(originally published in my newsletter)
Bitcoin is a hot topic these days.
I have discussed Bitcoin or other crypto projects at least a few dozen times during 2020, and most of the time I have witnessed (or experienced) a real difficulty in having a good grasp of the underlying technology.
I believe that the vast majority of people, even technical people like me, do not have a deep understanding of it; I also believe that we are not going to fix this with (otherwise excellent, but long) videos on how Bitcoin works.
I tried to come up with a way to explain Bitcoin that is immediately understandable, but which also fairly represents the various moving parts. I kept going back to “religious” analogies. Let’s see if this works. And no, you don’t need to believe in God to follow this analogy (I personally don’t anyway).
Bitcoin is the bank of God
In the beginning, God created the heaven and the earth.
Sometimes in 2009–2010 (A.D.), He (is God a he? Not sure) created a bank, the Bank of God.
The Bank of God created 21 Million bitcoins (almost).
God said: you don’t have to rely on, or trust, other humans to use this bank, or to transact with this special new currency, called Bitcoin. You just need to have faith in God. All transactions are transparent, in the open. I will make sure that everything will be fair.
He then told some people: get some bitcoins. Try to use these bitcoins to exchange value among yourselves. Governments can’t control them.
A number of these early followers and believers (thousands of people?) obtained some bitcoins very cheaply, in the early years of Bitcoin’s existence.
Now it’s the year 2021, and lots of people believe that one bitcoin is worth ~$40,000.
Some people claim that there’s a ton of mathematics, cryptography, computer science behind how Bitcoin works. Maybe it’s true. But it’s really complicated.
There’s also other religions, with their own Gods, and some of these Gods have created other banks of Gods (Ethereum, Filecoin, etc), with different rules. But the complexity is still high. And you are still required to essentially believe in something.
Who knows what’s going to happen next?
Some people (most?) speculate on the price of bitcoin. Is it going up? Going down? Should I buy? Hold? HODL? Sell?
Some others want to build interesting things that leverage this “coin of God”. It is even more complicated now. Bitcoin is “kind of” money, so you can imagine and build every financial instrument that exists in the “normal” financial industry.
Some governments want to say something about all of this, as they usually do with any other “religion”. Some ban Bitcoin. Some regulate Bitcoin. Some accept Bitcoin.
As others have said, humankind needs a fiction called “money” to exchange value, to do commerce, to work and get rewarded for it. There is a new form of this fiction, called Bitcoin.
Why is this fiction new, and potentially interesting? Because God makes sure that transactions are transparent, they happen, they can’t be reversed, and once you see them you can have complete faith in them. They are true. They can’t be faked. No government, no institution can decide on behalf of the bank of God. (well, mathematical proofs and other shenanigans are actually why, but let’s keep thinking of it as the hand of God). No one can ban it.
The bank of God requires a lot of knowledge to be able to talk directly with it.
If you don’t want to acquire that knowledge, you rely on the “temporal” power of this religion. You use temples (Coinbase, Kraken, Binance), bishops and priests, to interact with the bank of God, and with Bitcoin.
But if you’re curious, you can read the Bible and learn all you need to talk with God yourself.
End of analogy. Have a nice weekend!