I've got a "What is bitcoin?" draft going on. How am I doing? The original intent was to define bitcoin in a sentence or two. It kind of morphed into a comparison with gold. The concept of "digital gold" helped me in conceptualizing bitcoin (still does), that's why I went that route.
It's rough, but what's missing? Wrong? Dumb?
What is bitcoin?
In a couple of sentences or less…
Bitcoin is a digital system to store, measure, and transfer value. It is run by no one and people can participate with Bitcoin without anyone’s permission and without needing to trust any other person, government, or institution.
Because of the technical side of bitcoin and due to its wide scope, bitcoin can be hard to understand, overwhelming, and outright intimidating. But, an easy way to think of bitcoin is that...bitcoin is digital gold. Many people feel gold is, well, the gold standard of money. And, gold indeed is good money and has withstood the test of time. Gold is good money, but it’s not perfect money. Bitcoin is indeed like gold, but bitcoin offers benefits over gold.
Bitcoin is digital gold, but it’s better than gold.
- People can hold and control their own bitcoin. People can hold their own gold, of course. People do choose to hold gold in a safe in their home, and that’s a personal decision and that’s great. You can hold your own gold too if you choose. Yet, there are drawbacks. First, you must obtain your gold. Likely, that means buying from a broker or dealer (who charge high fees) and then you must ship the gold (more high fees). What’s more, you must trust the seller to follow through on the deal and trust whoever is physically delivering the gold that it won’t get “lost in the mail.” Once received, gold holders then must deal with security and, eventually, transfer the gold again, maybe to heirs. For these reasons, many gold “holders” choose to “buy gold” but have someone else hold it. In this scenario, I might buy $10,000 worth of gold in a vault somewhere. I have the right to the gold and can maybe “cash out” one day, perhaps when the value doubles to $20,000. If all works as planned, I’m paid and indeed doubled my money (minus the service fees involved). The trouble with this scenario, of course, is that I must very much trust the other person I’m dealing with. Will they pull the rug out from underneath me and take my money? Will the business by in business in 10 years? 20 years? 50? This requires a lot of trust.
With bitcoin, you can hold your own BTC by holding your own private keys. That’s it. There’s a saying in bitcoin, “Not your keys, not your bitcoin.” The other side of that saying means that if you do hold your private keys, then you do hold your bitcoin. You, and only you, hold and control your bitcoin.
- Bitcoin can be easily transferred worldwide in around ten minutes. If someone does have gold coins in their physical possession, say $1,000,000 dollars in gold coins and they want to give those to their heir on the other side of the world, it becomes difficult. Traveling with that many gold coins is nearly impossible and there’s a chance you will be fined or taxed or arrested or maybe your coins will be confiscated. Even if you’re successful, it’s difficult...it’s physically heavy to carry that much gold, it’s dangerous because you might get robbed, it’s time consuming to literally travel that far, and expensive. Of course, you could “send it in the mail.” But, would you really want to pay the fees to ship pounds of gold? And would you sleep well while it’s in transit?
With bitcoin, sending BTC is as easy as sending an email. You enter a BTC address and send. Within about ten minutes a first confirmation is received. Within an hour, about six confirmations are received. With each confirmation (each new bitcoin block), the bitcoin network is agreeing that the transaction is real and legitimate. The more confirmations, the more certain and secure the transaction is. Six confirmations has become somewhat of the de facto standard for settlement, but you and the your recipient are welcome to say, “Yep, it’s settled,” after any number of confirmations.
- Bitcoin is bitcoin. With gold, you really can’t be 100% sure that your “gold” is truly, 100% gold, can you? How do you know it’s not “watered down” gold, that is, mostly gold with a few cheap metals mix in to make it a gold-colored alloy? You really can’t be sure unless you have your gold assayed...a scientific examination of the metal (or metals) in your coins. Only then would you truly know what you hold. And, that assay takes time and requires a hefty fee.
With bitcoin, you know 1 bitcoin equals 1 bitcoin, 1 satoshi equals 1 satoshi, 100%, every time, no questions. There is no watered down version.
- **Bitcoin is usable. **Critics of bitcoin often say, “You can’t buy anything with it.” This is not true. Anyone who wants to sell you something can easily accept bitcoin for payment. If merchants are currently not accepting bitcoin as payment, that doesn’t mean you can’t use it. This means they’re currently not accepting payment in bitcoin. Another favorite line of bitcoin critics is, “You can’t buy a cup of coffee with it.” Again, this is not true. There are coffee shops, many of them, that accept bitcoin as payment. And by comparison, can you buy a cup of coffee with gold? Everyone agrees gold has value, but can you literally buy a cup of coffee with gold? And if the merchant said, “Yes, you can pay in gold,” how would that work. Would you pull out a gold coin to pay? A one ounce American Eagle gold coin (33.93 grams) is currently worth a couple of thousand dollars. The smaller gold sovereign coins (7.98 grams) are worth several hundred dollars. Would you give either of those coins over for a cup of coffee? And how would the cashier give you change back, in fiat currency? That’s not really buying coffee with gold, that’s buying coffee with gold and fiat. Or, what if you had a gold nugget in your pocket that you found. Would you chip off a small grain that you think equates to the price of the coffee? And would the merchant accept the size of your grain of gold? Would you weight it? Would you trust the scale to accurately measure such a small weight and get it right? Even if it worked, this sounds like a lot of work and a lot to time to buy a cup of coffee. A lot ot effort and time spent, not to mention that you gave up your gold coin and got paper money in return!
With bitcoin, paying a few sats for a cup of coffee is precise and fast. Both you and the merchant can be 100% sure that the intended value in sats was 100% what was transferred.
- Bitcoin is completely finite. New gold is found every day. Certainly, there is only so much gold on planet Earth. However, how much is there? We really don’t know. New caches are found on occasion and new mining techniques make gold mining for productive which increases the supply somewhat randomly.
With bitcoin, new coins are found every day too. However, bitcoins emerge at a set, known, predictable pace. We can estimate how much gold will be found today, but we can’t be sure. And, the number of new bitcoins emerging are growing fewer and fewer and fewer. Eventually, the day will come when zero new bitcoin will be found. Zero. Then, the only bitcoin that exist are the one’s that exist already. There will be no more. It is truly, mathematically, finite.