Why Does Bitcoin Work?

why_bitcoin_works
I’ve been asked many different questions when it comes to Bitcoin and Cryptocurrency by a decent number of my friends, family, and acquaintances. The questions vary from the more general questions such as; “How does it all work?” to “So why does it have to be gaming graphics cards to do all the mining?”

Some of my more skeptical friends like to mention that they don’t believe in Bitcoin and Crypto as a usable currency simply because it isn’t tangible. Nor is it stable, which is true as Bitcoin and the rest of crypto is indeed very volatile. Some of them even kept on linking me to news articles that declared Bitcoin was either dead or dying, I guess to try and prove a point or something.

By the way, there’s an actual website (a bunch, actually) that has kept a record of how many times that has happened.
https://99bitcoins.com/bitcoinobituaries/
With the number of times that Bitcoin has died, it is now basically a Zombie. Or a Vampire. A Zompire.

So, why does Bitcoin work? Why does money work? How did we go from bartering my half a dozen chicken eggs for your rabbit’s foot? It’s all a coincidence of wants. But wait; funny video regarding Bitcoin and bartering. Watch it, it’s relevant to this article and it’s funny.


This line is taken from the Coincidence of wants Wikipedia page; ‘The coincidence of wants is the situation where the supplier of good A wants good B and the supplier of good B wants good A.’

But as always with a coincidence. Things have to be a…well, a coincidence. Follow my epic story scenario for an example:
Bob: “Oh it just so happens I’d very much like some of your pie that you just made there Billy.”
Billy: “Well Bob, I’ve all this pie and no cutlery to eat it with. I’ll trade you some of my pies for some cutlery from your cutlery store.”
Bob: “Oh no Billy, I didn’t bring any cutlery sets with me today.”
William: “I’ve got sum cutlery on me! Gotta always carry around a knife and fork, never know when you’ll need ‘em. But not so sure I fancy any of dem pies.”

Bob isn’t carrying around any sets of cutlery with him. William is but doesn’t want any of the pie that Billy has available. Everything is now extremely inconvenient and the coincidence of wants is now more complicated. That’s where a medium of exchange is needed, something to provide a measure of value. In everyday use, it would most likely be your local fiat currency. We all know how to spend fiat and buy things we want and need, we do it every day.

So, this line is taken from the Medium of Exchange Wikipedia page; “A medium of exchange is a tradeable entity used to avoid the inconveniences of a pure barter system. The role of medium of exchange is one of the uses of money.”

With a medium of exchange such as money, Bob doesn’t have to be carrying around his cutlery. He can pay Billy with money and still receive the pie. Billy then doesn’t have to rely on Bob to have his cutlery sets on him right then and there and can take the money to then buy Williams cutlery set. William isn’t missing out though, as the money he is given in exchange for his cutlery set can be later used for something else that he may desire. So, let’s go back to our original question, why does Bitcoin work?

In a way, Bitcoin and Crypto is a medium of exchange; an entity used to avoid the inconveniences of the coincidence of want.
The basic and most stripped-down answer is; Bitcoin works because the people that use it, have a need for it. It works because people have a want for it, as it’s either convenient or is somehow, someway more useful to them than other means. Either functionally or for a cause, a belief in the future.

It sounds somewhat silly, but Bitcoin works because people want it and make it work. Satoshi had a want and so to fulfill it, he (or they) invented Bitcoin. Read the 1. Introduction paragraph of his whitepaper: https://bitcoin.org/bitcoin.pdf

Let me give you an example of why Bitcoin and Crypto work for me personally.

I have heard about Bitcoin for a few years now but never really bothered doing my own research or giving a much of an interest. It wasn’t until early 2017 when I started making more money that I began looking into places to put the extra income. I didn’t just want it sitting in my bank account doing nothing. So, my want was to have my money doing something, anything as long as it wasn’t nothing. For whatever reason, traditional stocks didn’t interest me and it wasn’t long until I decided to dig into Bitcoin.

After some initial light research and talking to friends that were familiar with it; I decided to go for it. I made a buy order on an exchange and I soon received my first fraction of a bitcoin. Someone out there in the world took my fiat in exchange for his bitcoin. I fulfilled my want and have never looked back since.

Of course, everybody has different reasons for why they got into Bitcoin and Cryptocurrency in the first place. Some are here for the tech, others to make a quick buck. The only thing I am certain of; is that Bitcoin and Crypto have carved the stepping stones for the future.

Why does Bitcoin work for you?

 

Links and references:

https://en.wikipedia.org/wiki/Coincidence_of_wants
https://en.wikipedia.org/wiki/Medium_of_exchange
http://nakamotoinstitute.org/shelling-out/
https://bitcoin.org/bitcoin.pdf
https://99bitcoins.com/bitcoinobituaries/
https://youtu.be/YHjYt6Jm5j8

Cover illustration artist Z-GrimV, DeviantArt

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Just two months after his first Bitcoin purchase, Loy found himself working with Embily and has been a Cryptocurrency evangelist ever since. Follow his journey as he continues to learn all he can about Crypto.