Last week we tackled the issue of What Bitcoin is. This week we will dive into why someone might care about Bitcoin or blockchain based money in general.
I will be posting some housing prices in the currency DKK as this is the native currency of Denmark. Use a simple tool such as this to convert to your local currency.
This is part 2 in a series of 3 on Bitcoin. Part 1 covered what Bitcoin is, part 2 will cover why you should care about Bitcoin and part 3 will cover the basics of buying, selling and spending Bitcoin.
The short version
I will split the short version in two, one is text the other is video.
Text: Be your own bank
The video is also available here, if you do not wish to play it in your browser.
So basically the answer to why you should care is twofold. Money is technology and our current form of money is outdated. Furthermore blockchain based money means you, as an individual, can be your own bank. You no longer need to rely on others or trust a bank to hold your money. This of course is as scary to some as it is liberating to others. Let’s investigate further.
As we looked at last week, the vast majority of money in our current system, 95%, is created out of thin air by the banks when lending out money. This means that the total amount of money is ever increasing at an uncontrollable rate which causes inflation. It also makes the financial system much more extreme causing more severe financial crisis, because prices are inflated when times are good and the banks lend out enormous amounts of money, and prices sink ever low when times of crisis are upon since banks do not wish to lend out money during such a financial storm.
Check out this site, video included, to learn more.
If the creation of new money was spread more equally between the good times and the bad, the overall financial state of the world would be less volatile and crisis less devastating.
Enter blockchain based money. Money that are based on different rules can more easily make this spreading of creation come true. In the case of Bitcoin 12,5 bitcoins are created and awarded every ten minutes to the miners. This halves every four years until 21 million coins have been created, which will happen around 2140. This simply means that the people, trough machines assembled in mining factories or on your desktop, are rewarded in bitcoin for verifying transactions. This makes the creation of money free from state or government intervention in a fully transparent system. It’s a level playing field of sorts.
Costs running wild
One of the biggest problems with the current system of money is the major inflation in prices, especially housing. House prices in Denmark have been ever increasing for as long as I can remember and it is getting increasingly difficult to enter the housing market for first time buyers. A small one bedroom apartment in one of the two major cities in Denmark, Copenhagen or Aarhus, can easily cost upwards of 2 million DKK. Yes, you read that right. The massive increase in pricing is primarily due to this current creation of money, because people tend to loan a lot of money when buying a house and this being a good deal for the bank, they tend to want to lend out a lot of money for people wanting to buy houses. If there is no cap on the total supply of money but there is a big demand to buy houses, then of course the price of said houses will increase a lot. This part alone should make anyone interested in both the current system of money as well as potential replacements.
No one uses cash anymore
Sweden has a peculiar problem, the use of cash is ever dwindling and this means that more and more shops are no longer accepting cash as payment. This has actually led to the Swedish centralbank investigating issuing a blockchain based money. Enter The Riksbank’s e-krona project.
What this means is that money, such as bitcoins, are no longer the fabled dream of a select few anarchists but a possible viable future form of money. The swedish centralbank is not alone in this, rumours of the Chinese and Russians, among others, investigating the use of a blockchain based money is out. Wether this becomes reality is of course an entirely different matter.
I actually believe this point to be one of the most important aspects of Bitcoin. The security is simply unparalleled. Bitcoin has been running and working since it went live back in 2009. 24/7/365. Find me another computer system that has a proven track record like that. Bitcoin is so difficult to hack, that it is close to impossible. Since the code, and thereby the central ledger, is run on so many different computers making up the Bitcoin network, a potential hacker would have to hack a majority of the computers at the same time in order to be successful. This is borderline impossible, in the let’s assume we are professional mathematician talking about likeliness and not just a salesman looking to make a quick buck saying something is impossible. People have lost bitcoins either because the exchange that held their bitcoins was hacked, their digital wallet was hacked or their computer was hacked. In no circumstance was the actual Bitcoin network hacked. This is a massive selling point for Bitcoin and a big upgrade of our current system of digital money.
Centralised vs. decentralised money
Bitcoin is decentralised and this is probably why some central banks and states might not be to keen on implementing and supporting it. This does not mean however that they cannot introduce blockchain based money some other way. They could create their own currency, with it’s own set of rules and simply make this interchangeable with something like Bitcoin. This is probably more acceptable from a governments point of view and I suspect we will see this in the not so distant future. I am more for a decentralised currency of course, but an upgrade of our current system with clearer rules on how money is created is still an upgrade.
Money as technology
Blockchains are about so much more than just the monetary aspect. This is why blockchain as a technology is so interesting and will increasingly make its way into our lives. There is a massive potential however in linking the technology of money with other things. Why is money its own isolated system in a world where the digital layer is taking over more and more. In an ever increasingly digital world it makes sense to have truly digital money that can easily be integrated with other digital systems. I will not try and figure out all the other potential uses, I think the video at the beginning of this post does a much better job than I ever could.
When you start digging into the whole cryptocurrency world you discover a vast array of mind-blowing uses and adoptions of blockchains. This truly is the future in a more data-driven and digitally driven world.
Money in and of itself is simply a technology and a blockchain based currency, be it Bitcoin or otherwise, is a technological upgrade long overdue. This, as well as increased individual control, is why you should care about Bitcoin.
Again, give this site a try: https://anders.com/blockchain/ if you wish to understand blockchains in general better. It is simply unparalleled in explaining blockchains and it gives you the possibility of playing around in a clickable environment in order to better understand what all the fuss is about.
I consider Bitcoin it’s own thing in my quest for financial independence and this means the topic has it’s own page on https://www.frinans.dk/bitcoin/.
Once again, if you have extra time watch Andreas with an introduction to Bitcoin and realise why you should care:
Next week we’ll look take a look at how to buy, sell and spend bitcoins. A small usage guide if you will, covering the basics.
As always comments are most welcome and I will do my best to answer all questions. You can follow or like the facebook page or follow frinans on twitter to get notified of new posts as well as interesting links and stories I stumble across. If you are interested in getting into Bitcoin you can sign up for Coinbase* through my affiliate link, if you buy Bitcoin for a minimum of 100$, we both get a 10$ bonus. If you are interested in diversifying your investments further, then how about signing up for crowdlending through my Mintos affiliate link and gain an exclusive % on your investment.