For non-technical people and bitcoin novices
Over the last few months, I’ve received a number of text messages and phone calls from friends from New York to Europe to the Middle East and beyond who have all been asking the same questions:
- What is bitcoin & blockchain?
- Why are people using it?
- Where can I buy some?
- Is it safe?
The media has been in a frenzy as bitcoin reached an all time high recently since its inception in 2009. While the number continues to fluctuate, we’re seeing an unprecedented non-technical number of people paying more and more attention to the “bitcoin & cryptocurrency” noise.
While I am not a developer, blockchain expert, nor a bitcoin miner, I’ve been interested in the world of bitcoin since 2015, when I worked for a payments company focused on building the very first smart payment terminal and essentially “future-proofing” payments and ensuring that consumers could pay with any currency available, including bitcoin. Back then, I read “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money”, which is a tale about bitcoin and its evolution from 2009 to 2015.
In San Francisco, I have joined crypto meetups, and casually poke my head in the blockchain world. I’m largely fascinated by the unprecedented number of blockchain companies emerging and raising money through ICO’s (initial coin offerings), and I’m curious to see whether many of these companies develop the products that they’ve promised the market.
Most of the writing on bitcoin today is told from the perspective of a technical person and thus — there is a whole lot of confusion with mainstream audiences, as they try to grasp some understanding of what is going on. As a Product Marketer, my job is to take really complex & technical products, and build a narrative around that product that mainstream audiences can understand. In full disclosure, it’s still very much the wild west in the cryptocurrency world, and we are still very much in (what I believe to be) the early days of this currency so I’ll attempt to provide a very basic understanding of some complex concepts.
For the purposes of this article, I won’t attempt to go into the nuances and details of the latest news in the world of bitcoin like the bitcoin fork, SEC rulings, governance (domestic & international), ICO’s, and why I’m bullish on certain blockchain and cryptocurrencies etc.
Instead, I’m going to attempt to tell you a story about bitcoin and talk about why it’s important. Hopefully you’ll have enough of an understanding that will help you make sense of it at a high level.
Blockchain, Bitcoin & Crypto defined
What is Blockchain? A public decentralized ledger that securely records transactions between parties anonymously, thus cutting out the middleman. The word “block” refers to the way data is stored; on blocks. Any transaction is broadcasted to all the nodes on the blockchain which have to verify the transaction. Etherium is an example of a blockchain.
What is Bitcoin? A type of digital currency that can be exchanged on the blockchain, the decentralized ledger. Today it’s treated more like a commodity, but some countries, like Argentina, have started to use it as currency to pay for things like Uber.
What is Cryptocurrency? Refers to bitcoin and other digital currencies using blockchain technology.
The early days — where it all began
If you haven’t heard of Satoshi Nakamoto, chances are, you’re probably just getting into the bitcoin & blockchain space. For long-time bitcoin enthusiasts, the name Satoshi is synonymous with great legends and folklore. This man or woman (or group of men & women) is credited as the “creator” of bitcoin, and their whereabouts are completely unknown. To date, many are still trying to track the creator of bitcoin, and there have been multiple speculations about the identity of this person. I won’t speculate on who I think Satoshi is or isn’t, but just know that he/she exists as the creator of bitcoin back in 2009. You can find his white-paper here. Creating a currency with no leader was likely a strategic move, and there are many theories articulating why this was done on purpose.
Bitcoin finds its way
The DarkNet — Silk Road
Bitcoin was created as a way to anonymously transact and send money between two or more parties. While we can guess that the original purpose of Bitcoin was built to democratize commerce and allow peer to peer global transactions without paying a fee to the middleman, Bitcoin gained notoriety with the emergence of more negative use cases, like Silk Road.
Silk Road, synonymously known as the “dark net” was a place where you could buy all things illegal online, using none other than Bitcoin. However, Silk Road was shut down in October of 2013, and while there are still some use cases of bitcoin for illegal activity, I would say that the overwhelming majority of bitcoin owners today are NOT using it for these purposes.
