What is Bitcoin?

This post is broken down in two parts: First, my own version of what I think Bitcoin is. Second, what it actually is.

Robert Kiyosaki says that there are three types of money: gods money which is gold and silver, government money which is all fiat currency, and people’s money which is cryptocurrencies like Bitcoin and Ethereum.

I look at Bitcoin as a way being completely financially independent. Bitcoin is not money that can be printed out of thin air, you can’t add more bitcoins into the protocol, it isn’t controlled by any government or influenced by any sole corporation or person. Our banks use the fractional reserve banking system which allows them to have 10% of the cash deposited, readily available. Some banks don’t need to have any cash reserves at all.

Do you see the problem with this? If something like a pandemic were to happen again or worse, do you think people will want to keep their cash in the bank when they need to get gas, groceries, pay bills, etc? What do you think will happen if everyone runs to the bank to withdraw their funds? The banks don’t have the cash necessary to pay everyone what they actually have in their accounts. Banks have closed their doors in the past and will do it again. There is a concept called Ice Nine in Road to Ruin by James Rickards where he goes into more in depth of the possibilities of what can happen if you want to learn more about it.

Everyone knows Bitcoin as the magic internet money that people use to buy drugs in the black market. Though it is true, that was just during the start of its 100+ year lifespan. People all over the world use bitcoin to preserve their wealth, and to send money to family who live in countries where it’s difficult to earn a good salary.

I used to live in South America and when I first moved there it was 10 pesos for every dollar you wanted. Now it’s about 20 pesos for every dollar. People who live in other countries need to pay more in their national currency to get dollars. We get paid a minimum wage that doesn’t even cover living expenses in places like New York or California. All the while, the Federal Reserve is printing millions and millions of dollars. The citizens of the U.S. got their $1,200 at the start of the crisis, how long has it lasted them when they have to pay bills? If you didn’t need those $1,200 and instead bought bitcoin with it, at the time of this writing (or this post), it’s worth almost $3,500. The rest of the money that was printed, where did it go, I wonder. How is the stock market hitting all time highs during a crash and we are having massive unemployment throughout the country? It seems like an artificially inflated market of assets like real estate and stocks where we see inflation from the massive quantitative easing that has happened. In just 2020 alone, the U.S. printed more money than in the two whole centuries of its existence

People think that their homes are still at the same value they were in December 2019. People think that stocks can only go higher. I see that there might be a chance of a bigger problem than just a stock market crash or homes being unaffordable. This looks like more of a dollar crisis because of all the endless money printing, not only in the U.S., but all over the world. Other countries print their national currency to get some dollars to pay off their debt.

The U.S. dollar isn’t backed by gold. It’s backed by belief. If enough people believe in it, it will be money. The dollar was backed by gold but after we got taken off the Gold Standard, our money turned into currency. It holds no real value. After this was done, it allowed the currency to be printed and with fractional reserve banking, banks were allowed to loan 9 out of every 10 dollars every customer deposited. This is how they are able to give loans and they make money off the interest from the loans. It’s a web of interconnected institutions, companies, and the indivuduals who use the currency itself that makes it so complex and fragile. This can only last so long before a disaster can happen.

When bitcoins genesis block was mined, there was a hidden message within the block where it stated that a banks were on the brink of a second bailout. I think the creator(s) of Bitcoin knew of what was coming based on the information available at the time and by also looking over history and how money printing can cause a problem for generations. This is another reason why I think Satoshi Nakamoto decided to remain anonymous whether it was a team or one individual, it was necessary to be anonymous because it’s taking control away from central governments. If something like Weimar Germany were to happen again, I believe we’ve be in a digital dark age where many people will suffer. This can be avoided. The current financial system is inadequate and unsustainable. It can’t be held on for much longer. And once we get digital wallets, it will only advance at a faster pace.

Bitcoin is a way to protect your hard earned currency. I like bitcoin because unlike gold or silver (which serve the same purpose, to preserve your wealth), you can buy any dollar quantity from like $1 on some exchanges to multiple bitcoins at the same time if you have the money to do so. You can invest $5 a day and by the end of the year, it will be worth much more than $1,825 (365 days x $5/day). Even if you don’t know much about it,

So what really is bitcoin?

