The 11 Characteristics of Bitcoin
You can’t see bitcoin. You can’t hold it. And you can’t… taste it??? So why is Bitcoin worth money?
Its fair to say that Bitcoin is, or even has already, transformed the world. Never before, in the history of mankind, has there been a payment system that operated in a trustless network, capable of sending value, instantly, and anonymously to the other side of the world. We all dream of removing the seemingly unlimited power of governments and banks that they hold over the monetary supply, and Bitcoin might just provide that answer. But is humanity ready for it?
Is this video I’m going to go over the 11 characteristics of ‘money’ and why Bitcoin has all of them and more…
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Currency, to be usable, needs to be relied on to maintain, or store, its value over time without depreciation.
In not so ancient history, money as we know it didn’t exist, and instead, people traded using other commodities, such as previous metal, which were used as methods of payment due to the fact thatchy held a stable value. However, carrying around actual goods to trade was not sustainable, and as societies developed, minted currencies were established. However, the principle of the new minted currencies were the same as the cocoa beans and precious metals that they replaced, in that they were usable because they were a reliable store of value and did not depreciate significantly, and most importantly were BACKED by physical assets, most notably, GOLD.
In modern times, Fiat currency, which is issued by a countries government is not backed by any commodity, but rather by a social norm and rule of law, that society will accept that currency. Over time, fiat currency has established itself as the most durable, and least impacted by deterioration or loss of value over time.
However, FIAT is coming to an end. In fact, in all of human history, there has never been a FIAT currency that hasn’t collapsed. As governments print more and more of the fiat currency to prop up the inevitable collapse, the dangers become greater, and people begin to look for better stores of value. Enter, Bitcoin.
Lets have a look at the reasons why Bitcoin has value, and compare it to its main competitor, GOLD.
Characteristic 1 — Scarcity
Following its launch in 2009, Bitcoin developers stipulated that the supply of tokens would be capped at 21 million. Currently there are approximately 18.5million in supply, and the rate at which the coins are released is ever decreasing, roughly by 50% every 4 years.
To date, the fact that coins are still available have encouraged the growth of a significant and strong mining community, though this is liable to change as the limit of 21 million coins is approached. Although the limit is not scheduled to be mined until around the year 2140, the fact remains that the scarcity of the coins have driven its value, similar in the way that Gold.
Characteristic 2 — Divisibility
The fact that Bitcoin is limited to just 21 million means that the total amount available is significantly smaller than the amounts of other fiat currency in circulation around the world. The saving grace here is that Bitcoin is divisible up to 8 decimal points, with the smallest unit of bitcoin, which is equal to 0.00000001 Bitcoin, being called a “Satoshi”, named after the nickname or alter ego of the developer. The fact that bitcoin can be divided in this manner means that there are literally quadrillions of individual units of Satoshis, that can be divided and distributed throughout a global economy.
To put this into perspective, whilst other currencies can also be divided, bitcoin has a much larger degree of divisibility. For example, take the U.S. dollar. $1 can be divided into cents, or 1/100 of 1 USD, one “Satoshi” is just 1/100,000,000 of 1 BTC. It is this extreme divisibility which makes bitcoin’s scarcity possible, and assume that bitcoin is likely to continue increasing in price over time, those holding even small fractions of a single coin will be able to use the currency for everyday transactions.
Characteristic 3 — Utility
Probably the biggest differentiating factor and bitcoins biggest selling point is how it uses blockchain technology. Blockchain is a decentralised and trust-less distributed ledger system, which means that no individuals trading in the bitcoin market has to establish trust in one another in order for the system to work properly. What makes this possible is the comprehensive system of checks and verifications, which is needed to ensure the viability of the ledger.
Characteristic 4 — Transportability
Unlike transfers between different types of fiat currencies, Bitcoin can be transferred between parties almost instantaneously, whatever the size of the transaction. This is much more efficient and effective than traditional currencies, which can often take days to transfer, and cost a significant amount of money to send and receive. This is one of Bitcoins biggest advantages over Gold, which is highly impractical to move, and of course extremely dangerous, not to note actually illegal to cross borders with it!