Like any new industry, there will be a number of use cases that emerge in the infancy of a product that detract from it’s core mission and value proposition.
Why are people using bitcoin? What problem does it solve?
The major use cases that bitcoin is used for today include remittances, limiting exchange rate risk, inflation protection and as a new form of currency.
Many families and friends today are living all over the globe, and sending money overseas is inefficient and in many cases incredibly expensive. Ask anyone whose family transfers money how much Western Union or some of the major remittance players charge, and you’ll be shocked to learn how much is lost in the transfer.
Further, in a number of countries, like China for instance, you can’t send large amounts of money (I believe more than 50k) overseas internationally. This is not uncommon in many countries, and bitcoin circumvents such problems by allowing people to send money in real time without the burden of a high remittance fee.
2. Exchange-rate risk protection / Settlements
If you’re an institution transferring a large amount of money from one currency to another overseas, oftentimes, it can take banks 3–5 days for the transaction to complete which means that there is risk of the change in the exchange rate in that time period. Bitcoin again circumvents this as it is transferred overseas in real time so you won’t be susceptible to exchange rate risk.
3. Inflation protection
Another major use case for bitcoin is inflation protection. Countries that have experienced high inflation and volatile currency swings, like Argentina, suffer from the ebbs and flows of their currency, and there are many cases in which currency fluctuations happen so dramatically that one can lose a substantial amount of their worth in a matter of days, weeks and months.
Wences Cassera, an Argentinian and long time bitcoin advocate, runs Bitcoin wallet Xapo, and has first hand experience on how inflation can destroy confidence in a country’s currency. You can learn more about his theory in the NYT article: “Can Bitcoin conquer Argentina?”
Obviously, the price of Bitcoin swings as well and we’ve seen major fluctuations this last year alone, but in countries where currencies are far more volatile, bitcoin could serve as a fix.
4. New currency
Others are using it as currency as some major retailers (Wordpress, Overstock, Microsoft, CheapAir to list a few) are accepting it as a payment form, and I bet this trend will continue to rise.
Where can you buy bitcoin?
You can buy bitcoin at licensed exchanges like:
These are just a few exchanges and note that some have certain restrictions, so you’ll have to do your due diligence to see which exchanges make the most sense to use. Coinbase is a popular exchange in the United States and their UX is easy to use and navigate for even the most novice bitcoin enthusiast.
Is it safe? Can someone steal my bitcoin?
Yes, like anything you leave online that could be susceptible to hackers, your bitcoin could be stolen. However, there are ways that you can take precaution to ensure that this doesn’t happen to you.
If you purchase bitcoin on an exchange and leave it there, you’re leaving the security of bitcoin in the hands of the security walls of the exchange. They key is to use cold storage and store your bitcoin offline in a wallet. I highly recommend using hardware wallets like Ledger & Trezor, that allow you to access your wallet only when the device is plugged into your laptop while promoted by a special code that you create.
Many of you may or may not have heard of the notorious Mt Gox incident, in which nearly all bitcoin was stolen from the Mt Gox exchange back in 2014 and many people lost nearly all of their bitcoin. While this incident did shake up a number of bitcoin holders, the exchanges are getting smarter and they’re storing a lot of their bitcoin offline and taking extra precaution. (Note: authorities have recently tracked down the culprit of the Mt. Gox incident ).
But at the end of the day, it’s you, the holder of bitcoin that should be smart about your investment.
Frankly, we haven’t even scratched the surface of bitcoin. Every day, something new is redefining the way we think about the blockchain and cryptocurrencies. But this article is meant to provide an introduction to the most basic questions for people not working in technology who are interested in becoming cryptocurrency holders.
And to be totally honest, this article was prompted by the endless questioning of my mom who kept asking me the following questions: What is bitcoin, why does it exist, and where can I buy it?
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