It’s going to be tough to navigate this holiday season without any discussion of bitcoin. As the price of bitcoin flirts with $20,000 and institutional investors begin channelling big money into bitcoin futures, this subject has become a sizzling discussion item for coffee chats, business lunches, holiday dinner tables, and more.
This short guide will help you avoid sounding foolish when discussing bitcoin. Whether you think bitcoin mania is a tulip bubble or an anarchist revolution, you will destroy your credibility with the cryptocurrency community should you parrot mainstream bitcoin misconceptions. This guide will help you clarify and affirm your understanding of this potentially revolutionary technology.
Perhaps you are a cryptocurrency “expert” — in that case, you probably don’t need this article. Send this article to a pal in need!
(Note: I use “Bitcoin” to describe the network and protocol. I use “bitcoin(s)” to describe units of the cryptocurrency.)
Unless you are joking or trolling, try NOT to say the following:
- “CEO of Bitcoin”: Bitcoin is not controlled or issued by any central entity. As such, there is no company, no CEO, and no employees that can control how all bitcoins are produced, transmitted, held, and used. As a corollary, DO NOT advise friends to “contact Bitcoin customer support” when they lose access to their private keys. Unless they are holding their bitcoin on a wallet or exchange like Coinbase or Kraken, they are solely responsible for maintaining their own keys. Losing access to private keys is essentially losing the bitcoins themselves.
- “No one knows the number of bitcoins that exist!” OR “There’s an unlimited number of bitcoins!”: The number of bitcoins is transparent and the inflation schedule is formulaic. Moreover, the total number of bitcoin is capped: there will only exist 21 million bitcoins, ever.
- “No one really understands how Bitcoin works.”: The Bitcoin white paper explains exactly how bitcoin works: https://bitcoin.org/bitcoin.pdf. The paper details the cryptographic and economic underpinnings that enable bitcoin to function as decentralized P2P cash. Moreover, the software underlying the protocol and network is completely open-source and auditable: https://bitcoincore.org/.
- “There is no transparency in Bitcoin.”: All bitcoin transactions are recorded in a blockchain and are publicly observable by anybody with an internet connection. These transaction records are immutable — that is, they cannot be altered. When people complain about bitcoin not being transparent, what they mean to say is that identities of transaction parties are pseudonymous: parties have a computer-generated address and it takes effort to find out the personal identities of the people behind the addresses. However, once personal identities are discovered and linked to specific addresses, you could potentially trace all of someone’s transactions since the beginning of the network. While there are methods to avoid this type of tracing for privacy concerns, the fact remains that blockchain actually facilitates transparency regarding the existence of transactions.
- “Bitcoin is not legitimate because it’s not backed by any government!”: That’s the whole point — the primary value of bitcoins derives from the fact that it is NOT backed by a government or any other central entity. The network relies on a vast and decentralized group of people around the globe to host transaction records and validate transactions to prevent users from spending the same bitcoin unit twice.
- “Bitcoin is a scam.”: This statement doesn’t really mean much without further clarification. First, who is scamming who? There is no central entity behind bitcoin production and sales. There’s no Bitcoin Inc. that is purchasing sensationalistic Google Ads to mislead you into purchasing bitcoin. The history and technology behind Bitcoin is transparent and accessible everybody — you are free to make your own judgements on the merit of the technology and economics. Second, in what context is Bitcoin a scam? Bitcoin is used for many legal, real-life applications, including real estate purchases and cross-border payments. In hyper-inflationary countries such as Venezuela and Zimbabwe, bitcoins are seen as an alternate store of value that can protect citizens from rapid currency devaluation.
- “I can’t buy bitcoin because it is too expensive!”: You are never obligated to buy one entire bitcoin! You can buy a fraction of a bitcoin. The satoshi is the smallest unit of bitcoin that you can purchase. A hundred satoshi currently costs only about 1.5 cents USD. You can purchase bitcoin quickly and easily via Coinbase.
- “Bitcoin is not secure — all software can be hacked!”: Bitcoin exchanges and wallets (i.e. services where users store, send, receive, and trade bitcoin) can be hacked. Individual users may lose access to their private keys due to negligence and phishing scams. These issues can be avoided with certain precautionary measures. However, the underlying Bitcoin protocol itself is unlikely to be “hacked.” Bitcoin is designed such that an attacker would require tremendous computing power in order to alter transaction history. No party holds sufficient computing power to reliably attack the network. Even if a party attempts to collude with other parties to attack the network, the economic incentives are skewed such that each party would be more financially incentivized to mine bitcoins (thereby securing the network even further) instead of carry out the attack.
I hope this article has boosted your geek cred and smartness points — or, at the very least, helped you avoid losing them. Share this article with a confused friend in need!
The cryptocurrency world is an inclusive and diverse community — we hope you stick around and explore these subjects in greater depth!
Lindsay Lin is a lawyer at Lightyear.io, a company that helps financial institutions integrate with distributed ledger technology for cheap, fast, and easy cross-border payments. Lightyear.io is powered by Stellar.