Bitcoin may seem complex for beginners and it is not always easy to clearly explain to them what Satoshi Nakamoto's invention embodies. In this concise article, we suggest that you review the fundamentals of Bitcoin, allowing you to know how to answer the most common questions, whether they come from neophytes or from vaguely initiated people.
What is Bitcoin?
Your very first and often tricky task is to define Bitcoin. However, even among bitcoiners, opinions differ on its exact definition.
If you want to describe Bitcoin very simply and quickly, you could start by saying that it is a new currency launched in 2009 that is entirely digital and that works on the internet. Bitcoin relies on an autonomous payment system that operates without a central authority. So it is a free and open system. Finally, you can explain that bitcoin can be sent and received directly from one person to another, just like an email.
Then, if you're talking to someone who's curious to learn more, you might also want to consider a more comprehensive definition. Personally, to simply describe this complex thing while remaining accurate, I prefer to rely on the writings of its inventor, Satoshi Nakamoto, and especially on the title of the White Paper:
Bitcoin: A Peer-to-Peer Electronic Cash System
So, we can start by saying that Bitcoin is a system. Indeed, the general term “Bitcoin” encompasses a set of interconnected elements that work together to achieve a goal in an organized manner. In this case, the Bitcoin system works thanks to three interdependent elements:
the protocol;
the network;
and the currency.
The protocol represents a set of rules tacitly accepted by users, often referred to as “consensus rules.” This includes, for example, agreeing on the bitcoin issuance schedule and the limit of 21 million units, limiting block sizes, or requiring a valid signature to spend bitcoin. All of these rules allow the Bitcoin system to function properly.
It may seem counterintuitive to set rules for Bitcoin, given its nature as a peer-to-peer system with no central authority. This is where the second crucial element of our system comes in: the Bitcoin network. This network is made up of tens of thousands of computers that collectively enforce the rules of the protocol. They communicate with each other to share new transactions and blocks, while keeping a history of the blocks on their hard drives. These computers are also known as “nodes.” So when we ask ourselves who controls or administers Bitcoin, it is this network of nodes that constitutes the authority. And behind each node is a Bitcoin user.
Finally, the third component of the Bitcoin system is the currency itself: Bitcoin (BTC). For a payment system to work, it is necessary to have a common unit of account exchangeable across the network. This is the role of bitcoin (with a lowercase “b”) that materializes in the system in the form of unspent transaction outputs, known by the acronym UTXO.
Bitcoin is therefore all of these at the same time: an electronic cash system that embodies a protocol, a computer network and a currency.
After explaining what Bitcoin is, another question comes up frequently: why use Bitcoin when state-guaranteed currencies and fast payment systems already exist?
The benefits of using Bitcoin are multiple and they essentially derive from its nature as a peer-to-peer electronic system. Thus, the reasons for using Bitcoin vary between users, with everyone being able to find benefits in this system that correspond to their specific needs.
One of the major advantages of Bitcoin is its limited issuance. Indeed, the maximum number of bitcoins is capped at 21 million units, and any change to this limit would require consensus among users, which is proving to be extremely difficult. In comparison, euro units are issued arbitrarily by banks, according to criteria established by the European Central Bank. Over time, the increase in the number of euros in circulation causes the value of each existing unit to be diluted, thus gradually reducing the purchasing power of the currency. By nature, bitcoin is resistant to this phenomenon of inflation.
However, remember to specify that this characteristic does not guarantee either a perpetual increase in the value of Bitcoin, or that it will surpass the euro indefinitely. It's not magic. Since Bitcoin is still young, its value is even subject to strong short-term fluctuations. The limitation of its issuance coupled with its peer-to-peer nature simply ensure that no one can arbitrarily decide to print money, thus maintaining its purchasing power. As a result, bitcoin is proving to be a particularly interesting savings tool.
Bitcoin offers a lot of other benefits. For example, it guarantees the incensurability of transactions, which means that no one can arbitrarily block your payments. You then have the freedom to use your money as you want.
Additionally, Bitcoin can be a valuable tool in protecting your natural right to own. Since owning a bitcoin is equivalent to knowing a cryptographic key, ownership is essentially based on knowing information. However, if it is well protected, information cannot be stolen. Unlike other assets used to store value, owning Bitcoin has the advantage of not relying on force or law, but only on knowledge. This is an element that must be considered in a logic of wealth diversification.
Finally, bitcoin is an easily transportable, verifiable, divisible and storable currency. If used well, it can also allow you to better protect your privacy. But above all, bitcoin is the most suitable currency for the Internet age. It responds more effectively to our current digital consumption models than traditional payment systems.
In this article, you were able to discover the way I recommend to present and popularize Bitcoin. But with the increasing adoption of Nakamoto's invention, your loved ones may have already heard about it, and maybe not. So, if you want to be able to dismantle the main myths about Bitcoin that are common among the general public with salient and documented arguments, discover our complete article on this subject: ➤ 8 preconceived ideas about Bitcoin.
