Why Should We Care About Bitcoin?

INTRODUCTION

In this feature article, Why Should We Care About Bitcoin, I’ll explore in simple terms what the Bitcoin cryptographic (crypto) technology is, what problems it is attempting to solve, and why we should pay attention to it.

Before I start, I want to share that I’m a retired Accountant, not an Economist. In addition to my passion for crypto, I have a passion for understanding money and how our financial system functions. My education is in Computer Science and Mathematics, and I love following technology trends. My technical background assists me in understanding some of the jargon used in crypto projects, but please know that I’m not a developer.

I will endeavor to keep this information short and simple (KISS).

EXPLANATION

We define crypto as short for cryptography, which is part of the science behind Blockchain Technology. Blockchain has become a generic term used to describe all types of distributed ledger technologies, including:

Blockchain
Hashgraph
Directed Acyclic Graph (DAG)
Holochain
Tempo

I won’t go into these technologies in this article. If you’d like to learn more, here’s a good reference site:

https://analyticssteps.com/blogs/5-types-distributed-ledger-technologies-dlt

A cryptocurrency represents a coin or token created by a Blockchain. Coins are native cryptocurrencies created and used by the underlying blockchain, like ETH on Ethereum, while a token is a cryptocurrency built on top of a blockchain that uses smart contracts, like USDC.

Blockchain applications are programs created to run on a particular Blockchain and are often called dApps, short for decentralized application.

QUESTIONS

What started the gradual decline of our financial system?

When did our privacy and personal freedom become threatened?

How has the effectiveness of the US financial system been eroded?

At what point did it become apparent that our systems are broken?

Where do bitcoin and crypto fit in the financial system?

HISTORY

GOLD STANDARD

In the 19^th century, Britain led the way in developing a gold standard. It meant that a nation’s currency was valued in relation to gold and that government-issued coins and paper money could be redeemed for gold. Many countries followed their example, including the United States. (https://livingnewdeal.org)

The Federal Reserve Act of 1913 created our modern-day Federal Reserve Banking system, and in 1914 the ‘Fed’ printed the very first US Dollar bill backed by gold.

From 1879 to 1933, individuals could freely redeem dollar bills for actual gold, known as the ‘gold standard.’ Then in the 1930s, disaster struck with the Great Depression. Suddenly everyone wanted to exchange their paper dollars for genuine gold because, in times of crisis, most people trust owning hard currency over paper money.

Due to the panic, customers began removing mass amounts of gold from banks, and by March 1933, the Federal Reserve could no longer meet the demand. https:/www.federalreservehistory.org)

THE GOLD RESERVE ACT

The US Government panicked about losing access to so much gold, so President Roosevelt created The Gold Reserve Act of 1934, which forbade US Citizens from owning gold.

Say what?! That’s right. It was illegal for US citizens to own gold between 1934 and 1974. In 1974, Gerald Ford reversed the decision.

In my opinion, this was the first step on the journey of the decline of our Financial System.

“The Gold Reserve Act ended all private holding and use of gold as money in the US. The government called in gold held by private hands and, after that, prohibited the Treasury from redeeming dollars for gold. It “authorized the president to establish the dollar’s gold value by proclamation,” which was declared to be $35 per troy ounce. See Table.

(https://livingnewdeal.org/glossary/gold-reserve-act-1934)

Official Historical Dollar Price of Gold

Authorizing Act	Price per Troy Ounce
1792, P.L. 2–16, 1 Stat. 246	$19.39
1834, P.L. 23–95, 4 Stat. 699	$20.69
1837 ^b, P.L. 24–3, 5 Stat. 136	$20.67
1934, P.L. 73–87, 48 Stat. 337	$35.00
1972, P.L. 92–268, 86 Stat. 116	$38.00
1973, P.L. 93–110, 87 Stat. 152	$42.22

RESERVE CURRENCY

After World War II, the US dollar became the foremost world “reserve currency” in place of gold. (https://www.thebalance.com/what-is-a-reserve-currency-1978926)

Ok, but what does that mean?

A reserve currency is a currency, currently US dollars, held in significant amounts by foreign governments and institutions to conduct transactions in the global market. These controlled amounts are called ‘reserves’ and are used to pay foreign debts and purchase certain commodities like gold and oil.

In 1944, delegates from 44 allied countries met in Bretton Wood, New Hampshire, to design a system to manage foreign currency exchange and ensure economic stability. The countries agreed to fix their currencies to the US dollar, and the US dollar would stay fixed to gold (per the 1934 Gold Reserve Act). The agreement came to be known as the Bretton Woods Agreement. (https://www.thebalance.com/bretton-woods-system-and-1944-agreement-3306133)

BRETTON WOODS

Bretton Woods established The International Monetary Fund (IMF) and the World Bank to achieve its goals. Their primary mission was to:

foster global monetary cooperation,
achieve greater financial stability,
facilitate international trade,
reduce unemployment and poverty
promote sustainable economic growth.
eliminate extreme poverty and
promote means of sharing prosperity

Wow, that sounds like pretty cool stuff! If that primary mission was indeed their goal, I might want to work for them! Unfortunately, their track record has been dismal, suggesting they’re either incompetent or have a hidden agenda.

