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If you are reading this, you’re probably seeing more and more people around you becoming interested in Bitcoin, and you’re curious about why that is. We believe that there’s more than just the price going up (although for many people that’s initially why they come into the space!), so we’ll dive into some of the many reasons why people are interested in this new form of money.
Money printer go brrr
Let’s start at the beginning, literally: the first “block” of Bitcoin ever mined. In this block, Satoshi Nakamoto, the inventor of Bitcoin, embedded this piece of text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
This quote isn’t just a random front-page newspaper headline he put in there as a timestamp. It is a very direct reference to the fact that central banks print loads of money to bail out banks that are “too big to fail” and prop up our current economic system. For example, the European Central Bank’s balance sheet has grown from 1 trillion (a million million) Euros in the year 2000 to 4 trillion at the start of 2020, and from 4 trillion to almost 9 trillion from 2020 until now. Similarly, 80% of all US dollars in existence were printed since January 2020.
Money printing causes the existing money to lose value due to the simple law of supply and demand. This is one of the main causes of the current inflation.
People who save their money for later “securely” at a bank are hurt. The money they worked hard for buys them less and less over time. On top of that, common people often rely on pension funds to provide for them once retired. Pension funds mainly invest in government bonds, and the interest paid by these bonds goes down thanks to money printing (because the bonds are bought by the Central Banks with the newly printed money), making pensions less sustainable.
Money printing does not hurt everyone equally. In fact, some people actually benefit from it. People who have most of their net worth in real estate, stocks, and commodities, for example: these assets gain value due to inflation. But also the people who get the newly printed money first, like banks, the military-industrial complex, and government contractors. This is because the economy hasn’t adjusted to the newly printed money yet, and the people who get the money first can spend it with its old (higher) value, as if the money hadn’t been printed at all. This is called the ‘Cantillon Effect’.
Satoshi tried to solve the problem of unrestrained money printing with Bitcoin, not by making it have a stable value, but rather making sure it has a stable quantity: there can never be more than 21 million bitcoin, so nobody can benefit unfairly by printing more bitcoin.
If you want to learn more about inflation and its consequences, the article “Bitcoin is Common Sense” by Parker Lewis is a good point to continue your reading.
That’s not allowed!
Another important aspect of Bitcoin is its “censorship resistance”. If you currently want to send money digitally, the money goes through many third parties, especially if you’re trying to make a transfer around the world. The payment could, for example, go from your bank to PayPal to the recipient’s bank. If the purchase is something that any of these parties don’t like, any one of them could stop the payment. Now, this has some obvious benefits when it comes to real crimes, but for many people around the world, the definition of a crime is very different. Everything is illegal somewhere.
A very real example were the protests in Nigeria against human rights abuses by the government. It’s very likely you see protesting as a human right, but in many countries, it’s a crime. In Nigeria, the protester's bank accounts were shut down, but they could continue protesting thanks to Bitcoin.
While bank accounts can be shut down, cash transfers can not. Cash is a “peer to peer” system: there are no third parties involved in the process of paying. You hand someone a bill, and they give you whatever you’ve just bought. This obviously doesn’t work, however, when you’re buying something on the internet, or sending a donation to protesters on the other side of the world. And that’s where Bitcoin comes in: Satoshi described it as “digital cash”, meaning that this is a system where you can digitally transact with anyone directly, without intermediaries.
It becomes really hard for oppressive regimes to censor donations to peaceful protesters when there’s no third party handling the transfer of money to them.
If you want to learn more about why Bitcoin helps people under tyrannical rule, the article “Check your Financial Privilege” by Alex Gladstein is a good point to continue your reading.
Around the world
The fact that Bitcoin’s digital payment network doesn’t rely on any intermediaries for its transactions has another important side effect: it doesn’t matter if you’re sitting next to the recipient, or if you’re literally on the other side of the planet.
Let’s take the famous example of El Salvador, which has adopted Bitcoin as one of its official currencies. The population of El Salvador is roughly 6.8 million, while some 2.4 million Salvadorans live and work in the US. Roughly 20% of El Salvador’s economic output comes from Salvadorans remitting money back home from outside of the country. However, most Salvadorans do not have a bank account. For many people, receiving the money sent back home involves a long bus ride to a larger city, paying immense fees to the remittance company, and going back with a wad of cash, which means there’s a chance of being robbed.
