreign to everyone initially. We have many articles explaining these properties of Bitcoin in detail on this site. The technical aspects are not what this ‘bitcoin for dummies’ article is about. It is about the “idea” of Bitcoin and why it is important to conquer any fear of crypto to open your mind and participate in what will have a real impact on the future of money.
Bitcoin fear usually stems from a simple lack of understanding. However, there are some naysayers that refuse to explore the idea who will remain bitcoin dummies. This article is not written for those with their heads in the sand – it is for those seeking knowledge and understanding. TradeSoEz is not about convincing, and more about helping those looking at bitcoin for dummies content. It took over 25 years for the general public to widely adopt credit card use, so it stands to reason that cryptocurrency will take some time as well. The good news is that younger generations are catching on quickly due in large part to being more technically advanced.
Bitcoin’s potential is a topic of much debate. There are those who believe it has great potential, and others who are unsure but have decided to participate just in case. The space is filled with enthusiasts and speculators, as well as straight-up scammers who prey on bitcoin dummies. Most agree that Bitcoin has the potential to:
- change the global financial ecosystem due to its underlying technology and decentralized protocol;
- deliver impressive returns for long-term investors and short-term speculators;
- protect assets as a store-of-value due to having no controlling entity, central bank, or government;
- usher in a new kind of market that is controlled by no one and open new opportunities;
- offer the banking industry new income streams for offering custodial services to the general public;
- move the world closer to acceptance and use of digital vs. paper currency.
The changes to our financial system made possible by the Internet are beginning to become evident. Cash is being used less and less, and we all buy, obtain financing, and more without money actually existing in our wallets.
Now professionals in the global financial markets have started to assess the asset for institutional use. And all were total bitcoin dummies initially!
But what gives Bitcoin value?
Bitcoin Monetary Value Unpacked
Nick Szabo’s Bit Gold 2005 paper addresses a question many ask about Bitcoin: what gives it monetary value? The gist of his assertion was that monetary value exists as a social phenomenon dependant on trust in a third party. Gold and other precious metals or collectibles once provided money value. However, in today’s emerging digital era, they are costly to create while being scarce, but difficult to securely store or transfer. Szabo outlines a protocol for development of online digital money.
Adam Back’s Hashcash 2002 paper, in short, addresses the “proof of work” concept as a way to easily verify using expensive mathematical computations.
Satoshi Nakamoto’s Bitcoin whitepaper introduced a digital concept of the theory of monetary value using a proof-of-work chain in a working open-source “system for electronic transactions without relying on trust.” This is summed up perfectly in the Conclusion of Nakamoto’s whitepaper:
“We have proposed a system for electronic transactions without relying on trust. We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending. To solve this, we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power. The network is robust in its unstructured simplicity. Nodes work all at once with little coordination. They do not need to be identified, since messages are not routed to any particular place and only need to be delivered on a best effort basis. Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were gone. They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives can be enforced with this consensus mechanism.”
Bitcoin Advantage for Dummies
While complex technically speaking, the way Bitcoin works is like conventional money – it can be used to buy goods and services. The major difference is that it is money with no middlemen involved. Bitcoin can be sent anywhere in the world, quickly and inexpensively. No bank account or credit card is required to use it, and no bank or country controls the network that drives it. There are no exchange rates, as you can use Bitcoin in any country. Since no government or central bank has access to it, Bitcoin cannot be frozen, confiscated, or manipulated. If you own bitcoin, you are your own bank and have full control – even bitcoin dummies!
Getting started is easy now that services for buying and selling Bitcoin have been developed. Create a wallet account on an exchange, connect a bank account (or credit card) similar to a PayPal account, and buy Bitcoin. You can also buy from someone you know, peer-to-peer by simply downloading a free wallet app on your phone or computer, and providing the seller with a BTC address created by your wallet. Many believe a whole bitcoin has to be bought. That is not true at all. Bitcoin is divisible by 8 decimal points and you can buy as little as $10 or less.
Bitcoin Appeal Unpacked
As the flaws of existing monetary systems become more widely revealed, many are turning to Bitcoin as a store-of-value. One reason is Bitcoin’s high degree of accessibility that allows one to send and receive it in a permissionless way. Another is that it is seizure resistant, meaning Bitcoin is harder to confiscate than assets. It is also censorship resistant because transactions are broadcast to the network and then recorded on the blockchain.
Lastly, there is a finite supply of 21 million Bitcoin that will ever be created. This minimalizes the uncertainty that affects all other currencies affected by the monetary policies of central banks and governments. Recent expansion of every form of money on an unprecedented scale has many reassessing the properties of Bitcoin.
The fact is, people give Bitcoin value – no different than any other fiat currency, fine art, or good wine.