Legal, IT, Telecommunication

Still having trouble understanding Bitcoin? Well, not anymore*

Bitcoin image-what is.jpg

What is Bitcoin?

It’s a digital currency.

Yeah, I get that, but who is behind Bitcoin?

Nobody.

What do you mean by nobody? Somebody must be controlling it!

Nobody is controlling it, it is an algorithm.

What? You mean like I-Robot? So you say the world is going to be taken over by machines?

Well, not the world, but maybe some businesses.

Right… (Rolling her eyes) But who controls the algorithm? Some mad scientist?

It’s an open source project.

An open what?

Open source, as in it’s free code. You can download it from the internet and do with it whatever you want.

So you don’t have to pay for the “program”?

Well, it’s free as in freedom, not free as in beer.

What does beer have to do with it?

The code is not only free in the sense that you can use the program free of charge, it is also free in the sense that you can take the code, modify it, and release a program of your own with it.

Wait a second! If I can do that then I can make my own bitcoins. What value does a bitcoin have then?

No, you cannot mint your own bitcoins. What you can do is invent your own currency. And then you have to somehow make it gain acceptance…

Oh! But this surely is the end of Bitcoin. If you can make as many currencies as you want, none of them would have any value.

Currencies have value because of social convention. Bitcoin has value because people are willing to assign value to it.

I don’t think you are right. Euros or dollars have value, everybody knows that.

Well if bitcoins do not have value I will gladly accept your bitcoins (smiling).

Bitcoins are not backed by anything so they cannot have value.

Neither shillings, dollars nor Bitcoin are backed by anything. You can say that all of them are the result of consensual hallucination. They have value because people give value to them. There is not much difference between them in this regard.

I don’t think so. You can buy things with euros or dollars, but what can you buy with bitcoins?

You can buy almost anything with bitcoins. There are companies that will gladly accept your bitcoins in return for regular currency that you can use to buy anything. Converting bitcoins to sovereign currencies is just a technical interface and many companies provide this service. Besides, you can do things with bitcoins that you cannot do with sovereign currencies.

Like what?

For example, you could launch a crowd-funding campaign, just creating a special type of Bitcoin transaction.

That sounds cool.

There are many more applications that were impossible until now, such as a car which reads its ownership from the cloud. If you want to buy the car, you just pay the owner with bitcoins and the car knows automatically you are its new owner because it can look it up in Bitcoin’s database. And there might be more applications to come that nobody has thought of yet, as was the case (and still is) with the internet.

I guess I did not think of it that way.

As they say, a currency is just the first application. The technology allows transferring value securely and in a decentralized way and this can lead to many new cool applications.

I am intrigued; I’d like to learn more.

Another drink?

*credits to Pedro Franco

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