A few months ago, I ordered some bitcoin books on my wife’s Amazon account out of curiosity, obsession and boredom. In doing so, I fell even further into the rabbit hole of crypto, while messing up her profile recommendations.
This image explains a lot of our marriage actually.
I came across some pathetically dense textbooks written in 2016 like “Bitcoin for Dummies”, which referred to bitcoin as “bitcoins” in the opening pages, then I found some gems like “Digital Gold”, “Bitcoin Billionaires” and the “Eat, Pray, Love” of the crypto industry, “The Bitcoin Standard”. The books telling the stories of the people were the ones that held my interest, it wasn’t the technology.
While I haven’t finished all of these books, nor do I consider myself an expert, I do feel adequately prepared to explain bitcoin to any new beginner in the space. So this is my attempt to explain Bitcoin as succinctly (and enjoyably) as possible. I’m sorry about any typos, I don’t have an editor I’m just writing from my heart and hitting publish.
A short introduction to Bitcoin by kaleazy. 📙
Banks (Jokers)
The antifragile event that birthed bitcoin was the 2008-2009 Financial Crisis after the central banks devastated the economy and, as expected, were bailed out by the United States government because Bank of America, Goldman Sachs, J.P. Morgan Chase, Wells Fargo, Citibank, and so many other national banks were “too big to fail”.
In the shadows, crypto was born.
The White Paper
“It's not who I am underneath, but what I do that defines me.” —Batman
Bitcoin is a peer-to-peer (P2P) digital currency that can be traded between two independent parties without a central government, custodian, institution, or financial intermediary. Bitcoin was founded by a mysterious mathematician named Satoshi Nakamoto who’s identity is still unknown. Some say the name was derived from the brands "Samsung", "Toshiba", "Nakamichi" and "Motorola" combined, but no one knows for sure. As the story goes, “Satoshi” published the Bitcoin White Paper around midnight of Halloween on October 31, 2008.
It’s not an understatement that this white paper is one of the modern virtual wonders of the world—given its timing between banking crisis and covid, its meteoric growth, and the fact that we still have no idea who gave it to us, and its immediate positive global impact on every human.
The famous 9-page PDF was sent on an encrypted server (insert Hillary joke here) to a fellow cryptographer, Adam Back, who had created a similar digital payment to bitcoin back in 2012 called hashcash, but failed.
"I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." —Satoshi
Adam Beck shared similar vision as Satoshi to create a global, deflationary, open-source payments network that was inherently immune from contamination by governments, institutions and central authorities. A money for the people, by the people. Adam responded as Satoshi had hoped, posting the white paper on private network called “Cyperpunks”, and Bitcoin took it’s first step into the light.
The Bitcoin Foundation was started by Gavin Andresen, Charlie Shrem, Patrick Murck and Roger Ver after a meeting in Seattle, but Satoshi had disappeared.
Quick Syntax
The currency of “Bitcoin” is capitalized, like "Dollars". The technology of “Bitcoin” is capitalized, like "Internet". The plural of bitcoin is still just “bitcoin”.
Correct: “The woman bought bitcoin using her secure Bitcoin wallet.”
Wrong: “The bitcoin conference is next week, there will be Bitcoin prizes.”
Correct: “I sent some bitcoin to my friend in exchange for a Bitcoin book.”
Wrong: “Do you know any good bitcoin developers?”
If you choose to say the word "bitcoins" its not wrong, but you will sound like a boomer. Just say “bitcoin”, do it for me.
Genesis Block
The Bitcoin network came into existence on January 3, 2009. Throughout that year, a lot of work went into Bitcoin technology by a diverse group of people—developers, entrepreneurs, millionaires, libertarians, lawyers, dealers, and handful of other mostly male enthusiasts who ran the technology through series of phases. They used words like “mining”, “forks” and “open source code” to help grow and ultimately trade Bitcoin with the world. The Bitcoin Foundation launched bitcoin.org (not bitcoin.com) to help educate the public about their discovery and share the code.
The technology is complicated. But honestly, did anyone have a clue what America Online (AOL) was doing when it was sending that yellow little guy through 2.5 painful minutes of robots dying slowly inside a fax machine before giving you a slow dial-up connection so you could chat with friends? No, because it just works. Bitcoin works, the nerds have been testing it since 2009.
In fact, over 99% of the internet is just a bunch of physical phone lines dropped at the bottom of all the world’s oceans. They’re called “submarine communications cables” and they sometimes get attacked by sharks. These cables require regular monitoring and upkeep by robotic submarines funded by an international internet federation. This is how we connect to the internet. Bitcoin’s technology is based on math, not cables, and it’s a lot more advanced (and shark-free).
The Blockchain
The “blockchain” is a giant public spreadsheet that anyone can add rows to using electricity (or power). Everyone has a duplicate copy of the blockchain, and it’s only a few megabytes in size. You would need half the world’s energy or a few million years of attempting number and character combinations to alter the spreadsheet’s data without permission and convince everyone in the world that yours is the real copy.
