How To Answer 10 Hard Questions About Bitcoin
September 10, 2021
This is an article dedicated (with much sympathy) to our bitcoiner (or altcoiner) friends who have to deal with dubious, confused or even accusing looks from friends, colleagues or parents.
Sometimes saying we are interested in cryptocurrencies to others sounds like we are talking to them about horoscopes, Santa Claus, gambling or conspiracies. In short, not always well.
But if you wake up one day with the goodwill and optimism to engage in a discussion about bitcoin, we want you to be prepared.
“Mom, dad. I have something to tell you. I have Bitcoin.”
What is Bitcoin?
As you may have heard, Bitcoin is a cryptocurrency. One of the many, many thousands of cryptocurrencies out there.
A cryptocurrency is a type of currency that is completely digital. That means you can’t put it in your pocket, you can’t touch it. But you can use it on your phone or on your computer, kind of like you do with your bank account. You do that with your bank account, don’t you?
But it’s a cryptocurrency. The difference, what makes it ‘-crypto’ is the fact that it works on the basis of cryptography.
If you’ve seen any films about the Second World War, you will have heard of cryptography in terms of the cyphers that the military used to communicate in secret (Such as “The Imitation Game”, the one with that Cumberbatch fella).
Or on Whatsapp, when it reassures you that the messages you exchange with your children are protected by end-to-end encryption. This means that only you and they can decipher them.
The same thing happens with cryptocurrencies. Cryptocurrencies are transferred, stored and spent on a system that relies on cryptography, a technology that makes them secure and private.
This system is called blockchain.
What is blockchain?
When you access your bank account you usually see a list of movements. This is a list of your expenses, withdrawals and money received.
Imagine such a list, but for the ‘accounts’ of the whole world and it is public. This does not mean that everyone knows everyone’s expenses, as the few personal details involved are all written in code.
However, everyone knows that a certain amount of money went from one point to another, they know when it was confirmed and when it was requested.
This is the blockchain. A giant cryptographic ledger.
Cryptography is a good thing, but that is not what the blockchain revolution is about.
The actual revolution is that every exchange, every transaction made on the blockchain is from user to user, without intermediaries, without censorship, without possible intervention by third parties.
How is this possible? Through a network of computers that store the entire ‘movements list’ of the blockchain and control it.
It is not the single bank, the single operator that controls and processes the transfer. Here it is a distributed network of computers that validates the transaction. Computers check each other so that no one does any damage to the network.
So I don’t pay 4 euros (or more) to send money instantly from the UK to Switzerland. I don’t pay the interest imposed by the bank. I don’t depend on monetary policies decided by a few people somewhere in a glass palace. Maybe today I like what they do, maybe tomorrow I don’t.
But it’s not really money
What is money, really?
I’ll tell you. Money is defined by 3 functions: store of value, unit of account and medium of exchange.
This means that if you put £300 in the bank in 5 years time it will still be more or less 300, except for a Venezuela-type crisis. It means that you can easily spend a currency and it is easy to divide, count, exchange.
Bitcoin is definitely a unit of account and a medium of exchange. Many are also starting to see it as a long-term investment, and therefore a store of value.
Let’s assume that Bitcoin today is not money in all 3 senses. Well, it is in the other two, and in any case it can be.
Cryptocurrencies are programmable by definition, you can make them do whatever you want.
Bitcoin is bad for the environment!
Bitcoin mining consumes a lot of energy, that is true.
In fact, mining is the creation of new Bitcoins through complex calculations that require powerful devices.
But 1) Those who mine do so to make money. If a mining company can operate at a lower cost it does, and renewable energy is known to be cheaper.
In fact, more than three-quarters of cryptocurrency miners are actively using and investing in renewable energy sources.
But 2) The second cryptocurrency on the market, Ethereum, is converting to a system that for the same functionality has a significantly more sustainable environmental impact.
The alternative exists!
Criminals use it
Not really, bitcoin is mostly used by normal people. Associating bitcoin with criminal activity is a narrative used by the media, and like all niche topics, it needs to be contextualised.
Criminals will always try to use the latest technology to commit crimes, but the vast majority of people who use cryptocurrencies are ordinary citizens. Cryptocurrency companies are following regulations and working proactively to prevent criminals from using their platforms. Scams have an increasingly shorter life span than just a few years ago.
It’s too expensive
To buy bitcoin you don’t have to purchase a whole one by spending thousands of euros. Bitcoin can be divided into cents just like Pounds. You can buy as little as £20 worth of Bitcoin – it’s accessible to anyone!
Bitcoin is just speculation
Bitcoin is also used for speculation. Which is normal for a new asset, as it was for dot.coms (don’t know if you’ve heard of them). When the true value of the technology is understood, it will be reflected in the market.
Remember that the market is made by people, prices are determined by what people do and think.
Many people trade Bitcoin, others buy it as a long-term investment, but there is a big chunk of volume given by regular use such as remittances, especially in countries where the banking system is absent or poorly accessible.
For example, according to the World Economic Forum, 32% of Nigerians own Bitcoin for peer-to-peer payments. In regimes such as Russia and Belarus, on the other hand, Bitcoin is sometimes the only way to fund anti-corruption efforts and protests.
Who came up with such a thing?
This is not very clear. The creator hides under the pseudonym Satoshi Nakamoto. Satoshi decided to create Bitcoin following the economic crisis of 2008, disappointed with the traditional financial system.
He followed in the vein of the so-called cypherpunks, a cultural movement of the 1990s that protested the lack of privacy in banking and on the internet in general.
Governments are going to ban Bitcoin
Most governments accept cryptocurrencies and recognise that the sector is now too big to be banned.
Some governments may seem hostile, but they are gradually learning how cryptocurrencies can improve entire economic sectors and help them compete with other countries. Cryptocurrency companies are working with regulators to find compromises and solutions that benefit both sides.
I hear I can lose my money forever and no one will reimburse me
In rare cases, but there are many ways to recover your cryptocurrencies and take preventive measures to avoid this. First of all, educate yourself!
Cryptocurrency loss is the exception, not the norm. Cryptography is still fairly new and can sometimes seem too complicated or scary.
It may help the concept of ‘trusting the technology‘, which is equally scary often, but if you think about it, once we get used to a new app or device we start to trust it, because we know how it works and what to expect.
Sooner or later sending cryptocurrencies to your friends might be a normal thing.
Consider that the level of security is the same in any system: everything has a risk, but between traditional and crypto systems the only difference is the type of risk.
Patience is an art
It is normal for your folks to be wary at first, as they are used to physical banks, to cash, to listening to what the television says and not the words of experts.
With a little patience and a few pills here and there, maybe they will become as enthusiastic as we are!