Book cover of The Promise of Bitcoin by Bobby C. Lee

Bobby C. Lee

The Promise of Bitcoin

Reading time icon17 min readRating icon3.9 (96 ratings)

Can we really trust the traditional banking systems, or is there a better way to manage our money in the age of technology?

1. Money is a tool, but it has limitations.

Money helps us exchange goods and services efficiently, but it's not without flaws. Unlike bartering, where the trade depends on mutual need, money standardizes value and simplifies transactions. However, for money to work, people need to trust its value.

Historically, societies have used items like shells, gold, or salt as money because people agreed on their worth. For example, the ancient Lydians introduced coins as centralized currency, which guaranteed value. But over time, central authorities often misused their control, leading to currency devaluation or inflation.

When societies encounter crises, they sometimes resort back to bartering, as seen during the Great Depression in the US. Without enough cash flow, Americans traded goods and services instead. This highlights money's dependency on trust and stability to function effectively.

Examples

  • Roman soldiers were paid with salt, emphasizing its value as currency.
  • The Phoenicians used bartering to trade weapons and spices across vast regions.
  • Great Depression-era Americans bartered corn and coal to survive economic hardships.

2. Governments and banks often mismanage money.

Centralized control over money isn't always beneficial. While governments and banks aim to stabilize the economy, history shows they can misuse money creation, leading to crises and devaluation over time.

For example, fifteenth-century China issued paper money, but the government printed so much that it became worthless. Similarly, during the Great Depression, excessive bank lending triggered a market crash, leaving thousands of banks bankrupt and depositors losing $140 billion.

Even today, inflation is a persistent challenge. Creating new money boosts short-term spending, but when overdone, it diminishes people's savings and purchasing power. These patterns demonstrate the risks of centralized economic control.

Examples

  • China’s paper money became devalued to 0.014 percent of its original value.
  • The 1929 Great Depression was caused by reckless bank loans and credit extensions.
  • Inflation in the 1970s meant $100 could buy much more than it does today.

3. Fiat money depends on trust, not intrinsic value.

Modern currencies like dollars or euros have no inherent worth—they’re essentially promises backed by governments. Known as fiat money, their value comes from people’s trust in the issuing authority rather than gold or other tangible assets.

When the US abandoned the gold standard in 1971, fiat currencies became untethered from gold’s stable value. This allowed governments to print as much money as they wanted, undermining purchasing power over the decades.

While fiat money is convenient for global trade, skepticism grows when governments struggle with debt or inflation. This concern about trust and value erosion creates a foundation for alternatives like Bitcoin.

Examples

  • A $100 bill today buys far less than it did in the 1980s.
  • Using fiat money freed the US government to finance wars and deficits post-1971.
  • Global reliance on the US dollar highlights the need for trustworthy state governance.

4. Bitcoin avoids centralization by using blockchain technology.

Bitcoin stands apart by forgoing traditional banks or government oversight. Its decentralized system relies on blockchain—a transparent digital ledger accessible to all participants. This prevents tampering, ensuring trust without a central authority.

Blockchain technology solves the “double-spending” problem. Unlike physical cash, digital money can be copied. Traditionally, banks safeguard against double-spending, but Bitcoin’s blockchain does so by spreading transaction records across its network, making fraud nearly impossible.

Bitcoin's distributed ledger shows every verified transaction, allowing users to trust the system rather than a central institution. This innovation is at the heart of Bitcoin’s revolutionary approach to currency.

Examples

  • Blockchain prevents users from spending the same Bitcoin twice.
  • Bitcoin verifies each transaction publicly, ensuring transparency.
  • By decentralizing records, Bitcoin eliminates reliance on banks.

5. Proof of work ensures Bitcoin’s trustworthiness.

Bitcoin uses a process called “proof of work” to validate transactions and maintain transparency. Miners solve mathematical problems to create new blockchain blocks. This ensures only legitimate transactions are added.

