Bitcoin is new, and that can oftentimes mean that it is also rather confusing. This new subversive currency is unlike any other traditional form of money.
It is entirely digital, traded very publicly, and is not backed by any material good.
Despite these nuances, however, Bitcoin is surprisingly similar to our regular notion of money. Here are four ways that Bitcoin is just like the bills and coins in your pocket.
1. There are a limited number of Bitcoins.
Although it lives entirely in the digital world, Bitcoins are limited to only 21 million. How is this possible? Well, the answer is actually rather simple.
The creators of Bitcoin wrote the algorithm, or rules by which the currency can function, that defined the possible number of Bitcoins.
In other words, once the public amount reaches 21 million, there will be no more legitimate Bitcoins created.
Remember: every Bitcoin transaction is entirely public. It is traceable to you.
That data is then permanently stored on the blockchain (or public database) of transactions.
The world knows where each Bitcoin is, and once all 21 million are available, the public won’t allow anymore to be introduced into the market. If they did, the value of Bitcoins would essentially be meaningless.
2. Bitcoin Miners
For hundreds of years, dusty Americans would spend their days deep below the surface of the earth. They picked away at the dirt, day after day, driven by the hope — the nearly impossible chance — that one swing of the pickaxe would expose a valuable resource (gold, diamonds, etc.).
For decades now, this way of life has been a thing of the past — OR SO WE THOUGHT. Bitcoin miners are real, they are working hard, and they are, at times, striking gold.
In simple terms, each time a Bitcoin transaction occurs, an increasingly difficult math problem must be solved before the transaction is approved.
This isn’t a math problem that would show up on your high school geometry quiz, though. These problems require thousands of dollars of computer equipment to solve.
Here is the catch: whoever solves the problem gets to keep a portion of the transaction, and anyone in the world can participate.
Essentially, each of these math problems requires billions of guesses. Yes, billions!
Everytime a transaction occurs, thousands of computers all over the world start guessing. At some point, one of them is right.
The transaction is approved, and the person that got the answer is given a small portion of the profit.
Each incorrect answer is like a pickaxe swinging at the dirt. Usually nothing happens. But one of those times, after thousands of swings, you might strike gold.
3. The value changes over time.
I don’t know about you but my grandpa has always told me about the days when “you could buy an ice cream cone for a nickel.”
Well, sorry gramps but that just isn’t the case these days.
Inflation is real, and, overtime, decreases the value of money. What we once bought for a few cents now runs us at least several dollars.
Bitcoin is the opposite (usually).
To say that the value of Bitcoin is growing wouldn’t do it credit — it is exploding.
Only five years ago, a single Bitcoin was worth $500, and now they run for TWENTY TIMES THAT MUCH.
That’s right, I said twenty times.
If you invested $50,000 into Bitcoins five years ago, you would be a millionaire today. I don’t know how to stress this enough: almost nothing else could have this level of return. And it isn’t going to stop there.
The value of a single Bitcoin could be as high as $300,000 by 2025.
This is according to predictions — obviously this is not any sort of guarantee.
But if the math checks out, it would be a good time to invest in Bitcoins.
4. The more you invest, the more you get.
The American economy (and similar markets) is remarkable for a lot of reasons, and despicable for some.
It is remarkable because any joker with a few extra dollars can invest.
It isn’t hard.
These days apps like Robinhood have made it easier than ever to invest your own money into serious businesses on the stock market.
A few dollars won’t get you very far, though. If you want to make it big, you need to invest big.
Perhaps this is one of those “despicable” things I mentioned earlier, but if you want to make money on the market, you first have to have money — and a lot of it.
Bitcoin is no different.
As of writing this article, a single Bitcoin is worth well over 11 thousand dollars.
Now, thanks to apps and online services, you can invest in Bitcoin at a smaller amount (like buying a chunk of one coin).
But if you want to make real money, you need to invest real money — again, a lot of it.
Times are changing.
We are no longer carrying around bills and coins. Even without Bitcoin, most transactions are done with cards and smartphones.
Cryptocurrency is the future, and for now, Bitcoin is leading the way.
The future will be different, but not too different.