BitCoins? WTF is a BlockChain Currency?
What The Fuck is a BlockChain, and how in the world can an idea be used as Currency? Well, since this is a simple intro, we’re gonna skip right over the details of the Block Chain. All you need to understand is that the Block Chain, is a record of every single transaction that has ever occurred, ever. No really, EVER! So simply put:
a block chain currency, is a currency where each unit contains a copy of the history of every transaction. Value is created by verifying the validity of transactions that are not yours.
At first thought that might be kind of scary… a record of exactly how every penny (BitCoin) is spent. But, once I stopped hyperventilating long enough to realize that BitCoin only remembers the transaction, I remembered that transactions aren’t tied to people.
Records of who was on each end of a transaction is one of the beautiful conveniences of the terribly absurd banking system that we all take for granted. If it weren’t for the bank itself, the act of exchanging gold, or paper money, would have no history of the hands it passed though. If you got scammed, there would be no recourse. If someone stole your money it would be gone… for good.
Its true that all of those are potential problems with BitCoins, but lets just gloss over them for a few minutes so we don’t get hung up on them Trust me, there are solutions for most of them.
The real driving force behind why people are starting to get more comfortable with BitCoin is the Decentralized nature of the currency. If we take the American Dollar for example, the Federal Bank prints our money. For whatever side of the debate you fall on, we can all agree that American Dollars are actually printed onto paper. Since ‘we’ have control over how many are available in the open market, ‘we’ can change the value of each one by adding more to of them to the bank, or taking some off the market.
BitCoins don’t work that way, they’re more like gold. There is a finite amount known in existence, and some more will likely be pulled out of the ground in the future.
At the moment there is a finite known amount of BitCoins, and a tiny amount of new Coins get added on a schedule known to everyone that pays attention. It’s not really a ‘date’ schedule, but its an approximation of the date we will have the ability to compute an answer, based on how fast computers are today.
When we talk about gold, there is always the chance that another HUGE Deposit could be found. We think that all the gold that exists on the planet was created by the birth of stars, so its really unlikely that any more will be created naturally. Even still, a large deposit could be found on a meteor that we explore, or in a cavern deep inside the ocean floor. We recently produced tiny bits of gold from a Nuclear Reactor, so it is possible that an abundance could be in our future… but thats really unlikely.
When we talk about BitCoins there isn’t any REAL chance of that happening. Yes, we can create much faster computers, but with each transaction we add to the chain it becomes a MUST to have a stronger computer.
Putting that aside for a second, there is a point where no more coins will be created. Take a second to let that sink in. There will come a point where NO MORE BitCoins will EVER BE Created. If the currency is in use, the value of your BitCoins relative to the value of corn can NEVER go down to 0. For investors thats the kind of safety that you find in trading corn, wheat, barley, oil etc…
Since there can only be so many made, ever, forever, throughout history there can never be too many made, which is a risk when you print money on paper.
That means there CAN NEVER BE HYPER-INFLATION. If you aren’t an economics professor, heres what you need to know about Hyper Inflation:
- Inflation is when the number of dollars it takes to buy something goes UP, because there are more dollars relative to that thing.
- Simple Pie Example:
- There is a Pie that can meet all the needs of all humans alive
- That Pie has 10 Slices
- There are 10 Dollars in existence
- Each Slice is worth $1
- Then Next Year:
- This years Pie is the exact same size as last year
- There are 20 Dollars in existence now
- Each Slice is worth $2
- If you didn’t get your share of the newly printed $10
- You might not be able to afford Pie this year.
- Simple Pie Example:
- Hyper Inflation is when the above scenario happens REALLY FAST and the price of things jumps up INCREDIBLY HIGH.
That all sounds pretty attractive, but there are some downsides that we glossed over. Why hadn’t BitCoin taken off earlier? The Technology just wasn’t there to distribute coins and verify transactions.
But we’ve had computers that can compute that stuff for more than a few years, why now?
Uncertainty. Oppression. Freedom. Transparency. Stability.
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