Welcome fren! Is Bitcoin real money? I mean, you can’t actually hold it in your hands as it’s entirely digital so how can it be real? It isn’t even backed by anything! Why is everyone so sure that it’s not worthless if no ones even seen it in real life? All valid questions and as professionals we believe it’s extremely important to make sure there’s legitimate answers to this and that they’re clearly understood before you invest anything.
That’s why today we’re going to dig into a topic most normies don’t actually know much about: Money.
What Is Money Anyway?
Before we can answer the main question of whether or not Bitcoin is a real money we first need to understand what makes a good or real “money” in the first place.
Thanks to thousands of years of history, what makes for the best money has already been quite well defined. To illustrate this it’s best to reflect briefly on the more “legacy” monies. You’ve got your fiat money (US Dollars, Euro, Great British Pound) and then even older monies like gold, oil or even cows. Why would anyone toil all day only to have their reward be some Euro’s?
The answer is because the Euro’s can be easily transported, stored and used to buy any number of other goods and services at a later time or that they don’t have the skill to do themselves. It’s used as a medium of exchange and money generally has six key characteristics (the specs):
- Scarcity: Limited in supply relative to other things
- Durability: Can be used many times and still function, stands the test of time
- Acceptability: Is used and accepted by many other people
- Portability: Easily moved across long distances
- Divisibility: Easy to divide into smaller units to make trading more practical
- Fungibility: One unit is exactly the same as another unit
These characteristics combine with each other to give money three separate dimensions:
- Good Scarcity and Durability combine to make it a good store of value over time
- Good Acceptability and Portability combine to make it a useful medium of exchange across space
- Good Divisibility and Fungibility combine to make it a good unit of account
You can choose anything to be “money” like a rock or a cow. Whether or not it’s considered as a good type of money and then valuable depends on how well it hits all the characteristics and dimensions. This is no different to how a phone that can record 8K video, surf the web on a big screen and stream Spotify makes for a more valuable smartphone than a brick phone from the 1990’s.
Historically, people have used many different physical items as money such as seashells, tulips or Rai stones, but throughout all of it the most enduring form of money has been gold.
Why Is Bitcoin Valuable?
Now that we understand what makes a “good” money we can use these definitions to compare some of the top monies that have ever been used over time to the new hotness, Bitcoin.
As you can see, it’s a bit of a blood bath lol
Gold is durable, fungible and most importantly pretty scarce. It’s not very widely accepted (try paying your taxes with it), divisible or portable. $1,000,000 in gold weights about 17 kg.
Fiat money such as the USD is accepted far and wide, fungible, relatively durable, portable ($1,000,000 in $100 bills weights about 10 kg) and divisible but has the key flaw of not being scare at all. The fed can and has printed trillions of it.
Then comes Bitcoin. It’s more scarce than even gold (absolute fixed supply of 21 million vs slowly growing supply), infinitely durable, infinitely portable, easily divisible and fungible. The only characteristic it falls down on is acceptability as not everyone accepts it yet.
Is Bitcoin Real Money?
Now that we know what makes for a good money and have compared it to Bitcoin we can absolutely be sure that Bitcoin is indeed real money. Bitcoin’s intrinsic value or backing is also something we cover in more detail in our Bitcoin Myths piece.
One distinct difference from every other more traditional type of money is that it’s entirely online and has no physical form. Besides that, it can be bought, sold, traded, used to buy goods both online and IRL and has been used to buy everything from coffee to yachts and houses.
While some cling to the fact that you can’t “hold” it in real life like a house or gold, these people often don’t take the time to really learn about Bitcoin (or any money for that fact) works and why it still is real despite this minor difference.
But you don’t have to believe us, just go to any exchange and you’ll see for yourself that 1 bitcoin regularly trades at tens of thousands of USD. That seems pretty real to us!
How Is Bitcoin Used?
