What is Bitcoin?
– Decentralized digital money.
– The first and most popular use of a blockchain (as money).
What is a Blockchain?
My favorites definition comes from Etherum founder Vitalik Buterin:
– A distributed accounting system of digital tokens so secure that not even state actors can interfere with it.
Bitcoin represents 55% of the value of all crypto currencies (ie blockchain based digital tokens). The % is dropping, though the price keeps increasing — which tells you how quickly some of the others are gaining steam.
What can a Blockchain do?
Well, Blockchain technology is only nine years old. We’re still experimenting.
By far the biggest use case is money, and if you break the definition of money down into it’s tree components: unit of account / medium of exchange, store of value, then it seems like store of value is the focus of Bitcoin.
It isn’t clear whether Bitcoin is leaving behind the “medium of exchange” value proposition, but many other crypto currencies are competing to fill the niche. (More on this in future newsletters.)
There is a now-obscure blockchain based email system called Bit Message. I used to use it.
The other big one is smart contracts, and smart property. Imagine the laws governing the issuing and trading of shares being governed by code instead of by laws.
Is it new?
No, but only in the sense that there were earlier electronic moneys, most notably Liberty Reserve (2006 – 2013) and EGold (1996 – 2009). Both have a volume of between one and two billion dollars a years. Both were centralized systems, and both were shut down for money laundering. My some accounts, the EGold seizure was the largest ever government seizure of privately owned gold.
Really, yes. Blockchain technology solves (or, more conservatively, seems to have solved) a problem that mathematics and computer science scholars believed to be impossible. The decentralized consensus problem. Here’s an example of how we thought it was impossible:
The now-famous nine-page white paper written under the pseudonym Satoshi was published in October 2008 in a cryptography newsletter. The first block, ie “genesis block”, of the Bitcoin blockchain was released in January 2009.
There’s a newspaper headline embedded in the genesis block as a sort of informal time stamp: Chancellor Alistair Darling on the brink of second bailout for banks.
One of the reasons I was confident in Bitcoin earlier is because it is open source. A good programmer or team of programmers can read the code. We know exactly how it works. We can also spin off modified versions, which people have been doing. The crypto space is a Cambrian Explosion of Innovation.
Another reason is the theory of money shared by those of you who are students of the Austrian School of Economics. Government control of money is a relatively new phenomenon. It is done by force. The market wants innovation. The market wants choices. In 1860, there were over 8000 currencies in the US.
And now it is difficult to even conceive that money might be independent of government.