Each morning, I write a 420-word memo because writing is one of the best way to focus your thinking & effect some change you desire. It is a physicalized version of what is going on inside your mental environment.
Today's memo looks to answer the question, What is Bitcoin?
It’s not what you think it is. More than anything else, bitcoin is something other than what you currently believe it to be.
We have to start there. Because you probably have an idea in your mind about bitcoin, about what it is, or what people say, and there’s a negative connotation with that idea.
For me, at first, I thought bitcoin was a form of currency, a cryptocurrency—digital money. But we already have digital money. I log in to my bank account online, digitally, I see numbers there that represent value, and when I swipe a plastic card at stores, the money is moved digitally from my bank account to their bank accounts. I can even send my friends money, in less than a minute, using PayPal or Venmo. Money is digital, and it has been for a while. Since internet became handheld.
So, bitcoin isn’t digital money. That’s a good start.
But even there, we have to back up. Because bitcoin is digital money. It’s just another form of digital money, a different form of digital money than the one we are collectively comfortable using. In essence, the fact that bitcoin is a digital currency is unimportant to the larger definition we’re trying to develop here. We can at least say that bitcoin is a wholly digital currency (or digitally native), whereas the US Dollar can be both paper and digital money.
Now let’s look at the next most widely held belief: Bitcoin is a payments network.
Again, this is something we already have in place. Traditional banking provides a payments network, VISA has their own payments network, Mastercard, etc. When you think of a wholly digital payment processing network, you think PayPal. So Bitcoin in this definition provides nothing new. In fact, bitcoin is much less efficient than other payment networks. VISA touts a capacity of 65,000 transactions per second—and that’s according to a 2017-dated source. Meanwhile, Bitcoin’s transaction-processing capacity is 7.
When we talk about Bitcoin, we’re talking about order-of-magnitude differences. As a currency, it’s 10,000-times more valuable than the US dollar; as a payment processing platform, it’s 10,000-times less efficient than VISA.
What takes Bitcoin so long? The required confirmations on the blockchain for each transaction means that transactions take longer. Certainly, there can be no faster transaction than swiping a plastic card through a reader and instantly transferring funds. Bitcoin is not built to replace the convenient, every-day payment networks we currently have in place.
So if bitcoin is-but-isn’t a digital money or currency, and it is-but-isn’t a payments network, what are we actually talking about?
Bitcoin is a protocol like the internet itself.
But what is the Internet? How do we define that? And who invented it?
Just some questions to ponder…
For now, what is Bitcoin? A cryptographic, open-source protocol, a distributed network and decentralized payment processing platform with a digital ledger, otherwise known as the blockchain, that records each and every transaction and utilizes a digitized currency that functions on its own as a medium of exchange and store of value.