Bitcoin Explained in Under 1,000 Words

Read this if you're wildly confused about Bitcoin

Here it goes. How to explain Bitcoin in 1,000 words or less. 

This article is dedicated to my wonderful fiancé Taylor who told me the other day “I still don’t get Bitcoin…”. I love you Taylor. 

Bitcoin is a digital asset that is created (mined) through a decentralized global network of computers all running a specific program called a hash. In this context, decentralized means that these computers are individually run and not controlled by a central authority. 

How do a bunch of computers all over the world running what boils down to a complex math problem create value? 

Great question. The Bitcoin network (composed of all those computers all over the world) is one of the most secure computer networks ever created. 

How is it secure? Well, each computer on the network has to reach consensus on which addresses (think of it like a social security number) own which Bitcoin. To record a transaction on the blockchain, every computer in the network must agree on what took place. And, since these computers are independent actors (they’re not influenced by some central authority) coercing them all to agree to a false narrative is nearly impossible. 

This security creates trust that storing your wealth on the Bitcoin network comes with certain guarantees and expectations that are near impossible to change. 

The market (which is just millions of people all around the world) is assigning a monetary value to that security and trust. The Bitcoin network was created to allow you to store monetary value in an asset that is not controlled by anyone or any government. 

The network is controlled by computer code that is transparent for all to see. Anyone can find out exactly how many Bitcoin have been mined (created), which wallets they sit in, when was the last time they moved, how many Bitcoin will be created in the future, and exactly when they will be created. 

Name one other asset that has ever existed that has those same properties… The US Dollar (and all other fiat currencies) have their supply tightly controlled by their ruling governments. Governments can decide to spend as much currency as they desire. 

Gold supply depends on how many active mines are in production, being built, or closing down. Real estate supply depends on millions of individual builders, contractors, and other people to create. Each of these assets (plus all others) have a variable supply and low trust (except gold but that has lower trust compared to Bitcoin). 

Bitcoin the supply is fixed. There will only ever be 21 million Bitcoin in existence and that’s 100% provable. 

A fixed supply means that investors, savers, and individuals can store their wealth in Bitcoin without the fear of a government or other economic event inflating their wealth away by a large amount of supply coming to the market all at one time. 

Ok so recap. Bitcoin is an asset that represents the monetary value of how much wealth is stored in one of the most secure computer networks ever created.

This network is secured by millions (I think… could be more) computers all around the world that run a specific kind of program. There will only ever be 21 million Bitcoin in existence. No government or other party can change that fact. 

So, when people say “bitcoin isn’t backed by anything” they’re not making a comment about Bitcoin. They’re noticing a quality that can be intrinsic to money and other assets in general. Take gold for example. What is a bar of gold backed by? It’s not backed by anything but the cultural perceived value that someone will pay for this rare metal dug out of the Earth. 

What about the US dollar? Is that backed by anything? Yes, it’s backed by the full force of the US government and its ability to create dollars out of thin air (check out my previous newsletter if you’re curious about the changing dynamics of government spending and the US dollar). 

Bitcoin IS backed by something. It’s backed by the security of a massive, decentralized computer network, that stores our wealth in a way that’s safe from seizure, can never be destroyed (unless there’s a massive global cataclysm and good luck using any of your dollars or even gold then… you better have access to food, water, shelter, and bullets…), can be taken anywhere across any border, and can never be altered by a malintent government. 

Many narratives try to think that Bitcoin will replace fiat currencies and other assets. I don’t see that. Bitcoin is a non-partisan, non-sovereign, incorruptible global counterweight that balances governments who spend too much of their fiat currency. 

I hope this explanation helps you to better understand how Bitcoin derives its value. There’s a much deeper rabbit hole than this, however, this is my explain it like I’m 5. 

Bitcoin and digital assets are the future of economics, finance, gaming, art, government, and so much more. This is just the very beginning of what’s shaping up to be an incredible saga of human evolution. It’s one of the few investable areas that’s at the BEGINNING of a multi-decade cycle. 

As of this writing, Bitcoin has a global market value of $1 trillion. Compare that to gold at ~$10 trillion and you have a reasonable price target for Bitcoin over the next 1-3 years. At its most simple, Bitcoin is a 21st century version of gold that’s better in every way. 

Parity with gold puts the price of Bitcoin at over $500,000, roughly 10-to-1 odds from today’s price. Name me another asset that has this kind of risk to reward profile over the next few years and I’ll buy it hand over fist. 

If you’re curious about buying Bitcoin, I couldn’t recommend setting up a BlockFi account enough. They pay high-yield interest on your deposits reaching up to 8.6%