What is Bitcoin for non-crypto (normies)

Last week was the Bitcoin Halving #4 of the 32 total Halvings there will be. But what is Bitcoin??

While it is quite a simple concept, the characteristics of Bitcoin are as important as they are complex, and a single publication would not be enough to explain them. This will be the first in a series of three articles with what I consider to be the most important points to understand what we are talking about when we talk about Bitcoin:

• A first approach to the concept, its origin, and its relationship with money. (1/3)
• How it works, what the halving is, what miners mine, and how transactions are validated without a centralized entity. (2/3)
• Bitcoin beyond Bitcoin: Ethereum, Solana, other blockchains, and the crypto ecosystem. (3/3)

Let's start at the beginning.

1/3. There is a worldwide community of people who believe in the transformative power that has the possibility of trusting another person, and transmitting an asset, whatever it may be (energy, money, a physical good such as a house or a car, or any financial asset), without the need for a third party validating the transaction. This community has a culture and a lexicon that belongs to them. Expressions such as Halving, WAGMI, NGMI, DYOR (Do Your Own Research), HODL, SAFU, FOMO or FUD have their own meanings. This community is a fan of Bitcoin and cryptocurrencies, on a quasi-religious level.?

Normies is the expression we use in this community to refer to all those who do not understand the meaning of the above words.?

The Big Bang of this innovative technology, created in 2009 by a person, or a set of people, was the publication of the Whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System.

The good, if brief, is twice as good. Satoshi Nakamoto, in just 8 pages, created a revolution in the most essential foundation of society: value.?

To understand the transmission of value and how its representation evolved, it is necessary to understand the history of money.

Barter: The First Form of Trade

The history of money begins with barter: the direct exchange of goods and services without a standardized medium of exchange. This system was prevalent in early human societies where individuals exchanged items based on mutual needs. However, barter had its limitations, notably the "double coincidence of desires," which required both parties to have what the other desired.

The Introduction of Commodity Money

To overcome the limitations of barter (agreeing on what we want to exchange is very inefficient), societies began to use commodities as a medium of exchange. These commodities had intrinsic value and were widely accepted within those communities. As an example, we can take salt and cattle. Each of these commodities served as an early form of money because they were durable, portable, and (relatively) divisible, making them suitable for use in trade.

The Emergence of Metallic Money

Metallic money marked a significant advance. Metals such as gold, silver, and bronze were used because of their durability, divisibility, and intrinsic value. The Kingdom of Lydia (in modern-day Turkey) is credited with creating the first standardized metal coins (standards are the key to adoption to this day) around 600 BC, which facilitated trade by providing consistent value and reducing the need to weigh metals during transactions.

The Development of Paper Money

Paper money originated in China during the Tang Dynasty (7th century), initially as promissory notes that could be exchanged for gold or silver. (“History of Money: Discovery and Evolution of Money”) This innovation spread to the Middle East and Europe, where it evolved into banknotes issued by banks and governments. Paper money was easier to transport and allowed larger transactions to be handled more efficiently than metal coins.

The Gold Standard and Bimetallism

The gold standard, where currencies were pegged to a specific amount of gold, emerged in the 19th century, providing stability to international trade and currency values. Some countries also practiced bimetallism, using both gold and silver as the basis for their currency, although this was less common.

The Transition to Fiat Currencies

On August 15, 1971, Richard Nixon put an end to the convertibility of the dollar into gold, and transformed the dollar into a fiat currency, that is, based on trust in the issuing government. This change allowed for more flexible monetary policies but also introduced new challenges, such as controlling inflation, and debasement.

If we look at the following graph, we can conclude that these challenges were not successfully faced. A $100 bill today is roughly equivalent to $13 in 1971: it lost nearly 90% of its purchase value. Being Argentine, I have lived all my life through this process of debasement, and the consequent inflation or, as we say in Argentina, "hitting the machine", only in much more accelerated periods of time.

BITCOIN

The genius of Satoshi Nakamoto, in 2009, motivated by the financial crash caused by the collapse of Lehman Brothers in 2008, created one of the greatest technological and social revolutions in history: Bitcoin.?

Bitcoin, the first cryptocurrency to achieve mass adoption, forms a decentralized, global payment system that allows transactions to be carried out directly between users without the need for intermediaries, without the control of a third-party regulator, introducing a consensus system that ensures the reliability of transactions.?

What is Bitcoin in 10 points?