The power requirement can be seen as wasteful, equivalent to about 3% of United States total energy consumption, which is more than 70% of countries. If Bitcoin’s power output was a country, it would be like Czech Republic. But this is what makes bitcoin so safe. The power is an expensive security system for your money. Bitcoin uses more electricity than 70% of countries, so you would need at least this much power to alter the data and convince everyone that yours is the real copy.
The bitcoin "blockchain" is the database that tracks bitcoin transactions, and is commonly referred to as the "Bitcoin Network". It’s perhaps the safest network in the world. In 2013, a British man named James Howells accidentally threw away his personal hard drive containing the private keys to his Bitcoin account having over 7,500 bitcoins (worth over $75 million today), and never recovered the funds. One of the biggest concerns for every bitcoin user is how to protect their wallet keys.
First Purchase (Pizza)
On May 22, 2010, a Florida man Laszlo Hanyecz agreed to pay 10,000 Bitcoins ($40) for two delivered pizzas from Papa John's in what became the first bitcoin purchase. This is known as Bitcoin Pizza Day, because we need more excuses to eat pizza.
First Hack (Mt Gox)
February 2014 was a scary month for bitcoin holders. A Tokyo bitcoin exchange called Mt Gox, which stood for “Magic The Gathering Online eXchange” and handled nearly 70% of all the world’s bitcoin transactions at the time, lost in total over $500 million in bitcoin from the (preventable) security breach.
Mark Karpeles, Mt Gox CEO, has been arrested and re-arrested so many times, in so many different countries, on so many different charges, I honestly can’t keep track of all his court cases. The hack did not exploit any fundamental flaws in Bitcoin as a core technology, but Mt Gox instantly vanished. Tldr; don’t trust big centralized exchanges with weak security protocols to protect your bitcoin for you. Mark taught us a valuable ($500M) lesson about the importance of wallet key security.
Drugs (Silk Road)
After the hackers came away with nearly half-a-billion-dollars in bitcoin from Mt Gox came an even bigger problem for bitcoin’s reputation: Silk Road.
This is easily one of the most fascinating stories in Bitcoin’s short history. Silk Road was an online black market and the first modern darknet market, best known as a platform for selling illegal drugs. This story is wild. It involves hitmen and murders and FBI agents going to prison themselves for illegal methods they used to eventually infiltrate Silk Road’s 29-year-old founder and operator, Ross Ulbricht.
Silk Road’s saga introduced law enforcement to bitcoin in a big way. It also introduced bitcoin community to the U.S. Government. Many agencies like FBI, IRS, FinCEN, and others made it obvious that bitcoin wasn’t completely “untraceable” like some people might have thought. If bitcoin were to win, the entire industry would have to get much smarter about how to regulate itself with Know Your Customer (“KYC”) policies and lobby Congress to make sure bitcoin can be properly taxed.
Parabolic Growth
From 2009 to 2018 Bitcoin’s price went up. Like, a lot. It took five years, from 2009 to 2014, for Bitcoin to reach $1,000 price. Then, it took 12 months, from 2017 to 2018, for Bitcoin to increase to $14,000, earning profits of 1,300% in under a year.
To put this into context, one young “bitcoin startup CEO” named Peter Saddington bought a Lamborghini Huraca priced at $200,000 for about $115 using the 45 bitcoin he had purchased for fun a year prior. That’s right, he paid 45 bitcoin for a lambo. You probably already know these stories or you wouldn’t care about this article.
Lightening Round
One of my closest friends once told me, “nothing’s hard, it’s just unfamiliar”. In lieu of this guidance, here’s a handful of crypto-themed “Snapple facts” that you may or may not know, and can help get you up to speed on Bitcoin.
A "satoshi" is the smallest unit of bitcoin, like "cents".
There are 100 million satoshi in 1 bitcoin, like 100 cents to 1 dollar.
You can send money to any bitcoin address freely, like emails.
A "confirmation" means a trade has been accepted on the blockchain.
With 1 bitcoin you could send bitcoin to 100 million people (in theory).
Bitcoin’s supply is finite; there will only be 21 million bitcoin.
Bitcoin’s finite supply is what makes it a “deflationary”, like gold and silver.
Most bitcoin mining is concentrated in China, about 75% of the network.
A lot of "miners” work together in “mining pools” to mine bitcoin faster.
A "signature" is a mathematical code/key to access your wallet securely.
A "Know Your Customer" (or "KYC") process is the act of verifying your identity by showing a passport, driver's license or government ID.
When trading bitcoin, your name is never attached to any transaction.
The largest Initial Coin Offering ("ICO") is the crypto version of an “IPO”.
The largest ICO of all time was EOS, in 2017, raising $4.1 billion.
Bitcoin is much slower than VISA in approving transactions.
There are no chargebacks or payment reversals in Bitcoin.
Bitcoin is about the size of PayPal in market capitalization.
