What is Bitcoin
Tags: bitcoin, money, investing, technology
Published: 2020-12-30 21:01:47

Recently I decided to educate myself on Bitcoin to understand its popularity and extremely high trading value in the stock market. I mentioned these things to a close associate of mine and heard responses like, it’s “fake”, “not a real” currency”, “doesn’t have any value”, and that “it will never work”. Apparently there are a lot of misconceptions and or myths surrounding Bitcoin so I figured I’d put together a “Bitcoin For Dummies” type of post.

## History

In order to understand what Bitcoin is and whether it has any value one must first consider previous money systems. For instance the gold and silver standards were based on physical materials, but the gold standard was completely abandoned in 1971 and was replaced by dollars. The dollar doesn’t have any intrinsic value like gold does, so the dollar is a form of “fiat money”. So why do we believe that paper money, dollar bills, have value?

## Belief

A simplified explanation is that the value of money is created through the belief system. We have all agreed that we will use dollar bills as a method of exchange. Most go to work offering their energy, goods, and services for dollars which can then be exchanged for things such as housing, food, and clothes. Furthermore, “In the United States, that faith is engendered and supported by the federal government, which explains why the phrase ‘backed by the full faith and credit of the government’ means what it says and no more: the money may have no intrinsic value, but you can trust using it because of its federal backing.” - Mike Moffatt, an economist and professor of international trade.

## Bitcoin

As we’ve established currencies can have value purely based on an agreement between individuals that such a system has value. The same beliefs can be applied to anything, such as is done in a barter system. Bitcoin furthers this concept that we can agree it has value and we can use it as a form of currency which can be exchanged for goods or services. There are a number of qualifications that a currency must meet in order to maintain its value over time such as scarcity, divisibility, utility, transportability, durability, and counterfeitability. Bitcoin rates very highly on all of these scales and is why some believe it’s the future of “money”. To learn more about what Bitcoin really “is” I highly recommend reading their whitepaper which is the first link in the “Sources” section.

What do you think about bitcoin? Leave your comments below.

Sources:
[Whitepaper](https://bitcoin.org/bitcoin.pdf)

[What is bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp)

[Why does money have value](https://www.thoughtco.com/why-paper-momey-has-value-1146309#:~:text=To%20summarize%2C%20money%20has%20value,issuing%20agency%20and%20its%20government.)

[What is fiat money](https://www.investopedia.com/terms/f/fiatmoney.asp)

[Gold standard](https://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard#:~:text=The%20government%20held%20the%20%2435,completely%20abandoning%20the%20gold%20standard.)

[Why Bitcoins have value](https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp)

[What happens when all the bitcoin have been mined?](https://paxful.com/blog/what-happens-when-all-21-million-bitcoins-mined/#:~:text=There%20are%20two%20types%20of,miners%20to%20gain%20higher%20incentives)