To further drive home the fact that Bitcoin is real, let’s have a look through some of the ways it’s already being used today. You can send a whole Bitcoin (1 BTC) or a small part of it such as 0.0001 BTC. While some day traders buy and sell Bitcoin on its worldwide, 24/7/365 market to try and speculate, others use Dollar Cost Averaging (DCA) to invest in it long term. It also allows anyone to:
- Store monetary value over time. While not immediately different to say, putting your money in a bank account, Bitcoin isn’t inflated away at 2-3% (or 9.1% at the moment!) each year. Instead it has a current inflation rate of 1.68% which reduces every ~4 years in a set way. Simply keeping your money stored throughout time (10 years, 100 years) and it not being siphoned away or debased by taxes / management fees / inflation / companies going bankrupt is a major Bitcoins use.
- Store monetary value without anyone’s permission. While this might seem like a trivial thing to be able to do to anyone that has a bank account in a first world country, billions of people in the world cannot get a bank account and thus, can never save their money long term, send it to others or receive it for activities like running a business. With Bitcoin, this is now free for anyone with a smartphone to use forever.
- Store monetary value beyond the reach of a government. For those in first world countries, this isn’t a big concern as currencies like the dollar or the Euro don’t suffer from hyperinflation (yet 😂). For billions more people under authoritarian regimes or double or triple digit inflation this is a critical use. Most of these people have no choice but to use the currency of their country, currencies that are often seized by tyrants, inflated away to nothingness or just declared worthless overnight. Bitcoin gives them a choice and an impenetrable safe storage place for the first time in history.
- Send money overseas instantly and cheaply. If you’ve ever tried to send someone overseas $10 (or even a larger amount) you’ll know how difficult, slow and costly that “simple” exercise can be. It involves multiple banks, currency conversions, fees and intense privacy invasive “checks”. By contrast, with Bitcoin you can send anything from $1 to the literally billions with final settlement occurring in minutes and for cents.
- Send free and instant Remittance. Remittance is a multi-billion dollar industry that charges horrendous fees (5%-50%) and takes weeks over the legacy financial rails. With Bitcoin and the Lightning Network remittance can be instant and free for everyone. Being entirely online it also saves people from having to travel for hours every week just to withdraw the money from a physical location where they have a high chance of being robbed.
- Transact without being banned. While you might think of terrorists or drug lords as the only “baddies” being banned by banks, there are many countries where simply being female means you cannot have a bank account. Sex workers (and even those simply discussing sex) are also often banned or demonetised. Bitcoin allows for them to transact and have access once again.
- Take their wealth with them when fleeing a country. Even in Europe, fleeing a war torn country isn’t off the table these days and with Bitcoin you can take any amount of wealth with you either with a Hardware Wallet (also sometimes called a Signing Device that’s basically just a USB drive) or by even just remembering 12 short words.
More real life examples of these uses include girls in Afghanistan using it to get paid, Russian political opponents using it when their bank accounts were frozen or protesters in Nigerian using it to fight back against their government.
That’s not all either, there are Layer 2 applications built on top of Bitcoin that enable instant and near free transactions of fractions of a cent enabling creators to charge for their content by the page, second, podcast, video, minute and many other things too.
Is Bitcoin Safe?
Just like with any other type of money, bitcoins are highly sort after and so there’s plenty of criminals, scammers and other things to watch out for. While Bitcoin itself is quite safe and has been a reliable store of value over the past 10+ years, there are a number of risks that you should be aware of when using it.
At the top of the list is simply the fact that you should take investing seriously. Especially with the younger crowd (20’s and 30’s) there’s a tendency to just yolo all your funds into whatever the hypes talking up at the moment or join some bro investing club that has no idea what they’re doing. This isn’t investing, it’s speculating, we don’t recommend it because it never ends well.
We’re not certified financial, investment or estate planners so can’t specifically advise. But. Make sure you’re taking it seriously, are 100% OK with losing any money you commit and always consult a registered professional first. This stuff really doesn’t take much effort and will almost certainly save you a huge chunk. You’ve been warned!
