Bitcoin. It’s that thing that got that annoying guy you met at a dinner party a new Ferrari. Or the thing you heard you can buy penguins with on the internet. Or that thing that everyone was too busy to look into until it got valued at $20,000. Or that thing that you’re not too sure how to buy or use. Or that thing that doesn’t really sound like it should work…but does. So…what is this… thing? What is Bitcoin?
Bitcoin, the world’s top cryptocurrency, broke into the public consciousness in 2017 when its valuation hit just shy of $20,000. People began to hear some wild stories about the people involved with it. Things like; if you’d invested $10 in 2009, you’d have made $86 million dollars if you sold it in 2017. Or, no one knows who invented it, but whoever it is must be a trillionaire by now. Or it was made by a robot from the future. Frankly, the hype was impossible to ignore.
Today, we’ve moved beyond Bitcoin being just a trending topic, but we haven’t moved past some of the misconceptions that have been left behind in the public consciousness. We thought it would be a good idea to share with you how we explain Bitcoin to our friends and family over Sunday roasts.
“Today, we’ve moved beyond Bitcoin from being just a trending topic, but we haven’t moved past some of the misconceptions…”
Firstly, free money does not exist outside of Monopoly. This isn’t a winning lottery ticket, financial magic, or the product of a robot from the future. Bitcoin is just a clever maths solution to send and receive payments worldwide. And all of that clever maths going on behind the scenes comes together to blossom into each Bitcoin.
It can be hard to analogise the Bitcoin process to other things because, in its core, it is a complex process. Having said that, we found that the easiest way to explain what’s going on in the background is by using the WhatsApp Analogy.
The WhatsApp Analogy
Imagine being part of one global group chat on WhatsApp which is the only way you have to communicate with people around the globe. You can see when other people send messages, and everyone else in the group can see when you send messages. The group admins have a history of who sent which message, so no one can be cheeky and say ‘I never sent that’ — everyone can access the chat history at any time.
That’s kind of how Bitcoin works. Every user can access the transaction history, so we all know who did what and when (…well, it’s a bit more complex than that, but we’ll save that for the scholars). Through the WhatsApp Analogy, however, we can get to the bones of the incorruptible nature of Bitcoin; to cheat the system, you’d have to change everyone’s history of events, which is practically impossible with the millions of users that take part in the network.
If you want to go a layer deeper into the analogy, imagine there was a cap on the total number of messages available— 21 million to be precise — and that every new member joining the group starts off with zero messages. You might be asking yourself, how do I communicate if I have no messages? There are two ways you can get them:
1) Become a WhatsApp group admin — this would require you carry out heavy administrative work. You would have to keep a record of who sent a message to whom, when, etc. Because this is a very time-consuming task you will be rewarded with messages for your efforts (this process is known as ‘Bitcoin mining’).
2) Buy them off someone else who already has them — in this second instance, you don’t do need to do any work but you must pay the price that the other group member sets (today, people generally buy and sell Bitcoin through cryptocurrency exchanges).
Now, as more of your friends download the app, the need for sending messages increases (you want to let your friend know you’re organising a house warming next Friday) but the number of messages available remains limited. Similar to gold, it is the scarcity of the asset that makes Bitcoin so special and has resulted in its value rising over time—if you look past the ups and downs, you’ll find that except for 2015, Bitcoin’s lowest price point has been higher every year since its inception.
Although the WhatsApp Analogy only scratches the surface, it helps explain how Bitcoin works, and why it is such a clever solution to the traditional problems of digital money and proves to be a potential blueprint for the next wave of economic evolution, but we’ll save that for another time as well.
The key learning we want people to take from this reading is that there is long-term value in owning Bitcoin. Even though it was initially designed as a payment platform independent of governmental control, the reality is Bitcoin has become an indispensable way of storing value. From its independence, the unique nature of this asset is often seen as a viable store-of-value mechanism to counterbalance the risk of wealth crises, and giving Bitcoin-holders protection in uncertain political and economic situations. We’re all optimists over here, but it is always good to plan for unfortunate events — whenever they come!
Mode wants to make the process of safely buying and storing Bitcoin seamless. Come join the Mode community and get involved in the only market that is truly unique to our era.
…Or at the very least, use the WhatsApp Analogy next time someone asks you, “So… what is Bitcoin?”