This is the original white paper that was released in 2008. I recommend reading over it, it’s just about nine pages long but it explains the intricacies of it as a whole. Basically it’s a peer to peer network that allows online payment to be sent from one party to another without a thrid party being involved. What this means is that if for some reason the banks don’t like you, they can freeze your accounts for days or even months or years. They can keep you out of the system all together depending on the situation and so on. Not only that but back to the banks closing their doors, you can’t do anything. And since all our currency are digits on a screen, they can also freeze online transactions from happening if there is a big problem in the economy. As you can see, in this digital world, we’re not really free. It’s a problem because the governemnt will tell the banks to do this and if they refuse, they are not in business anymore and will create a bigger problem because what will happen to all the funds on the banks servers (no longer vaults)?

The fear of not knowing what will happen to you and your family if your finances are not in order causes chaos. Just like the protests, looting, and rioting that occurred at the beginning of the pandemic and business closures. If you do have all your cash at home, what will you do if someone breaks into your home and hold your family at gunpoint to get your safe combination? This leads to my next point in bitcoin.

Private and public keys. To secure your funds, when you open a wallet you get a seed phrase usually 12 or 24 words. Never screenshot these words, never let anyone get access to them. Write them clearly and keep them safe. If you memorize them, even better because you can fly around the world with millions of dollars in your head that no one can take away, EVER. This is the freedom you get with bitcoin. You can move around without worrying about the government not letting you take your cash with you. Everyone basically will accept bitcoin, so you don’t have to worry about buying food or having a roof over your head where ever you are. The public key is what you use to send and receive funds. These keys are based on cryptography that keep them secure.

Every 10 minutes or so, blocks are mined into the blockchain that track every single transaction within the network. They are secured by assymetric encryption using the SHA-256 algorithm to keep the network secure. This type of encryption is one way meaning that it cannot be reversed to see the input. It’s meant to verify that the data in the block hasn’t been tampered with. When a block is mined, the data gets run through the algorithm giving you a unique hash. This hash is added to the next block in addition to the new data, and it all gets hashed together for the newly mined block. And the process goes on forever. If you try to even change and “a” to and “A”, the algorithm changes dramatically, which will be noticed by the nodes in the network. Try it for yourself, it’s interesting seeing this happen.

A node is simply a computer that runs data for the blockchain. These nodes get rewarded in bitcoin to maintain the network. The rewards are currently at 6.5 bitcoins, and gets reduced in half every halving. Every halving occurs after 210,000 blocks have been mined, approximately every 4 years.

An interesting thing to point out is that this year was our most recent halving. While bitcoin reward payouts were cut in half, the US government prints the most currency in recorded history. I think that as the value to bitcoin, gold, and silver go up, the value of the dollar and other fiat currencies are at the same time diminishing.

The point I want to emphasize here is that I don’t want to see people become poor. I don’t want to see people causing damage and hurting other just to help themselves and their families. Yes, there is a significant need and good reason for people to do things like this, I just don’t think it’s really acceptable. It will only make the government want to enforce more laws and regulation on us violating our privacy and freedom. It will only lead to more people with a victim mentality. It will only lead to people wanting someone else to take care of them because they don’t know how to do it themselves. These people did all the right things yet were crippled by the psycological burden the current events are taking place right now. We have the ability to create our own lives by providing value to others.

A lot of people hate billionares, but their products and services help millions and billions of people. Look at Bill Gates with Microsoft, Jeff Bezos with Amazon, JK Rowling with Harry Potter series, these people served us all giving us the products and services that make our lifes easier.

I think that if everyone learns how to take control of their lives, they can allign their purpose with a business or community, serve millions of people, and at the same time create wealth for themselves and their familes for generations to come.

You don’t want to be first but you also don’t want to be last. At least buy $5 a week of bitcoin. Then you’ll become smarter and venture to other assets in the blockchain industry.