Critically when it comes to hacking vectors we should first differentiate between you personally securing some bitcoins against hacking vs the Bitcoin network itself. The Bitcoin network has been operating for over a decade now and has almost a trillion dollars worth of value in it. That’s a lot of incentive for someone… anyone to hack it.
You’ve heard of bug bounty programs that Microsoft or Google run? Well Bitcoin is the ultimate one as if you can hack into it there’s hundreds of billions of dollars up for grabs. The fact that it hasn’t collapsed under hackers yet proves that it’s likely one of, if not the most secure networks in the world.
So while the Bitcoin network itself is quite safe, your personal bitcoins are a different matter. Hackers can use all the usual tricks like zero days, social engineering, bad passwords, careless security practices and just straight stupidly to get control over your bitcoins and steal them. This isn’t a failure of Bitcoin the network, it’s just your bad OPSEC.
|Funds Amount||Pocket Money||Savings Account||Serious Investments|
|Wallet Type||Software (Hot) /|
|Hardware (Cold)||Hardware (Cold)|
|Signature Type||Single Signature||Single Signature||Multi Signature|
|Key Custody||Self Custody||Self Custody||Self Custody|
|Key Backup||Laminated Paper||Laminated Paper||Metal Seed Plate|
|Key Security||None||Fire Proof Safe||Multiple Methods|
|Own Full Node||No||Yes||Yes|
|Electrum Server||Public Electrum|
One of our core missions is to help teach everyone how to safely and privately secure their bitcoins long term. As such, we will be releasing a number of beginner, intermediate and expert level security guides in the future, so make sure you get subscribed! To get started now you can check out our deep dive piece: A Beginners Guide To Bitcoin Privacy or our Guide To Advanced Bitcoin Privacy.
Close to hacking is scamming. Due to Bitcoin’s global nature and the fact that it’s also quite new and unregulated, there’s a lot of room for scammers to use all the historic scamming techniques but now under a new “hip” crypto flavour. They can also do this from another country and there’s no way to recover the stolen funds as a Bitcoin transaction is irreversible.
From pump and dump schemes (*screams in Bitconnect*), to convincing people to speculate on the modern day equivalent of penny stocks to just the outright lying or stealing. It’s absolutely the wild west out there in crypto land which is always exciting, but it also has the very real potential to be extremely damaging to your wealth.
What To Consider Before Buying Bitcoin:
- Volatility: Bitcoin’s still a highly volatile asset that changes price every second, every day
- No Insurance: Deposits in banks are usually insured by the government in case the bank goes bankrupt, Bitcoin has no backup or insurance policy
- Protocol Risk: Although the Bitcoin network, protocol and cryptography that secures it have been battle tested over the past 10+ years, it’s still always possible that someone, somewhere finds a design flaw. Quantum computers could also succeed where classical computing has so far failed to crack its encryption which may shatter the worlds faith in Bitcoin. That being said the protocol and code behind Bitcoin is quite possibly the most reviewed and hardened in existence. With a market cap of hundreds of billions of dollars, this effectively serves as a “bug bounty” which anyone able to compromise the network would be able to claim. So far, no one seems up to the task.
- Fraud / Bankruptcy: While holding your own private keys secures you against this risk, many users still allow other third parties to custody their funds for them (or hold the private keys on their behalf). This trust in a third party such as a centralised exchange then exposes them to other risks such as that exchange going bankrupt, being a victim of hacking, being shut down by a government or simply doing fraudulent things. To avoid this, it’s recommended you always remove your bitcoins from any exchange and hold your own private keys. This also greatly increases your Bitcoin Privacy too.