Miners act as auditors, verifying transactions to prevent issues like double-spending. Their work involves intense computational efforts powered by energy-consuming machines. In exchange, miners are rewarded with newly created bitcoins, incentivizing their trust-building role.

This system enforces fairness. Since problems grow harder over time, mining remains secure from bad actors. However, the limited supply of 21 million bitcoins ensures that rewards will eventually shift from new bitcoins to transaction fees.

Examples

  • A single winning miner receives rewards that reached $215,000 in 2021.
  • Energy-intensive mining mimics gold’s physical labor-intensive extraction.
  • Harder problems over time prevent malicious actors from exploiting the system.

6. Large-scale Bitcoin miners dominate the landscape.

In Bitcoin’s early days, miners were hobbyists using everyday computers. Like gold prospectors, they had few tools but could still participate. Over time, big players with specialized machines and massive computing power have taken over.

Today, mining requires costly hardware and vast energy resources. High-end ASIC machines, tailored for mining, cost over $10,000 and use large amounts of electricity. Mining has matured into a global industry led by financially strong groups.

This rising complexity has sidelined individual miners. Solo mining is now rare, as competition favors large-scale operations with sophisticated setups.

Examples

  • Mining pools dominate Bitcoin, leveraging collective computational power.
  • The cost of ASIC mining machines exceeds the budget for most individuals.
  • Electricity costs make continuous solo mining financially unviable.

7. Securing Bitcoin depends on choosing the right wallet.

Bitcoins are stored in digital wallets, which contain private keys and addresses. Accessing your cryptocurrency requires safeguarding these keys, and wallet options vary in security and convenience.

Hot wallets connect to the internet, making them user-friendly but prone to hacking. Mobile apps, for instance, allow transactions on the go but risk loss if phones are damaged or stolen. In contrast, cold wallets keep keys offline, adding a layer of protection against cyberattacks.

Each wallet type has trade-offs. While hot wallets suit beginners, cold wallets like hardware devices or paper wallets offer the highest security for serious investors.

Examples

  • Hardware wallets secure Bitcoin offline but require technical setup.
  • Paper wallets offer absolute security but risk physical damage.
  • Mobile wallets enable users to spend bitcoins anywhere but may be vulnerable to theft.

8. Bitcoin exchanges simplify trading and investing.

For those not mining, Bitcoin exchanges serve as entry points. These platforms connect buyers and sellers, making Bitcoin accessible to the average person.

Exchanges operate differently depending on the region, adapting to local banking systems. They often require identity verification, like submitting a passport or photo ID, ensuring secure transactions. Fees vary, but exchanges offer the easiest way to participate in cryptocurrency.

Researching exchanges ensures users find platforms suited to their preferences. Websites like coinmarketcap.com offer comparisons to help individuals begin their Bitcoin journey.

Examples

  • Leading exchanges adapt services based on national banking regulations.
  • ID verification strengthens trust between users and platforms.
  • Transaction fees vary between exchanges, encouraging research.

9. Bitcoin challenges traditional economies through user empowerment.

Bitcoin isn’t just a currency—it’s a financial movement aiming to shift power from institutions to individuals. Its decentralized, trustless model empowers users to control their own wealth without relying on governments or banks.

Unlike fiat money, Bitcoin resists inflation and devaluation. Its fixed supply of 21 million coins mimics the stability of gold. Moreover, Bitcoin fosters inclusive participation, letting anyone with internet access join the network.

This approach transforms economic relationships. By removing intermediaries and granting people financial autonomy, Bitcoin challenges entrenched systems of monetary control.

Examples

  • Bitcoin’s supply cap guards against the inflation prevalent in fiat systems.
  • Blockchain verifies every transaction, ensuring transparency.
  • Anyone with internet access can participate, democratizing finance globally.

Takeaways

  1. Take time to research cryptocurrency exchanges and wallets to secure your investments effectively.
  2. Start small when investing in Bitcoin; understand the system before putting in larger amounts of money.
  3. Stay informed about Bitcoin mining and blockchain developments to make the most out of this evolving currency.

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