The Purpose of Bitcoin

11 years after the creation of Bitcoin, the revolutionary technology has gone from cypherpunk project to what mainstream investors are increasingly calling a financial speculator’s dream.  

As CEO of Microstrategy Michael Saylor recently called it, “the best and most liquid security invented in the history of the world.”  However did we miss the true purpose? What is the true essence of Bitcoin? It can be boiled down to one word: “TRUST” or in programming language it is referred to as ‘trustless’, which means it does not require centralized trust or verification from any financial institution like a bank.  

What is the true purpose of Bitcoin? The intention of Bitcoin is stated in the conclusion of anonymous Bitcoin creator Satoshi Nakamoto’s White Paper:

    “We have proposed a system for electronic transactions without relying on trust.”

Trust is a valuable commodity in today’s world where it is hard to trust your own mother and trusting a bank with bail-in powers is even worse!” – Trust is valuable.

Bitcoin enables wealth transfer without having to trust a third party to convey the assets – this makes traditional retail banks obsolete, while the process of mining or staking (to be covered in a follow up article) makes central banks obsolete. 

The mechanism utilized by bitcoin called consensus, essentially automation of transaction validation, means there is no longer a requirement for a bank to verify transactions. The mere idea of a traditional bank would be redundant.  

Many in the legacy financial sector are beginning to ask, “will traditional banks be resistant to the future of digitization of the banking and financial sector? “

The reality is it does not matter.  There is an old expression in economics and that is, economics always wins. The banking sector’s resistance to digitization is as relevant as the horse buggy industry’s resistance to the automobile or the traditional books store’s resistance to Amazon. The economics of digitization and streamlining always wins. 

If legacy finance decides it wants to challenge Bitcoin, who do they fight? Bitcoin is not an institution. Bitcoin is not a company or corporation, it does not have a CEO or board that can be bought. It has recently been described as an organism that is onto its own, and operates exclusively by market forces.  

To manipulate bitcoin would require more computing than exists today. It cannot be bribed or threatened to take a political position. These are all attributes that make the simple decentralized Bitcoin different than anything the financial sector has seen since its inception. I would argue the development of Bitcoin and crypto currencies on blockchain is far more significant that the development of the internet itself.  

What many people fail to understand is Bitcoin is not just currency, but it is also hard money and it is its own automated encrypted and decentralized banking system. 

As Andreas Antonopolis recently said, having a Bitcoin is like having your own personal central bank and you are the Chairman and CEO except no one can remove you from power. When you, a Bitcoin holder, store your wealth in this manner, no banks, regulators can prevent you from transferring your wealth freely across borders and continents within seconds and with negligible fees. 

For example, a bitcoin transaction for $1 Billion dollars was processed in October 2020 and the fee to transfer was less than $5 dollars. Try that with legacy banking. It is for this reason many Bitcoin proponents proclaim that Bitcoin is the ultimate in financial freedom.

It is only a matter of time until we implement Bitcoin and other cryptocurrencies like Ethereum into our everyday lives. The recent announcement that Paypal will offer crypto currency custodial services for Bitcoin, Etherium, Litecoin and Bitcoin Cash to its 350 million users will only accelerate this process.  

This likelihood that Bitcoin becomes more than a speculative asset class but a foundational principle of our economic engine has been echoed by famed hedge fund manager, former Goldman Sachs trader and Real Vision CEO Raoul Paul who recently stated he now has  50% of his considerable net work in Bitcoin. 

The crypto space has opened up the market for small market coins with specific use cases all centred around the general theme of fiscal sovereignty. Small cap local currencies like the Calgary Dollar and ERC-20 token built on the Ethereum blockchain could be used to help elevate First Nations communities who are notoriously underbanked and lacking opportunities to increase the standard of living within their communities.  

Is the emergence of crypto and digital currencies the past repeating itself? 200 Years Ago, the main driver for the American economy was over 300 different currencies. This freedom of choice helped spawn innovation and trade and allowed markets to generate the prosperity that centralized governments have never been able to do. 

Private companies will also benefit from digital tokens or crypto currencies like Canadian Tire could take their existing Canadian Tire Dollars, digitize it into a blockchain and add various use cases not currently available while the currency remains in its current physical form.   

The use cases are endless and this is why the emergence of Bitcoin and crypto currency are on track to be the biggest chance in the financial system since gold was first used as a store of value over 5000 years ago. 

Are Bitcoin and digital crypto currencies set to change the world? Yes, and that is the true purpose of BitCoin.

To promote the use of crypto currencies you can actually earn crypto just simply for introducing your friends.