Attention to Bitcoin and other blockchain technologies have increased multiple folds lately and I increasingly find myself explaining it to more people. The more I explain, the more nuances I find myself pondering, and this is an attempt to calm those firing neurons.

It is not about money, it is about trust.

Definition of currency states “the fact or quality of being generally accepted or in use”[1]. People use things that are valuable and trustworthy in exchange for goods and services, and that makes it a currency. However, you don’t start out as currency and achieve trust and value, it goes the other way around.

Imagine a company, Acme Ledger LLC, whose purpose is stated in its articles of incorporation as; “Distributing company stock and keeping a detailed ledger of all stock transactions”. That’s all it does, nothing else, no products or services to sell. Acme Ledger transfers some of its stock to an individual, the transaction is signed in front of a notary, a copy of the notarized document is shared between all parties, and the transaction is registered in the company ledger. Whenever that stock is transferred to somebody else, once again that transaction is completed, notarized and entered into the ledger per the rules of Acme Ledger. As time goes on, more and more people hold Acme Ledger stock. There are only a certain number of stock and every time one of them is transferred from one person to another, the identity of the parties are validated and the transaction is registered in the ledger. Trust comes first. Everybody knows that somebody cannot claim to have Acme Ledger stock or transfer one to somebody else that they don’t own. People know that once they have a stock, it is theirs for life, the ledger is kept in a safe place, it is shared with everybody else, nobody can erase a previous record and enter a new one in. Value comes next. Since it is limited in quantity and trusted, people start holding it in high regard. Their willingness to let go or obtain more of it creates supply and demand dynamics, which in turn set its value in the market.

Bitcoin is Acme Ledger LLC. Its mathematical rules allow only 21 million of its tokens (stock) to be generated and it is possible to transfer fractions of these tokens[2][3]. Every transfer is guaranteed to come from one wallet and go to another wallet, and every one of these transactions is registered in a global ledger. The mathematical proofs that go along with these transactions are defendable in a court of law, so in a way, they are all notarized.

Just the start.

Bitcoin started in 2009 and was traded for the first time in 2010, reaching a high price of $0.39 for that year. It feels a lifetime ago and some might say the train is gone, and they may very well be right about Bitcoin itself, or any other specific digital token, but the story will not end there. Remember, it is not about money, it is about trust. Go back couple centuries and think about depositing money in a bank, or buying stock in London Stock Exchange. Think about our trusted financial system without deposit insurance or CNBC. Go further a century, would it be late than? Perhaps for many companies and banks and currencies that had their heyday and disappeared during that time, but not the system itself. Furthermore, these technologies will make gains similar to what our financial system made over the last couple centuries, in just a few years.

Prime numbers are here to stay.

Public-key cryptography, blockchain technology, and digital tokens are not going anywhere, but it is also very hard to imagine what these technologies will look like or bring with them over the next few years. Value will be created and lost in very high quantities, bugs will be found in major algorithms, many ideas and companies will pop in and out of existence for sure. We will also start seeing these technologies in a wide variety of fields. I myself am very interested in seeing what we might come up within areas such as communication, crowdfunding, and management.

 

 

1 – https://en.oxforddictionaries.com/definition/currency
2 – The smallest tradable bitcoin is a satoshi and one satoshi is one hundred millionth of one bitcoin or 0.00000001 BTC.
3 – Although Bitcoin has a limit on the maximum number of tokens that can be generated through its lifetime, not all digital tokens share the same limit and some are unlimited.