Bitcoin is a Fake Money Converting Machine; Put in Your Fake Money, Out Comes Real Money
I’ve been thinking about bitcoin quite a bit lately (haha bit, get it?). I have been involved with the space since 2017, however, just recently came to the realization that bitcoin is a fake money converter and needed to write an article about it. You put your inflating, unchecked, freely printed fiat money in the bitcoin machine and out comes sound, decentralized, inflation-resistant money. I often get asked, what is bitcoin backed by? And I retort by saying, what is your central bank issued currency backed by? A fumbling, poor worded response is what always follows. This demonstrates how desperately needed bitcoin is and how few people ask themselves this question. I then respond to them by saying, bitcoin is backed by objective numbers and physics as opposed to subjective humans and printers. I then always get a confused, “what the hell does that mean?” look.
The in-depth way in which bitcoin is backed by numbers and physics is beyond the scope of this article, however, I will simply compare bitcoin to central bank issued currency and what it is or, better put, isn’t backed by. I will use the US dollar as an example, since it is only the WORLD RESERVE CURRENCY, no big deal. US dollars are created when a subjective human with emotions and flaws decides it’s time to create some money. The government calls up the Federal Reserve and says, “we need X amount of dollars”. The fed says, “give us some bonds” or in other words, “promise you’ll pay us back this money we will print out of thin air, with interest”. Wait what? How do you pay back money loaned to you with more money than what was loaned to you? You don’t. It’s an IOU that cannot possibly be paid back. Hence, why all money is debt and the debt will never be paid back in full. The US dollar is therefore backed by thin air or in other words, subjective humans and printers. Think I’m wrong or making this sound ridiculous? Check out these videos -1, 2, 3. This is actually the system we live in and why an alternative (bitcoin) is so desperately needed.
Enter bitcoin
The best way for me to explain bitcoin to a newcomer is……imagine a place where money was created by something that did not have feelings, emotions, or decision making abilities. Imagine a world where the money you spend was just there (not influenced by some banker who made the decision, without your permission or knowledge). It was just there for you to use, whenever you deemed necessary and was truly yours, not your bank’s. No drivers license, no social security number, no resume, no proof of income requirements, no time constraints, no address etc. Just an internet connection, a device capable of connecting to the internet and running an app. This is bitcoin. The power of your finances put in the palm of your hand. No one telling you when, how, what, where to spend your money. In this day in age, money is freedom and happiness and, therefore, bitcoin is freedom and happiness. Yes I said it. Money is happiness. Maybe back in the 70’s happiness was love, drugs and music, but in 2020, money is happiness. It’s a question of whether or not you want to take control of your happiness/freedom. Bitcoin enables you to take control of your money/happiness/freedom. Trust a system of subjective humans and printers who rob you of this? Or trust a system of objective numbers and physics that provides you with total control of this? Your choice….
Where does bitcoin come from?
Bitcoin is created by miners (computer hardware running bitcoin software). Think of mining gold. A bulldozer needs to expend energy in the form of diesel fuel and dig through a lot of dirt to get to the gold. There are many gold mining companies around the world competing to do the same thing and the more bulldozers you have, the better chance you have of mining more gold.
In a very simplified fashion, bitcoin is quite similar, just digitized. Imagine the dirt being numbers and the bulldozers being the mining equipment or computer hardware. The miners (bulldozers) must expend energy in the form of electricity to guess the correct number (dig through the dirt) before any other competing miners (bulldozers) do. When a miner guesses this number, bitcoin is created. A very important distinction between bitcoin and gold is that in bitcoin, more mining equipment does not mean more bitcoin is mined. This just means you have a higher probability of mining this bitcoin than those with less mining power. This is the opposite in gold. More bulldozers = more gold = increased circulating supply. More details on this in the next section. This comparison is hyper-simplified, however, is a great analogy for beginning to understand bitcoin mining and where bitcoin comes from.
Bitcoin mining; the creation of digital scarcity
When a miner expending energy in the form of electricity and heat (the bulldozers) guessing billions of numbers a second (digging through the dirt) happens to guess a number that the bitcoin code has predetermined before the number guessing started, a set amount of bitcoin is then mined or created and put into circulation. This happens every 10 minutes and the amount of bitcoin that is put into circulation every 10 minutes is cut in half every 4 years, therefore, resulting in an inflation-resistant monetary system. The bitcoin mining difficulty (how hard the dirt is to dig through) is adjusted every 2 weeks so that bitcoin is mined on an average of every 10 minutes.
Since bitcoin’s inception in 2008, there have been 3 “halving events”. From 2008–2012, 50 bitcoin were mined every 10 minutes. From 2012–2016, 25 bitcoin were mined every 10 minutes. 2016–2020, 12.5 bitcoin/10 minutes. In May of 2020, the third halving event took place and there is now only 6.25 bitcoin created every 10 minutes. Due to the constantly fluctuating amount of miners entering/exiting the bitcoin network, difficulty adjustments are made to ensure this predetermined amount of bitcoin is mined every 10 minutes. No more than this amount of bitcoin can be created every 10 minutes, hence why more mining equipment does not result in more bitcoin being mined, but does increase said miner’s chances of mining that bitcoin. These “halvings” will continue until the year 2140 and, as you can see, results in a digitally scarce, inflation-resistant system.
Given there are thousands upon thousands of miners playing this number guessing game around the world, there is no central bank subjectively deciding when or how much money to print at any point in time. With bitcoin, we know how much bitcoin will be in circulation at any given time and can even make accurate estimates of future supply. In addition, no one can tamper with how much is put into circulation no matter how much mining equipment you have. This is in contrast to fiat money and gold. The more bulldozers you have digging up gold, the more will be found. This is not the case with bitcoin. More bitcoin mining equipment only increases your chances of mining bitcoin before the competition, but will not permit you to mine more than is allowable by the code.
So to summarize, banks suck, bitcoin is awesome. Put your fake monopoly money/numbers on a screen that banks provide to us into the bitcoin machine and out comes real, tamper-proof, modernized money. Bitcoin is the internet of money that you can actually own a piece of. Look at history and the world around you. ALL CENTRAL BANK CURRENCIES GO TO $0 AND WILL BE INFLATED INTO OBLIVION. Don’t be left behind and invest in your future! (Not financial advice, DYOR).
References
- How is Money Created? — Everything You Need to Know (ColdFusion, Youtube) https://www.youtube.com/watch?v=mzoX7zEZ6h4
- Zeitgeist — Money Mechanics Part 1 (Peter Joseph) https://www.youtube.com/watch?v=rcJHk77bUGo
- Zeitgesit — Money Mechanics Part 2 (Peter Joseph) https://www.youtube.com/watch?v=Vw1VbfMfQro