1. A decentralized digital currency: Bitcoin is a cryptocurrency that is not controlled by any central entity such as a bank or government. It works in a decentralized manner on a network of computers.
2. Intermediary-independent: Bitcoin transactions do not require intermediaries, allowing direct transactions between users through its peer-to-peer network.
3. With a limited supply: Bitcoin's design limits the total number of coins to 21 million, there is no inflation or debasement.
4. Based on blockchain technology: Bitcoin uses blockchain technology, a distributed ledger that records all transactions on a blockchain. Each block is verified by the nodes in the network, and once confirmed, it is added to the blockchain.
5. Its security is achieved through cryptography: transactions are validated and secured using cryptography, rather than relying on trust in a central authority or intermediaries.
6. Validation is done with mining and its rewards: miners use powerful computers to solve complex mathematical problems and validate transactions, a process known as "mining." As a reward for their work, miners receive new bitcoins approximately every 10 minutes.
7. Game theory is the foundation of its security: Bitcoin uses concepts from game theory to secure the network. Miners are incentivized to act honestly and keep the network secure; Any attempt to deceive or alter the blockchain would result in economic losses for the rogue miner.
8. It is censorship-resistant and transparent: being a decentralized network, Bitcoin is censorship-resistant. All transactions are public and verifiable by anyone who has access to the blockchain.
9. It's private: by being based on pseudonyms, represented in the addresses of the wallets you trade, Bitcoin allows you to keep your identity private. This does not imply anonymity since all transactions between these pseudonyms are public.?
10. It is portable: any individual can move from one place to another carrying their wealth on their head, just by remembering the 12 or 24 words in their wallet. Your Bitcoins are on the Blockchain, they are guarded by impregnable cryptography, and they can only be accessed with your keywords. One of the most popular expressions in the crypto ecosystem is Not your keys not your coins. This means that if you don't have the keywords, those Bitcoins are not actually yours, and in contrast if you have the keywords, they are yours alone. It doesn't matter where you are.?

Bitcoin is the most successful financial asset in human history?

(Not financial advice or a purchase recommendation)

I could close this point with the famous phrase that we have heard in so many movies, "I rest my case", but I will take a few more lines.?

The charts above, courtesy of Santiment, which is a very good service, show the comparative evolution of Bitcoin since its creation, against the S&P 500, an index that brings together the 500 most valuable and important companies in the United States, and against Gold, the most important financial asset on the planet, considered by many to be the store of value par excellence. There's not much more to explain.

What are the most valuable financial assets on the planet?

Bitcoin is today the tenth asset on the world's most coveted list of most valuable assets. If we take the total crypto market capitalization, including Ethereum, all alt coins, and stablecoins, the crypto market cap rises to 2.3Q, placing the category in fourth place, between Apple and Nvidia.

This list can be summarized as follows:

1. Precious metals: they are the historical store of value, especially in these times of inflation, wars, and geopolitical tension.
2. The Magnificent Seven: in fact, 6 of the Magnificent 7. There's Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta. Only Tesla, in 19th place, is out.
3. Saudi Aramco: the Saudi oil company, a beast in itself.
4. Bitcoin.

Bitcoin Is a Network: The Metcalfe Law

How did Bitcoin become the 10th most valuable asset on the planet in just over 10 years? Robert Metcalfe, co-inventor of Ethernet and co-founder of 3-com, and a major contributor to the creation of the Internet, explained it with the so-called Metcalfe's Law. This law states that the value of a network is equivalent to the square of the number of connected users, i.e., its value grows exponentially. Internet adoption followed parameters of this style and the correlation between Bitcoin and Internet adoption is staggering, as can be seen in the chart below. This is no coincidence; Bitcoin is precisely a network.?

Conclusion

Bitcoin sparked the most important Big Bang in the history of the modern world, because it transformed the way we transmit value. It is an asset that surpasses in its objective qualities any other asset that has ever existed.?

The invention of Bitcoin signified the birth of the first modern blockchain, a technology that exceeds the transmission of value and transforms a much more fundamental reality: trust in the new world, the digital world. These two transformations have had a very decisive impact on the social and institutional order in which we have been governed for just over a century, but this change is just the beginning.?

For the foreseeable future, value representations will not be managed by centralized entities that define how to manage them. The future is decentralized and will be governed by hundreds of thousands of actors anywhere on the planet, regardless of their religion, ideology, nationality, or political position. Bitcoin has the power to be nobody's, and to be for everyone and anyone. Bitcoin is only the beginning of a technological and social revolution that will change the institutional order of society, all over the world, because for the purposes of this transformation, countries do not exist. In the digital world there are no borders, and today the world is digital. Happy Bitcoin Halving #4/32.