The largest bitcoin-to-fiat exchange in the world is Binance.
The largest bitcoin-to-fiat exchange in China is OKCoin.
The largest bitcoin-to-fiat exchange in Europe is Kraken.
The largest bitcoin-to-fiat exchange in United States in Coinbase (expensive).
All trades on the blockchain are public, but not 100% anonymous.
Many people have publicly claimed to be Satoshi Nakamoto.
One of the first digital currencies was Digicash, founded in 1989.
If you lose your Bitcoin private key, you lose your bitcoins.
You can send over $1 million in bitcoin for less than $1 in fees.
A two-factor authentication (2fa) token is used to verify ownership of bitcoin wallets, not usernames and passwords.
To compensate miners for maintaining the network, miners are rewarded a small amount of bitcoin whenever a block is mined.
Bitcoin is open-source, meaning anybody can contribute to its development or suggest changes to its core code, but good luck!
The majority of US bank accounts do not yield any interest.
The term "DeFi" stands for "decentralized finance" and is represents automated protocols with no human interference.
Gemini, founded in 2014, is a highly-regulated NYC-based Bitcoin exchange founded by Tyler Winklevoss and Cameron Winklevoss (Social Network).
In 2013, the Winklevoss twins led a $1.5 million investment round of seed funding for BitInstant, a Bitcoin payment processor.
Most bitcoin addresses consist of 34-character string of letters and numbers with a private key (64-characters), and operate like bank account numbers.
Many countries have banned bitcoin, such as Algeria, Bolivia, Ecuador, Nepal, Bangladesh, Cambodia, and China (varied policies).
Large wealthy bitcoin holders are referred to as "whales" or “crypto whales”.
The "OTC desks" are private over-the-counter trading platforms that have much higher volumes than fiat exchanges (with more privacy).
The US dollar and the Japanese yen are the two most common currencies that are traded to or from bitcoin.
North Korea holds estimated $670 million in crypto assets, many believe they were behind many famous hacks on bitcoin and other crypto exchanges.
The last Bitcoin (21 million) will be mined around 2140.
Banks Response
In 2018, Wells Fargo started investing in blockchain technology—while banning all crypto purchases attempted on Wells Fargo cards.
In February 2019, J.P. Morgan Chase became the first U.S. bank to create and successfully test a digital currency—while banning all crypto businesses and their CEO Jamie Diamon trashed it publicly. In May 2020, Chase said they would start accepting applications to work with certain crypto businesses again. Banks are very aware of bitcoin, and you should be too.
But it may be too little too late for the banks. Their best hope is to start operating less like banks, and more like bitcoin. Shut off the ATM fees and overdraft fees. Kill credit ratings forever and never bring them back. Give customers more than 0% interest on their hard-earned savings. Stop charging 28% APR on credit card debt. Shut off the ATM fees. Just basic stuff that makes it really hard for people (especially poor people) to survive in America. Banks make a killing on their “customers”. I know this because I worked in finance and see how we moved portfolio allocations much more frequently than necessary to generate fees. It was theft.
In September 2020, Warren Buffett (Berkshire Hathaway) reduced its holdings in Wells Fargo to under $3.36 billion, a 90% reduction, and cited just “inflation concerns”. The banks are decades behind, and have the worst reputation imaginable with the public, so if we ever have a chance to leave and deny them a bailout, we will.
Bitcoin Today
Today, there are over 9,521 Bitcoin ATMs globally, and counting. Satoshi Nakamoto has mined over 1.1 million bitcoin since its creation, but they remain untouched in his/her wallet today ($10 billion in worth).
A few currencies like Bitcoin Cash (BCH), Bitcoin Satoshi Vision (BSV) and DASH (DASH) were "forked" from the original Bitcoin Core (BTC) software, but Bitcoin is by far the most popular, representing 60% of the $200 billion crypto industry.
Bitcoin recently surpassed PayPal in market cap, for point of reference, and there are over 5,392 other cryptocurrencies, most of them on Ethereum (ETH).
The United Nations Office on Drugs and Crime (UNODC) estimated that only less than 0.5% of bitcoin trades today are used for illicit activities, giving Bitcoin skeptics less ammunition. The number of legitimate use cases for Bitcoin increases every day as people like you and me enter the space.
There will only be 21 million bitcoin in theory, but actually much less. There’s not even enough bitcoin for every millionaire to have one. The Bitcoin and entire crypto industry is still very new, just like the internet in the mid-2000s, and we haven’t even had our “iPhone moment” yet.
The days of 1,300% growth in one year should not be the expectation when buying bitcoin. Bitcoin is a great tool to get rich slowly, as most markets tend to go up over time. Fortunes favor those who are most patient.
Some installations of Bitcoin can already process millions of transactions per second, like a high-speed internet line, it just needs people like you to buy it, trade it, mine it, talk about it, write about it, add blocks, and continue to support the first money for the people, by the people.
Together, we can save Gotham City from the Jokers.
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