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What do I need to know to understand Bitcoin?

October 9, 2019

If you’re a normal and average person, and by that I mean the average person who uses the Internet, you’ve probably heard about digital money and at least ever Bitcoin.

However, that doesn’t mean that you’ve become a Bitcoiner right out of the blue. If you still don’t know what to do, I will share with you what you need to know, based on my personal experience of how I got into this Bitcoin thing.

What is money?
From my perspective, the main barrier, beyond technological fear and people’s uncertainty, is only one reason: “Not knowing what money is”.

As in my case, I guess many of us miss its meaning, because money is so common in our lives that we think we know all about it, because we use it every day.

Despite this, for most people trying to explain what money is, it’s like trying to explain what our own human hair is. For me, to understand what it really is, it took me several books to read, a few years and of course, I had trouble losing several Bitcoins, because of my delay.

If indeed, there is interest in understanding what is Bitcoin? look for the answer to this question what is money, and you will find your answer. And for that, I suggest 3 readings (I won’t earn royalties) to get a much broader idea of his concept.

-The code of money (basic concepts of money)
-The conspiracy of the rich (to understand the banking system)
-Guide to Investing in Gold and Silver (Money Basics)

So far we haven’t tackled Bitcoin. But as I mentioned earlier, first we need to understand money, no white papers, no cryptography, no algorithms, much less protocols.

In short, money, that’s all: “it’s a tool that works as a medium of exchange”.

Although perhaps for many people it disappoints the simplicity of its concept, the truth is that in spite of being so simple it is not understood in its entirety. If we analyze it, almost anything we can exchange could be money.

How does money work?
Historically they have been used from skins, shells, salt, metals and even stones as forms of money. And time has brought us to today, where we use paper and ATM digits as money.

The key for the money to work as such is simple, an exchange only needs two parts. With this, we can say that money serves as a “link of an agreement” agreed between those parties. An agreement where everyone decides what to receive.

Without ignoring things, that exchange has to be between things of value.

And it is here where it is necessary to make a parenthesis. Returning to the concept of money “a tool that functions as a means of exchange”, money is only a vehicle, but that does not mean that it is the end. When people receive money they don’t receive it because they want to keep it forever, but rather because of the things they can obtain with it.

And there are two means of exchange that we can use: money and foreign exchange.

People accept the means of exchange, because they serve as vouchers, which in the near or distant future will allow them to acquire something of value. However, this does not mean that the means of exchange has to have its own value, after all we only want it to change. We only need the things we acquire if it has it; because that is what we will keep.

Remember that we are talking about means of exchange. I know that this could generate conflict, polemic and of course rejection, how come the means of exchange does not need to have its own value? Let me explain my point of view.

Can money work without backup?
How do you show my opinion, that the means of exchange can work without value or support. Currently, we are immersed in a monetary system based on trust (others call it debt). The currencies (or fiat money) we use nowadays are not backed by anything. Neither gold, nor silver, nor anything similar, nor the air itself.

And this has been going on for 48 years and counting. So it is easy to conclude that a medium of exchange does not need any support to function. So why does it work? Good for trust. Trust makes you receive a ticket in your hands in exchange for your work, because you “trust” that you will be able to exchange that ticket for something of your interest.

If you “don’t trust” that the same bill is legal, you don’t receive it, because you’re not sure that you can exchange it later for something.

So, all this boils down to the fact that we must have the confidence that the money we are using will serve us to be able to make exchanges, that’s all.

But how can we preserve our wealth?
This is where real money comes in. We need money not only to serve as a means of exchange, but also to serve as a store of value, to endure and transfer that value over time.

Money needs to have value for one reason only: to preserve its purchasing power over time. Its intrinsic value serves as a guarantee that in the future it will continue to function as a medium of exchange.

Money must maintain its value without depreciating. In other words, let’s say that what we need is for that tool not to be obsolete when we want to use it, after several years.

However, the value of that means of exchange will depend on the number of people who trust and accept that it actually has it.

At the same time, how do we know if money has value? The clearest example is undoubtedly the case of precious metals. Beyond the physical properties of gold and silver, the main reason why they maintain their value and thus their purchasing power over time is because of “scarcity”.

The fact that its supply is limited, makes it preserve its value over time. That is what “guarantees” that in the future it can be used as a medium of exchange. The reason is because scarcity ensures that no one cheats when it comes to having an agreement on an exchange of values.

And once it’s understood that money is just a means of change that transcends time and allows us to trade a few hours of work for a few shirts, we can conceive of Bitcoin’s arrival in our lives.