Why Bitcoin?

Good Government would make Bitcoin unnecessary.

  • Confidence in governments and financial institutions is at an all time low.
  • It was within the context of this alienation, that Bitcoin was created
  • Bitcoin is designed to be an alternative or parallel system.

 

Many Elites take Bitcoin as an Insult

It is hard for a man/institution that is part of the political/economic establishment to understand the value of a project whose very existence was motivated by dissatisfaction with their work.

 

Many elites stand to lose power

Many elites benefit from federal reserve policy.  A company like AT&T can borrow money from the Federal Reserve by issuing bonds that the Fed buys.  Rather than use the money from that debt to invest, producing useful things, the executives at AT&T take the money and use it to buy back AT&T stock.

Stock buybacks increase a company’s stock price, allowing executives to collect their bonuses and profit from stock appreciation.  Stock buybacks also inflate the stock market, tricking some Americans into thinking stock market gains are sign of a healthy economy.

Banks get special access to lower interest rates.  They then charge a higher rate to the public and pocket the difference.

 

Goal: Ending the Cantillion Effect

The 18th century French banker Richard Cantillion observed that those closest to the printing press benefit more than those further away.

 

In Cantillion’s day, the money creation was done via gold mining.  In our day the Federal Reserve’s “plumbing” requires it to act through the financial system of banks and other institutions, rather than interacting with citizens directly.

The result of the financial system’s structure is that hedge funds, private equity, and bankers have benefitted most from the money printing.  It’s structural “trickle-down“.

 

Bitcoin has the potential to put everyone on a more level playing field because money would not be issued through institutions which have special privileges due to the nature of the financial plumbing.

Read more about the Cantillion effect

 

 

How Bitcoin Started:

Bitcoin was not started as a get rich quick scheme.  Rather it began with the:

 

An Alternative to Printing Money

Bitcoin’s first transaction recorded a snapshot of a newspaper article titled: Chancellor on Brink of Second Bailout for Banks.

  • Bitcoin’s decentralized governance and 21 million coin limit are designed to prevent further such bailouts

 

An Alternative to Government Digital Currencies

Many people are skeptical of the power that Government-issued digital currencies could provide governments.

If digital currencies are inevitable, which would you rather have:

  • digital currencies designed and issued by governments like China and the US
  • digital currencies designed and created by the private sector, including libertarian-spirited programmers and business people competing to be the choice of citizens

 

Distributed in the most fair way possible

While some later cryptocurrency creators have designated some of the first coins for themselves, the creator of Bitcoin was concerned about distributing the initial coins in the most fair way.

So rather than distributing newly issued coin to people they knew, Satoshi (the Bitcoin author’s pen name) decided to distribute Bitcoin only to those who perform work for the project.  This means that Bitcoin is distributed only to those people who run servers that verify transactions.  These “miners” can then chose to sell the coin they earn on the open market.

As time progresses, the strength of the encryption Bitcoin uses gets stronger and stronger, so that today it is strong enough to encrypt billion dollar transactions.

Creator of Bitcoin does not “Cash In”

The creator of Bitcoin chose not to patent their solution to the Byzantine General’s Problem and collected no payment for their work.  The Byzantine General Problem is a mathematical problem that encapsulated the challenges present in a decentralized system of coming up with a common agreement  when some parties may fail to return results and others may present fraudulent information.  The solution to this problem allows systems to function without a trusted centralized system.

 

Contracts without Trusted Escrow

An example of the type of transaction that Bitcoin enables is a real estate purchase without an escrow agent.

Normally, the buyer of the house has to provide money to an escrow in advance so that the seller can trust the the buyer will make good on the purchase.  With Bitcoin, a seller can verify that the buyer is using legitimate Bitcoin and within 10 minutes verify that the transaction has settled.

 

Bitcoin was considered virtually worthless

When Bitcoin was started, there was no price conversion between Bitcoins and dollars.

Many people who first got Bitcoin misplaced it because they didn’t think it was valuable.

In fact, people so underestimated the potential value of Bitcoin that the first real-world transaction was 2 pizzas for 10,000 bitcoin.  Today, 10,000 bitcoin would  be worth $350 million!

 

Can Bitcoin do what VISA does: 40,000 transactions per second?

VISA can handle 40,000 transactions per second, while Bitcoin can only handle about 7 transactions per second.

But VISA transactions depend upon the the rest of the banking system to settle its transactions.  This involves both individual banks and the Federal Reserve

VISA has advertised that it would like to continue to operate as a payment network, but using Crpto as a means of funding, in addition to traditional bank accounts using dollars.

 

Bitcoin’s technology is superior to the Federal Reserve

Although some people still think of Bitcoin as a currency used for payments, the Bitcoin community chose in 2017 to make Bitcoin a high-performance settlement layer, akin to the Federal Reserve’s Fed Wire.

When VISA payments are processed then are not sent in real time.  Rather the banks aggregate transactions and “net out” the totals.  They then transfer a single total value to the member bank.  These totals are much larger and fewer in number.

While Fedwire transfers can be completed in a day, Bitcoin transactions can settle a billion dollars in 10 minutes!