An Economics Education by Bitcoin
For those not really acquainted with Bitcoin, you can find more effective ways to begin understanding it than this article; I’d recommend Wikipedia for starters. This report is designed for all those who already believe they know what Bitcoin is, but haven’t yet traded in it. I was there – I thought I comprehended it, as well, but having since dipped the toe of mine in the pond, I’ve discovered an unexpectedly enlightening experience. There are plenty of nuances involved in the trading of Bitcoin as to allow it to be tremendously educational. It forced me to consider a lot of the built in features which go unscrutinized and perhaps unrecognized in traditional currencies. In so doing, it made me assign my own values to those features, and allowed me to decide the most preferable ways of satisfying my various needs – choices which are normally taken from us.
There are aspects of Bitcoin which make it comparable to fiat currency, but it’s not cash. You’ll find aspects similar to gold, but it’s not bullion. You will find aspects a lot like securities, but it’s not precisely a security. The question of “What is it?” is in fact more complex than it appears. It exists solely as an entry in a distributed digital ledger; “having” Bitcoins really means having authority to transfer Bitcoins. No, in fact, that is not even technically correct. It means getting a degree of authority measured in Bitcoins to transfer that identical authority. Try and wrap your brain around that. Moving forward, I’ll resort to referring to Bitcoins as the thing of value that is transferred, but understand that my doing so is solely shorthand to make this essay readable. Having Bitcoins is the authority to transfer authority.
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Thus, upon deciding to acquire my first Bitcoin, the initial step was to see how to attain authority to transfer Bitcoins. One could theoretically print out the cryptographic code of a Bitcoin and hand the paper to someone else as a way of transferring the Bitcoin represented by the code, but just how would that recipient know the printout had not been duplicated and already spent? For that matter, how would the recipient know the printout even represented some value in Bitcoin instead of just a string of random characters? Transferring printouts of Bitcoin on paper may work (albeit inefficiently) between folks who implicitly trust one another, like for gifts between relatives, but the genius of Bitcoin is the distributed but authoritative nature of the ledger of its, and for that to work, transactions have to be subjected to its network.
If a Bitcoin printout is transferred around amongst a staff of people without being subjected to the network, none of them will know whether it was counterfeit or valid. It would be like passing around a bank draft made payable to “Bearer;” it might have already been paid, or it could never ever have been good in the very first place. No one will know until they made an effort to present it for payment at the maker’s bank. As long as another person is ready to accept a potentially hot potato for services or goods, perhaps it doesn’t matter, but individuals tend to be cautious about ending up with potatoes which are hot. I’m one person that is such, so I wanted my receipt of Bitcoins to be verified by the network. This turned my focus to a study of digital Bitcoin “wallets.” Wallets are a digital place to store Bitcoin authority codes.