What Is Bitcoin? – Bitcoin In PLAIN English!

What is bitcoin? After all, we keep hearing about it over and over. But what is bitcoin, and maybe more importantly, why should we care about bitcoin? Well here, we're going to cover all of this and more to truly help you get a clear answer to what bitcoin is.

Show Notes

Here are links and resources mentioned in today's video. Enjoy!


Right off the bat, I need to tell you something: Bitcoin’s got a big problem! It’s problem is this: It’s difficult to understand what bitcoin really, truly is.

After all, isn’t bitcoin just a way to make fast, easy money? Or isn’t it something that’s used by hackers and criminals? Is it all just some hot trend or fad? No, bitcoin is none of these things.

A lot of people have misinformed opinions about what bitcoin is and what it means. And that’s because it’s difficult to really truly “get” what bitcoin’s all about.

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What makes it all so difficult is that in order to understand bitcoin, we have to learn and understand a handful of other things first. In other words, there are some prerequisites to understand first before we can truly “get” bitcoin.

I can't directly tell you what bitcoin is because it won't make any sense. First, you need to understand a few other concepts.

I take a totally different approach to explaining bitcoin. I keep it incredibly basic and simple, using metaphors and examples that we all know and understand...that's because 1) bitcoin and blockchain are difficult, complex topics, 2) I want as many people to know and understand this stuff as possible.

Typically, bitcoin is described as "digital money" or a "digital currency" or "online money." While these descriptions are partially true, they don't give us a full understanding of what bitcoin really, truly is.

So in order to fully understand bitcoin, we have to pull together a handful of different subjects. Think of these as puzzle pieces that you and I have to connected together so that we can see the full bitcoin picture.

Now, we don’t need to be experts in any of these initial subjects. But we do need to have a general understanding of each one.

Once we understand these different components then we can begin to fully understand what bitcoin’s all about. There's five puzzle pieces in total:

First off, we have to understand what money is and why it’s foundational to economies. Next, we have to understand the five characteristics that make something money. Third, we have to understand some history and wrap our heads around the current monetary system.

Next, we then have to learn about black swan disruptive technologies and how they upend civilizations. And last but not least, we have to understand some basics about internet protocols.

That might sound like a lot, and it may seem like a hodge-podge of unrelated topics...but with these puzzle pieces in place, then and only then, can we really begin to truly understand what bitcoin is.

So think of learning and understanding bitcoin as assembling a puzzle. Or, think of it like a journey with progressive steps if you like.

So here's a brief run-down of each puzzle piece:

Let's start with the first one, money. What is money and why's it so important? Well, what us humans need to do is to be able to store up the economic value that we create, and then be able to spend it in the future. Otherwise, we'd be in a perpetual state of living hand-to-mouth, constantly trying to survive day-in and day out.

Money allows us to store the economic value that we create, and exchange that stored value for goods and services.

The next puzzle piece that's needed in order to understand bitcoin is the five characteristics of money. They are durability, divisibility, portability, recognizability, and scarcity.

Now we don't have time to dig into each one of these here, but the bottom line is this: Anything that can fulfill these requirements is, by definition money. Anything that cannot is not money.

It's as simple as that. And if we had more time, I could explain in plain english precisely how bitcoin, more than any other item known to man, fulfills these requirements best -- even better than gold.

Our third puzzle piece is understanding, even on a basic level, our current monetary system -- specifically, how did we go from using gold and silver coins to using government issued paper notes? And further, exactly what is inflation and why should we care?

The next puzzle piece is all about understanding the powerful effects of black swan technologies and how they can upend everything and change the course of history.

Humans being able to control fire is a great example. So's the internet. Another great one is the printing press. In fact there's a great quote from Gutenberg that goes, "Give me 26 soldiers of lead and I will conquer the world."

The fifth and final puzzle piece needed to truly understand bitcoin is the basics of internet protocols...and simply understanding what they are.

For example, right now you and I are connected by an internet protocol known as TCP/IP. Nobody owns or controls these protocols. No central authority could ever take them over. They're free, open, and available to all.

That, my friend, is the true spirit of the internet and it's the underlying unstoppable force behind bitcoin and it's game-changing, underlying blackswan technology, blockchain.

With a very broad, basic understanding of these puzzle pieces, we can now begin to understand what bitcoin is, and more importantly what it means.

So here's how I define bitcoin: "Bitcoin is a global peer-to-peer protocol for trustlessly storing and transmitting economic value." Again though, this can be difficult to get your head around at first.

But imagine this: Take a time machine back to 1995 and try to explain Netflix, instagram, iphones, ebay, paypal to people. They'd look at you like you were crazy!

Before they can understand any of these things, they'd first have to understand what the internet is, how we connect to it, how it's a big part of our daily lives, and how it's central to the way we live, work, and run the world.

It's the same thing with bitcoin and cryptocurrencies. In fact, what the internet did for information, bitcoin is doing for money.

To put it into simple terms, bitcoin performs the task that a bank or paypal would normally serve. Think of it this way: Is it possible for you or I to send a file (maybe a PDF or Word doc) to anyone else, anywhere on earth (so long as they have an internet connection)?

Of course! That's so common that we take it for granted. Well imagine being able to do the same thing with money. That's what bitcoin allows us to do -- you or I can send any amount of money, from a few pennies to millions of dollars, to anyone, anywhere on earth.

But what gives bitcoin value? Well that has to do with the protocol and the blockchain network that bitcoin runs on. Programmatically, bitcoin has a limited supply that can never be altered.

If you want to dig deeper into this for a sec, any digital file can be copied and pirated, right? Here I'm talking about PDF documents, movies, music, software, and so on. So if bitcoin is digital money, how is it?

Said another way, how can a digital currency retain value if anyone can duplicate it? Well, bitcoins aren't digital files that are saved on a hard drive. Instead, they're entries on a fully public ledger called the blockchain.

And because every transaction is verified and recorded by the network, bitcoins cannot be copied or forged. With blockchain technology, private ownership of a digital good (in this case bitcoin) is possible.

And the implications of all of this is absolutely wild. In fact, the combined computing power of the bitcoin network is greater than the world's 500 biggest, fastest supercomputers...combined...times 10,000.

The bitcoin network is the most powerful, most secure computer ever built.

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Geoff Blake, Ten Ton Online

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