Poverty worldwide is rampant and the divide between the wealthy and the poor has widened substantially. The 2008 global financial crisis is another painful reminder our economic system is not stable.

“There have been systemic bank and business failures and unprecedented unemployment.”…” is it morally defensible for the richest countries in the world to assume the right to arrange the affairs of smaller countries by effectively depriving them of their economic autonomy?” https://www.thebalance.com/bretton-woods-1345012

THE GOLD STANDARD IS DEAD

By the 1960s, Bretton Woods caused a surplus of US dollars worldwide. At the same time, stagnant economic growth at home caused the US Government to revalue the dollar to only 1/42 of an ounce of gold. This created a run on US gold reserves as people around the globe rushed to redeem their quickly devaluing US dollars for gold. Fearing the loss of more US gold reserves…

…President Nixon made a controversial decision in 1971 and severed the dollar’s last link to gold. The gold standard was officially dead, thus ending the Bretton Woods Agreement.
https://history.state.gov/milestones/1969-1976/nixon-shock

Now, while all the Bretton Woods, reserve currency, and gold stuff was going on, the Federal Reserve was doing their thing to manage monetary policy within the United States. Understanding the Fed is a complex task. If you’d like to learn more about how their domestic policies contributed to the demise of Bretton Woods, here’s a link to a paper written in 2014 called the ‘Federal Reserve Policy and Bretton Woods.’ It was a collaboration between Rutgers University and the Federal Reserve Bank of Cleveland. Here’s the last sentence from the paper:

“In any event, [the Federal Reserve]monetary policy eventually created the Great Inflation, and to the extent that stop-gap policies removed international constraints on monetary policy, they ultimately contributed to the collapse of Bretton Woods—the system they [the Federal Reserve] sought to maintain.”

An article in Forbes magazine summed all this up in three simple words: TOO MANY DOLLARS!

https://www.forbes.com/sites/nathanlewis/2014/07/24/on-the-path-to-a-better-monetary-system-bretton-woods-didnt-fail-because-of-the-balance-of-payments/#327be258180c

IDEA

In the 1980s, a group of brilliant computer scientists started working on an idea to create a digital cash system that would allow two people that don’t know each other, to securely make a private financial transaction over the internet without using a third party like a bank or credit card company.

Ok, I think that sounds like an exciting idea, but you might ask, why would anyone feel the need to do that? What’s wrong with the current system? (See History above)

PROBLEM

In a nutshell, many believe the existing government-controlled financial system has mismanaged our money, economy, and privacy for a long time. And I agree with them. In the United States, since the birth of the Federal Reserve System (Fed) in 1913, the US Dollar has lost 99% of its value! Every year $100 buys less and less food, gasoline, and medicine. In my life, $100 used to buy four bags of groceries. Now it buys maybe two bags.

See Road to Roota video to learn more https://www.youtube.com/watch?v=EjLiTXLUcMM&t=3s

Other problems inherent in the existing digital financial system are high transaction fees, chargebacks, lack of transparency, privacy, and susceptibility to fraud.

SOLUTION

Around 1994, some brilliant anarchist technologists decided they wanted to do something about this problem. They called themselves the Cypherpunks, and they figured if they combined mathematics and cryptography with computer science, they would eventually find a solution for the digital cash IDEA, thereby solving many of the PROBLEMs with online privacy, electronic signatures, and digital banking.

CYPHERPUNKS

For many years the Cypherpunks and others worked on the digital cash IDEA, but the solution was elusive. Never wavering in their commitment, these young crypto scientists were very determined in their quest. Here are some quotes from the Cypherpunk’s Manifesto written by Eric Hughes:

Tim May - Cypherpunk — Tim May – Cypherpunk founder

eric hughes-cypherpunk — Eric Hughes – Cypherpunk founder

“Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.”

“Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary [anonymous] system.”

“We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy.” [Therefore,] we the Cypherpunks are dedicated to building anonymous systems.”

“We are defending our privacy with cryptography, with anonymous email, with digital signatures, and with electronic money.”

Then, in October 2008, one of the Cypherpunks members presented a white paper to the group forum detailing a promising software solution. It was called Bitcoin: A Peer to Peer Electronic Cash System and delivered by someone named Satoshi Nakamoto. Of course, that name was a fake name called a pseudonym. Satoshi never revealed their identity. Nonetheless, over the next three months, several group members worked with Satoshi via email to work out the bugs in the code.

BITCOIN IS BORN

On January 3, 2009, Satoshi initiated the Bitcoin network, creating the first block of data. A few days later, another member, Hal Finney, downloaded the software to his computer, executed the code, and synced his blockchain ledger to the small Bitcoin network. Satoshi then sent Hal 10 bitcoins marking the first-ever bitcoin transaction. The Bitcoin network was born!

{Note, I’ve noticed that many people get confused about the difference between Bitcoin as a blockchain and bitcoin as a cryptocurrency. Technically it’s both but let me explain.