Bitcoin fixes this: payments can be sent from the US to El Salvador in seconds, for fractions of a cent, over the Bitcoin lightning network. It just requires an app and a smartphone. No long bus rides, no large fees, and no chances of getting robbed.
If you want to learn more about why Bitcoin is the best way to send money around the world, the article “Cantillon Effect 2.0: Bitcoin Is The World’s First Truly Fair Money” by Christian Keroles and Denis Saat is a good point to continue your reading.
Bonus: So what about the others?
Bitcoin is roughly 13 years old right now, and on the internet, innovation moves fast. So there must be better coins now, right? You wouldn’t buy a 13-year-old laptop if you could also get a brand new one, or send an SMS if you can see your mom's face on a video call.
At the time of writing, there are 19,929 cryptocurrencies, according to coinmarketcap.com, all with different promises. From stablecoins that are pegged to the dollar to NFT platforms where you can buy digital proof of ownership for a picture of a monkey. Many of these make dubious claims at best or are outright scams.
But some projects actually work and fulfill a role in people’s lives. We believe Bitcoin is different because it’s the only one that can credibly claim true decentralization, meaning that there is no leader that can impose changes. This is very important for a project trying to be money in a very diverse world.
This isn’t investment advice; we’re not saying that you cannot make a lot of money by buying the next Elon Musk dog coin or by being first to a ponzi scheme. But there’s a reason Bitcoin started this revolution (although there were many failed attempts before) and has always been the biggest, while there have been fierce battles for the #2 spot and lower.
If you want to read more about why Bitcoin is in a league of its own, the article “Digital Alchemy” by Lyn Alden is a good point to continue your reading.
Conclusion
Bitcoin is an important tool in the digital world because it has a number of characteristics that make it uniquely suited to tackle some big problems the world is facing right now:
- No government or pressure group can influence or inflate Bitcoin
- No regime can censor transactions due to its decentralized, peer to peer nature
- Bitcoin is a completely neutral network that’s available to anyone
For Bitcoin to work, it doesn’t need to replace all currencies, nor does its price need to reach a million dollars. It’s already working, and millions of people around the world that need bitcoin's unique properties already use it. Just being available as an alternative and giving people the option to opt out of their local currency can help prevent governments from abusing their currencies.
Barack Obama once complained that with Bitcoin, "everybody is walking around with a Swiss bank account in their pocket". With a Swiss-made BitBox02 hardware wallet, that's even closer to the truth than he might have feared.
FAQ
What is Bitcoin?
Bitcoin is a digital form of money that cannot be inflated, making it 'sound money'. It is also 'free speech money' because it is outside the control of any specific group or nation-state; it’s politically neutral and without bias. Bitcoin features its own built-in financial network that allows anyone to send value directly to a receiver; worldwide, peer-to-peer, without a middleman.
Why is Bitcoin important?
Bitcoin can change the world for the better. It is hard money that cannot be inflated at will. Bitcoin is people’s money because it’s neutral and open to anyone. Under oppressive regimes, it can save lives because governments can’t censor payments or seize accounts.
Does Bitcoin prevent inflation?
Bitcoin cannot prevent inflation for fiat currencies managed by nation states by itself, but it prevents inflation in Bitcoin itself. It can therefore be a hedge against inflation by offering an alternative to bad nation-state money.
How expensive is a Bitcoin transaction?
Bitcoin transaction costs are dynamic but generally quite cheap. Because the transaction cost for a regular on-chain transaction that is written to the blockchain does not depend on the transferred value, the cost can be high if you only want to send a small value. For this, Bitcoin offers the Lightning network, which is perfect for instant small-value payments.
Is Bitcoin better than other altcoins?
Bitcoin was created as an alternative to existing money, managed by governments and financial institutions. It is conservative by design, focusing on decentralization and security. As a 'better money', Bitcoin is unrivaled. Altcoins address different use-cases and might find their niche and real-world applications over time. It’s important to realize, however, that most altcoins are outright scams, with the only goal to enrich their founders.
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Shift Crypto is a privately-held company based in Zurich, Switzerland. Our team of Bitcoin contributors, crypto experts, and security engineers builds products that enable customers to enjoy a stress-free journey from novice to mastery level of cryptocurrency management. The BitBox02, our second generation hardware wallet, lets users store, protect, and transact Bitcoin and other cryptocurrencies with ease - along with its software companion, the BitBoxApp.