A summary from my 100 hours of learning Bitcoin

Warning: It will be long, but I tried to write it in the most simple language possible

Does bitcoin has intrinsic value?

Imagine this: If people hire an army to guard a vault full of gold and lots of people to count the gold coming in and out, making sure the truth is maintained, and gold could be sent in and out of the vault, at the speed of light, does this has value?

Now think about this: If the vault only hire 3 guards with a few guns and one person to keep the count, would you trust your life saving in it?

When you hear on the news that Bitcoin is using more energy than Finland, what they actually mean is: If Finland were to spend a huge amount of money to buy mining rigs and divert all its energy to attack this Bitcoin vault, Finland would lose. The truth will still be kept, your money is intact.

The “Bitcoin vault” has one of the strongest defend “army” in the world nowadays in the form of energy. It also has hundred of thousand of computers keeping count, so value can go from one place to another 24/7/356 at the speed of light.

Wouldn’t it still be a huge waste of energy though?

Yes, so here’s the “catch”: The vault has been using a lot of its defense energy from common sources such as coals, gas, solar, wind, etc, very similar to what we are using in our home today. But it doesn’t have to.

There is a lot of “trapped” energy too far away from towns and cities for human to make use of. Think about geothermal energy sources next to volcanos. If we were to harvest electricity there and build power cables to lead it all the way to our cities, there will be almost no power left when it arrives because of the long distance travel. Now imagine you can “hire” that renewable energy army to guard the vault.

That’s what the recent and near future of bitcoin defense will look like. One of its “intrinsic” value is the army of defense the size of nations, to make sure no one can tamper with the record and the value it’s holding inside.

What real life applications are there?

There are four main applications for Bitcoin in my opinion:

First: A store of value

For normal middle class people like you and I, if we are lucky and live in a well run country where inflation is about 2-5% a year, after 30-35 years of working and saving, our life savings in cash would lose about 50-80% of its value.

For 1.4 billion people who is currently living in not so well run countries where inflation is about 10% a year, after working and saving their whole lives, their saving would lose 98% of value at retirement.

Note that many people like myself can access ETFs and other investment vehicles, many people in less developed countries can’t. The more money their government print, the more diluted and valueless their bank account becomes. People’s live savings chipping away in their sleeps, a small piece at a time.

Fiat is money governments can print but you and I can’t. Bitcoin is money you and I can’t print, and no one else can print either. There is 21 million coins and that’s it. 21 millions coins under the best defense army in the world. It will help act as a store of value for many people, especially people living in high inflation or hyper inflation countries.

Second: Big payments, country to country, think a huge shipping boat with thousands of containers kind of payments.

It is tough to manage big payments in the tens and hundreds of millions of dollars. Imagine a company in Vietnam selling to a company in Finland, many banks need to be in the middle, they all need to work very hard, plus trust each other because it is hard to convert trillions of Vietnam Dongs into tens of millions of Euros and it will cost a lot of money.

One transaction in Bitcoin costs about $5 today for any amount, even a billion dollar. Because of the above mention army of security and hundred of thousands of computers keeping watch, no trust is needed between banks, a billion can go from Asia to Europe in about 10 minutes.

“$5 dollars are a lot of money for a small transaction though. Wouldn’t it make bitcoin not practical as a currency for small payments”

Yes, you are right, layer 1 of Bitcoin is not practical for small payments, this is what you might have heard a lot on the news: “only 7 transactions per second, not usable for every day use, too high fee, etc”

What many people missed is: layer 1 is not meant to be used for everyday transactions. Just like the Visa or Mastercard networks are layer 2 that were built on top of layer 1 which are clearing banks/houses. Clearing banks handle millions at the end of the day or week between banks and nations. Visa and Mastercard operate on top of this layer and keep count of small transactions.

The lightning network has been acting as Bitcoin layer 2 that is powering everyday transactions. While Visa is said to be capable of handling 24,000 transactions per second, lightning can handle millions. It is also borderless and decentralized, with the capability to power micro transactions at zero cost.

Third: Micro transactions, powering new business models

Jack Dorsey, CEO of Twitter said that if he had bitcoin and lightning back in the day, he wouldn’t have run Twitter on an advertisement model. Why?

It was close to impossible to charge people 1 cent for watching a video or for using Twitter for 5 minutes. It was impossible to do that when the users are in many different countries. The solution was then to sell ads, every time you watch and ad, Twitter charges the business that runs the ad 1p, at the end of the day after showing ads to tens of thousands of people, Twitter charges the business a few hundred dollars.

Bitcoin and lightning change this.

Imagine the new businesses models that could be powered by micropayments. Lightning made it possible.

Last but not least, bank the unbanked

I have been rather lucky to live in a big city in the UK that is served by many banks. However, it is not always the case in poorer and more remote area of the world. Some people I know back in Vietnam never had a bank account in their lives, some never will. They are deemed to poor and too unimportant to be served by banks.

Bitcoin and lightning network mean that anyone in the world today with a phone and internet access can own a bitcoin “bank account”, can participate in the “gold vault in the sky” without discrimination, without having to prove that they are credit worthy to be served, all within about 2 minutes.

Bitcoin and lightning network mean that small business owners can start charging and receiving payments for their little street side business almost instantly without applying at the bank, without having a proof of credit, without installing and paying for any card machines.

There are so many businesses and applications being built on top of Bitcoin and Lightning by amazing people globally. I am learning every day but still I couldn’t keep up with the space of innovation in this area. I will keep sharing my knowledge as I learn more.

submitted by /u/JunoKat
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