- Regulation: As Bitcoin is still very new, regulations are still quite unknown and are evolving as time goes on. As Bitcoin grows and draws more attention upon itself, regulation is expect to increase
- Hacking: While this is a risk with virtually all assets in today’s modern world, Bitcoin is often stored by the user and not a financial institution and as such, may not be secured as well if the user isn’t very technical. This can lead to users losing their bitcoins to any number of hacking tricks that wouldn’t otherwise be possible. It should be noted though that using a dedicated Hardware Wallet (also sometimes called a Signing Device that’s basically just a USB drive) can significantly eliminate this risk.
- Fungibility: While the Bitcoin network sees all bitcoins as equal, countries, governments or even private companies may mark certain bitcoins. This mark may mean they don’t get processed by them or are otherwise censored in some way by merchants. You could still send/receive them using your own Bitcoin Wallet, but this marking reduces the fungibility of bitcoins and could potentially strand your asset if this happened to you. This risk could potentially be solved via coin mixing protocols such as CoinJoin, but again this is a risk that will likely evolve over time as Bitcoin grows.
To help mitigate these real risks we recommend:
- Always taking full control of your private keys and never trusting third parties
- Start small with an amount of money you’re fully willing to lose
- Like with everything online, assume everyone (including us!) is a scammer
- Learn as much as you can about Bitcoin from us and others. The more you understand Bitcoin, the more confidence you’ll have and the higher a level you’ll achieve
- Don’t get greedy. Don’t buy shitcoins. Don’t try and time the market, just DCA sats
How Much Does A Bitcoin Cost?
To get the current exchange rate of bitcoins vs your native currency we recommend CoinGecko.com.
Is Bitcoin Worth Any Real Money?
Yes. Bitcoin can be exchanged in hundreds of places all over the planet. As it doesn’t use the legacy financial world, it can also be exchanged in many places most fiat currencies like the USD can’t too. To get an idea of how much of your native fiat currency (“real money”) someone will pay for bitcoins, we recommend CoinGecko.com.
Why Do Some People Believe Bitcoins Are Worthless?
Because Bitcoin is a cryptocurrency it’s entirely digital. As a result some people have trouble assigning real monetary value to it. You cannot “hold” a bitcoin in real life like gold or live in it like a house. These people quite often don’t take the time to properly understand how Bitcoin works either, resulting in them jumping to incorrect conclusions.
At the end of the day something is worth whatever people in society agree it’s worth. Given 1 BTC now regularly trades at tens of thousands of USD, it’s quite clear they’re wrong.
Is Bitcoin Money?
Yes. Bitcoin today is mainly used as a store of value, that is, it’s used to store monetary value over time. For most people though, “money” is usually referred to the thing that we transact with. We might use money to buy some bread or get paid in it, this function is called a medium of exchange.
Currently Bitcoin isn’t used for this function very much, although there are a number of people already being paid in bitcoins and you can purchase many goods and services with it as outlined in our piece What Can You Do With Bitcoin? For it to be used in large volumes of transactions though will take time as more places need to start accepting it.
Are Bitcoins Fairly Valued?
While bitcoins have one of the most open and widely traded markets in history, it’s still a relatively small asset class compared to other established markets like stocks or bonds. As such, it’s much more volatile and has regular, large swings in its price.
Fair value is also a very subjective thing and greatly depends on your understanding of whatever it is you’re valuing. If you don’t know what gold is, you might not value it very highly. As Bitcoin is quite new and not very well understood by the general public, this has a large effect on its valuation. There is also a large amount of people and companies that speculate daily on its price and future price further contributing to its volatile nature.
Who Created Bitcoin?
How Does Bitcoin Work?
Each one of these computers communicate by broadcasting digitally signed transactions. These transactions are shared and forwarded on between all peers so that they are all up to date.
When a transaction is broadcast and ownership of various bitcoins change hands, it’s bundled together into a “block”. This block is then added or “chained” onto all the existing ones. All these individual blocks, chained together form the blockchain which is stored on all Bitcoin Full Nodes. For more info you can read our Explain Bitcoin To Me piece.