What is Bitcoin? The readership may have seen more and more media coverage of this strange sounding term in the lexicon of modern day finance.
I am going to make a modest attempt at laying down the basics as I see it. Bitcoin is a new found way to exchange value. What does that mean?
Let's start at the very beginning. When Adam and Eve first met on a corner of 1st and 2nd street they realized that one had what the other wanted. Say Adam had two apples. Eve could use one. On the other hand Eve had two scarves and Adam was cold and could use one. Well they solved that problem quickly by exchanging an apple for a scarf. Each had something of value to the other and a value exchange took place without any inter-mediation.
Fast forward and the population explosion took place and now many folk had distinct things that they could exchange with one another for its relative value. This became the barter system.
Of course it also became more unwieldy as folk spread out in search of other things and distances became a factor. Someone came up with a bright idea. What if there was a third party to the transaction where a record could be kept of who gave what to whom. After all Ravi wanted a goat today but could not give his rice to Rocky today. So they started writing it on a stone tablet.
Today Ravi got a goat from Rocky. Ravi owed Rocky something of value for a future date. Rocky was made whole when in the following month he got a bag of rice from Ravi. And so on and on.
Now as commerce spread this too got tedious. Beside who had time to keep chiseling stones. Sometimes a large bird took a dump on one and no one could prove who owed what to whom. Enter the concept of currency. A transaction could now be made in the form of sea shells or stone coins or later metal coinage that had a value assigned to it corresponding to the perceived value of an item that it could purchase.
As trade flourished so did the currency and its many forms. But what was needed was a central authority that could be trusted to ensure the currency held the same value today and tomorrow and was recognized universally. Eventually the global citizens agreed to peg their currency to gold bullion, a tangible and precious metal which could hold its value consistently regardless of location. That became the standard. Gold standard. Eventually as countries went to war and caused large scale distortion in global economics a more diversified format came to be used to determine the value of a US Dollar versus a Turkish Lira versus a Polish Zloty. This was called the basket of currencies. Today individual country's fiat or currency are nothing more than valueless pieces of paper or metal but backed by the faith in the issuer i.e. the government that issues it.
A Ben Franklin represents a US government issued note that promises the holder $100 of value when presented to a seller who prices a product or service for $100. It is merely an IOU from the government to the holder of said note. Nothing more nothing less.
Now the circulation of this physical currency is tightly controlled by the issuing governments and has intrinsic complex features that make them hard to duplicate (which can impact the value by depressing it - economic theory suggests that too much of something reduces its worth or value). On the other hand it is easily portable and makes for grey economies the world over where cash trades can go hidden without being documented and the taxation that governments rely on could fail. Cash also therefore leads to easy channel to conduct all manners of illegal or illicit businesses.
So how does one solve this dilemma. Enter Bitcoin. A cryptocurrency or synthetic currency. A blockchain. All these phrases basically define a digital currency that is extracted from a code by applying large scale computing resources to unravel. There is a limited amount of these coins and they are mined much like gold was and is. Therein it is similar to gold bullion. But what it does not do is be backed by a central or federal government for trade. It is left to a bunch of computer geeks to discover who then can trade this currency for other things of value much like using a Dollar to buy a pizza. Its inability to have a sovereign back its value is what makes it volatile in terms of its day to day price but also relevant. Relevant because of its distributed nature where a transaction is a string, a digital ledger available to anyone with the right access. The value of the coin and its circulation in the system is all traceable making it hard to hide or do ill. The actual use cases for the use of Chains are being defined everyday and may be a viable form of commerce soon but the rules of the road and education about this alternate format are scarce.
There are pundits on both sides of the Bitcoin debate today but bit by bit we will learn more whether this coin can roll.
I am going to make a modest attempt at laying down the basics as I see it. Bitcoin is a new found way to exchange value. What does that mean?
Let's start at the very beginning. When Adam and Eve first met on a corner of 1st and 2nd street they realized that one had what the other wanted. Say Adam had two apples. Eve could use one. On the other hand Eve had two scarves and Adam was cold and could use one. Well they solved that problem quickly by exchanging an apple for a scarf. Each had something of value to the other and a value exchange took place without any inter-mediation.
Fast forward and the population explosion took place and now many folk had distinct things that they could exchange with one another for its relative value. This became the barter system.
Of course it also became more unwieldy as folk spread out in search of other things and distances became a factor. Someone came up with a bright idea. What if there was a third party to the transaction where a record could be kept of who gave what to whom. After all Ravi wanted a goat today but could not give his rice to Rocky today. So they started writing it on a stone tablet.
Today Ravi got a goat from Rocky. Ravi owed Rocky something of value for a future date. Rocky was made whole when in the following month he got a bag of rice from Ravi. And so on and on.
Now as commerce spread this too got tedious. Beside who had time to keep chiseling stones. Sometimes a large bird took a dump on one and no one could prove who owed what to whom. Enter the concept of currency. A transaction could now be made in the form of sea shells or stone coins or later metal coinage that had a value assigned to it corresponding to the perceived value of an item that it could purchase.
As trade flourished so did the currency and its many forms. But what was needed was a central authority that could be trusted to ensure the currency held the same value today and tomorrow and was recognized universally. Eventually the global citizens agreed to peg their currency to gold bullion, a tangible and precious metal which could hold its value consistently regardless of location. That became the standard. Gold standard. Eventually as countries went to war and caused large scale distortion in global economics a more diversified format came to be used to determine the value of a US Dollar versus a Turkish Lira versus a Polish Zloty. This was called the basket of currencies. Today individual country's fiat or currency are nothing more than valueless pieces of paper or metal but backed by the faith in the issuer i.e. the government that issues it.
A Ben Franklin represents a US government issued note that promises the holder $100 of value when presented to a seller who prices a product or service for $100. It is merely an IOU from the government to the holder of said note. Nothing more nothing less.
Now the circulation of this physical currency is tightly controlled by the issuing governments and has intrinsic complex features that make them hard to duplicate (which can impact the value by depressing it - economic theory suggests that too much of something reduces its worth or value). On the other hand it is easily portable and makes for grey economies the world over where cash trades can go hidden without being documented and the taxation that governments rely on could fail. Cash also therefore leads to easy channel to conduct all manners of illegal or illicit businesses.
So how does one solve this dilemma. Enter Bitcoin. A cryptocurrency or synthetic currency. A blockchain. All these phrases basically define a digital currency that is extracted from a code by applying large scale computing resources to unravel. There is a limited amount of these coins and they are mined much like gold was and is. Therein it is similar to gold bullion. But what it does not do is be backed by a central or federal government for trade. It is left to a bunch of computer geeks to discover who then can trade this currency for other things of value much like using a Dollar to buy a pizza. Its inability to have a sovereign back its value is what makes it volatile in terms of its day to day price but also relevant. Relevant because of its distributed nature where a transaction is a string, a digital ledger available to anyone with the right access. The value of the coin and its circulation in the system is all traceable making it hard to hide or do ill. The actual use cases for the use of Chains are being defined everyday and may be a viable form of commerce soon but the rules of the road and education about this alternate format are scarce.
There are pundits on both sides of the Bitcoin debate today but bit by bit we will learn more whether this coin can roll.
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