Bitcoin: The Internet of Money
Over the past couple of weeks I’ve explored the world of bitcoin. Like most people, I thought I sort of understood what bitcoin was: some sort of digital currency. That was where my understanding and curiosity stopped. That has changed.
“Bitcoin is doing for money what BitTorrent did for file sharing.”
Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money tells the story of this new cryptocurrency in an accessible and compelling way. Crypto-anarchists and Libertarians can get stuck in the weeds when trying to explain bitcoin, but after exploring this space for the past two weeks here’s my main takeaway: bitcoin is doing for money what BitTorrent did for file sharing.
Most people are familiar with the story of Napster, who rubbed up against the music label industry and the result was their ordered shutdown. Because their servers acted as the central hub through which everyone shared files, this shutdown the entire system highlighting the underlying risk of centralized networks. BitTorrent, on the other hand, is a decentralized and distributed P2P (peer to peer) network. All computers that participate in the network are nodes that maintain and share files. If one computer in the network is taken offline, then the files are still persisted by the other computers on the network.
Bitcoin is also a decentralized and distributed P2P network. Bitcoin transactions are recorded on a distributed ledger or “blockchain” that is maintained by the network. If one computer or “node” is taken out, then the system continues to operate. This is not true for national currencies that are backed by the “full faith and credit” of the issuing government. The value of the U.S. dollar as a global currency stems from it’s backing by the U.S. Government. If a country’s economy collapses, then that country’s currency will be worthless. Cliff Notes: National currencies are like Napster while Bitcoin is like BitTorrent.
“[the average user should start using bitcoin] to experience the future of money. To gain a glimpse into an exciting technology. To learn about how money could be in the future and also become aware of how limited money and banks are today.” – Andreas Antonopoulos
There are too many nuances, innovations, and issues behind the new bitcoin technology to cover in detail in one blog post. And the examples above are certainly generalizations but I think it’s a first step in understanding how bitcoin is meant to function and why it’s started to receive attention and acceptance. To quote Bitcoin expert Andreas Antonopoulos, the average user should start using bitcoin “to experience the future of money. To gain a glimpse into an exciting technology. To learn about how money could be in the future and also become aware of how limited money and banks are today.”