Bitcoin spelled with a capital “B” generally refers to the Bitcoin blockchain software (protocol) that runs on a computer. A computer that runs the Bitcoin blockchain software and is connected to the internet is called a Node.

So, bitcoin with a little “b” refers to bitcoin as a cryptocurrency. A Bitcoin Node processes bitcoin transactions that are sent to the network. If the Bitcoin software determines that the bitcoin transactions are valid, it will bundle the transactions into a block.

If the Bitcoin blockchain protocol determines that the block of transactions is valid, the block gets appended to the end of the blockchain. All the other Bitcoin Nodes must now double-check the validity of that appended block.

Since no one works for free, the owner of the Bitcoin Node gets paid in bitcoins for validating transactions and extending the blockchain. As soon as the block gets appended to the existing chain of blocks, that Node operator is rewarded in bitcoin. So, Bitcoin can be referred to as a Blockchain, a Protocol, or Bitcoin Software, while bitcoin refers to the cryptocurrency that acts as a unit of payment. Not everyone adheres to this spelling (including me sometimes), but it sure makes it easier to understand what’s going on.}

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SUMMARY

Ok, to review in simple terms, here’s what we’ve learned:

From the 1930s to the 1970s, the government and Fed implemented financial strategies that were good in the short term but bad for the long term.

Starting in the 1980s, some brilliant mathematicians conceived an idea for a digital cash system using mathematics and cryptography that eventually became Bitcoin.

In the 1990s, a group of computer scientists eloquently described the existing PROBLEMs in our digital systems and endeavored to discover solutions by expanding on IDEAs from the 1980s.

Then In 2009, Satoshi Nakamoto presented an elegant SOLUTION, and new technology was born: BITCOIN.

REVOLUTION

But why should YOU care about all this?

Well, maybe you don’t need to care. If you’re happy with how the world works, this message is probably not for you.

However, if you’re concerned about things like:

the global economic crisis of 2008 that lost trillions of dollars of everyday peoples’ money, or

the incredible headache of identity theft or credit card fraud, or

the frustration of being denied facts about specific topics because of internet censorship, or

the spam overload zapping our precious time and energy because organizations sell our data, or

the high merchant credit card fees, chargebacks, or inefficiencies in business

Then, I recommend you keep reading and learning about bitcoin and crypto.

During the first ten years of its life, Bitcoin has caused quite a stir across the globe and managed to conjure up a new REVOLUTION, because of its potential to disrupt many industries.

Some of the industries ripe for disruption are:

Banking and finance
Shipping
Food safety
Healthcare (data records)
Insurance
Energy & Utilities

TECHNOLOGY ANARCHISTS

In the early days of Bitcoin technology anarchists came out in droves and seemed ready to overthrow the government, shut down all the banks, and re-invent businesses. I’ll admit, at one time, I had some anarchist-type thoughts, too, because, like many of us, I’m tired of systems that work against us and not for us.

But, after studying Bitcoin for more than four years, I’ve realized that dysfunctional systems are made up of people, most of whom are just trying to get by and live a happy life, just like me. If given a better option, many of them would migrate to that better choice. So rather than focusing narrow-mindedly on the destruction of existing systems that still sort of work, I’ve decided to get educated and prepared for the blockchain REVOLUTION. I recommend you do the same.

To learn more check out our FREE Intro to Bitcoin course

So, what exactly does this revolutionary new technology called Bitcoin do for us?

Well, it depends on who you talk to. Some people are most interested in its ability to act as a currency, cryptocurrency, which could someday replace our regular fiat money. Others are more interested in its function as a distributed database, sometimes called a distributed ledger. These people like that information can be stored on the blockchain within the transactions themselves. Others like making money in the crypto markets through trading.

But no matter who you talk to, everyone seems very interested in how the Bitcoin blockchain system runs all by itself, without the need for monitoring or administration by an outside person, group, or government.

THE REVOLUTION CONTINUED

You may not realize it yet, but I just said what the REVOLUTION is all about. Computer scientists have figured out how to add cryptography to their blockchain creation so that it will run without the need for customer support or a CEO. Rather than putting our TRUST in a company or a bank, Bitcoin allows us to put our trust in mathematics and computer science. These specialized software algorithms weave trust into the system like a finely woven fabric. The Bitcoin code knows what to do, and it does it. It’s kind of like a machine in that it does the same thing over and over again, process transactions, make new blocks, create new bitcoins, and does it faster and more efficiently than people.

The early adopters of Bitcoin have mostly been market speculators. Trading bitcoin and other cryptos on exchanges is a favorite pastime of many, myself included. The wild price swings during the past ten years have made many new crypto millionaires and some new crypto billionaires (I’m not one of them yet!) Bloggers and News outlets spend a great deal of time covering the bitcoin price market’s gyrations, much to the blockchain developers’ chagrin. We need speculators to bring attention to the technology, but it’s up to the developers to prove its usefulness.

To me, it seems like developers of blockchain projects are kinda stuck in ‘Build it, and they will come’ mode. Believe it or not, there are many exciting crypto/blockchain projects, but you probably haven’t heard of them. That’s because developers are great at designing and creating but often have trouble communicating to everyday people about their product so we can understand and use it.

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