At first glance many people think that Bitcoin is just another "fake" currency.
Bitcoin cannot be redeemed for any real-world asset such as gold or silver, it does not have any inherent utility, and at the end of the day its just numbers being moved around.
No better than it's fiat alternatives...
What is money?
To understand what makes Bitcoin so valuable we must first know what money is. Money arose from bartering between individuals. Bartering works great in small communities, however it does not scale well. This is where a common medium of exchange was necessary for commerce on a large scale. Over centuries of experimentation various types of curriences arose. Originally coins were just a standard unit of measure for gold or silver. With the arrival of bank notes money turned into pieces of paper that could at one point be redeemed for precious metals. Eventually governments removed the ability for their currencies to be redeemed for hard metals creating the completely arbitrary fiat system we have today.
Throughout this monetary evolution certain qualities have created better or worse currencies.
Qualities such as being easy to divide up into small portions, fungibility (all units of currency being worth the same), and most importantly of all trust.
What about bitcoin?
Now if we look at Bitcoin you will see all these qualities:
- Divisibility: A Bitcoin can be split up into 8 decimal places. This means you can own .00000001 of a Bitcoin (also called a satoshi)
- Fungibility: Each bitcoin is mathematically identical to the next.
- Trust: This is where Bitcoin truly outshines every other currency humanity has ever created. With gold and gold coins you have to trust that the gold coins are pure and not a cheap metal coated in gold. With fiat currencies you have to trust that the government creating them won't devalue your savings.
Bitcoin turns this premise of trust on it's head because you don't have to trust any third party. By running a node, you are mathematically verifying that not only are your transactions accurate and non-fraudulent but every transaction ever being created on the network. Now you don't have to trust anyone else but your own machine.
The other aspect of trust is inflation. How can you trust a currency that can devalue 10% at the drop of a hat? Baked into the very core of bitcoin, is a limit on 21Million bitcoins. This means that there will never be more than 21Million ever created.
How useful is it?
Now that we have established that bitcoin is a fundamentally valuable currency, let's dig into how it is practically better than traditional finance.
Creating a trustless system means that there are no intermediaries needed. You don't need to use a bank or money-wiring service to send Bitcoin to your friend in a different country because Bitcoin is directly peer-to-peer.
No intermediaries means low to minimal fees. The conformation time for a transaction is typically less than 10 minutes no matter the size. It will take the same amount of time for a $1 transactions to $1 Billion dollar transaction.
Finally because it is peer to peer no government or entity can actually stop it, making it perfect for anyone with unpopular opinions.