Characteristic 5 — Durability
Durability is a significant headache for traditional fiat currency. A bank note or coin can be lost, torn, burnt or made to be unusable. Bitcoin is not susceptible to such concerns, and for this reason, bitcoin is tremendously valuable. Bitcoin simply cannot be destroyed in the same way that a dollar bill could be. You still need to be careful of course, and if you were to lose your cryptographic key, your bitcoins in the corresponding wallet would likely be unusable and for all intent and purposes could be considered lost, the bitcoin itself will not be destroyed and will continue to exist as part of the blockchain.
Characteristic 6 — Counterfeitability
Given the structure of the decentralized blockchain ledger system, bitcoin is incredibly difficult to counterfeit. In theory, the single way in which bitcoin could be counterfeited is for someone to carry out something known as a double spend. This is a situation in which a user transfers the same bitcoin in 2 or more steerage settings, which would effectively create a duplicate record. However, analysts and security experts think that this is unlikely to happen, due to the size of the Bitcoin network. In order to happen, a 51% attack would need to occur, in which a group of individuals controlled more than 50% of all network power. By controlling the majority of all available network power, this group could dominate the remainder of the network to falsify records. However, an attack like this would need mind boggling amounts of coordination, effort, money and computing power — to the extent that it is highly unlikely, verging on near impossible.
Characteristic 7 — Simplicity
Standard fiat banks regularly make setting up accounts, making transactions, a long drawn out process, with significant amounts of checks, credit searches, identification, and waiting in queues to be seen. This is not agony you will experience with bitcoin, which allows you to carry out transactions in seconds, change your personal data such as address with ease, does not charge you a service fee, does not carry out intrusive credit checks, or phone you up to try and hard sell you premium accounts or services. It simple lets you trade and transfer efficiently and effectively in a simple manner.
Characteristic 8 — Transparency
Each and every exchange or transfer of bitcoin, whatever the amount, whenever it happened, is recorded and put away in the Blockchain. In principle, this means that should your wallet address be freely utilized, anybody would be able to tell how much cash is in it via the blockchain record.
Characteristic 9 — Bitcoin is Non-repudiable
It is a sad fact of life, that where money is involved, people will be out to scam and cheat. Bitcoin mitigates against this by being non-repudiable. This means that once you transfer bitcoins to someone, there is no way of getting them back in any underhand way. The only way to get your funds returned is if the recipient would want to send them back to you. This ensures the receipt of payment, meaning that whoever you’re trading with can’t scam you by claiming that they never got the money, or doing underhand things like a credit card chargeback to get a refund.
Characteristic 10 — Protection
Bitcoin has made it possible for people to make transactions on their own terms. Anybody is able to send and receive payments in a similar way to cash, but they can also take part in more complex contracts. Multiple signatures are needed, which mean that a transaction will only be accepted by the network if a certain number of a defined group of persons agree to sign the transaction. This allows innovative dispute mediation services to be developed in the future. Unlike with cash and other payment methods, Bitcoin always leaves a public proof that a transaction did take place, which can potentially be used in a recourse against businesses with fraudulent practices.
Characteristic 11 — Mining
Mining is the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together. Think of it like the Bitcoin data center, but one that has been designed to be fully decentralized with miners operating in all countries and no individual having control over the network. It is called mining, as a throwback to gold mining, however, unlike gold mining, Bitcoin mining provides a reward in exchange for useful services required to operate a secure payment network. This proof of work, not only secures the network, but also gives rise to a figure relating to the value of ‘work’ put into the system.
Why Bitcoin Will Replace Gold
Since the beginning of history, Gold has gradually become a store of value because it had many of the above characteristics. People trust that Gold has value, it always has, and therefore always will right? I think of it like the wooden boat vs steel boat scenario. Wooden boats had been around for thousands of years when steel boats came along. Noone thought that Steel would replace the wooden boats, its was stupid. Then all of a sudden, boom, wooden boats are confined to the history books. Bitcoin has everything gold has, AND more, and I believe will totally replace it in an ever increasingly digital world.