Just what is Bitcoin FOR, exactly?

The term “Bitcoin” might mean different things to different people.

As we’ve seen in the previous post, it is when people begin to describe what Bitcoin is, that the technical jargon starts flying.

Terms like “blockchain” and “protocol”. The expressions “peer-to-peer networks” and “distributed ledgers”

OMG! Jargon galore!

It’s easy to feel overwhelmed by all the jargon. Explaining what “Bitcoin” is and how it works quickly becomes overly complex and technical.

Let us go  through another road instead. Let us trim the fat of this big fat problem by first looking at the problems that Bitcoin was designed to address.

If you can wrap your head around it, technical notions will click into place and you’ll be able to follow along with ease.

Why did people make Bitcoin?

The Bitcoin white paper states that Satoshi Nakamoto’s goals in creating Bitcoin were to:

“…electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.”

Translation:

“With physical currency, I may make a transaction with another individual in the REAL WORLD, bypassing the necessity for a bank. I appreciate being given such latitude. Please grant me the same liberty ONLINE. That’s why I’m looking at getting some form of digital currency.

Bitcoin was Satoshi’s response.

The idea of a digital currency that can be moved around the internet without a “trusted intermediary” sounds easy, but prior to the creation of Bitcoin, all attempts had failed.

The likes of this had never been attempted.

Let me give you an illustration of my point.

Let’s pretend that an ex-convict with no respectable CV is hard at work running  a Lemonade Stand business.

There’s something unique about this Lemonade Stand. The Ex-Con has no experience in doing anything else, so he is applying all his energy and will power in producing the finest lemon juice you’ve ever had. 

…..

Each glass of lemonade cost only a buck.

Some local HS kid would like to purchase one of Ursula’s cupcakes. It’s summer and he is thirsty. The ex-con is desperate for money, clients and the marketing effect of word-of-mouth.

So they meet up and do business in cash.

……

This is what occurs:

• HS kid receives the dollar note from Ex-con.
• Ex-con now has possession of the actual $1 bill.
• HS kid believes that the $1 bill is unique, authentic and real.
• Since it is printed and distributed by a centralized authority, every single one dollar bill is genuine and one of a kind.
  -In light of these attributes, the $1 note is accepted as a medium of exchange, which means that its holders can use it to buy the things and services (the “goods and services”) they desire from other people.
• Ex-con hands HS Kid the cupcake.

Now, let’s say the HS kid liked the lemonade so much, he now wants to order galons of it (his parents are rich) and have those delivered on his home. Let’s pretend for a moment that Ex-con himself cannot deliver the lemonade to HS kid because he is too far away. She must use an air courier service, like a drone, to send it.

First, Ex-con — modernized as he is — requires that HS Kid transmits his payment….online.

But how will HS Kid deal with payment?

Is there a way for HS Kid to send cash online?

…….

Therein lies the dilemma of using money.

Cash refers to currency in its physical form, such as coins and paper bills (dollah dollah billz yo!).

But there’s a catch….

Cash payments cannot be sent using the internet.

In a cash transaction, both the buyer and the seller must be present at the same time and place, which isn’t always feasible.

…….

How can cash be sent electronically when it is a physical commodity?

By turning it into a digital format.

However, if it is digital, it may be copied simply (digital counterfeit). Like a copy-paste kind of thing. Then we’d have a duplicate of the same money we had initially; it would have doubled. 

The question then becomes how to stop people from wasting their digital money by spending it more than once.

That’s one issue, then.

Another issue has arisen.

Since HS Kid already has cash on hand, he prefers to use it. Now, however, he must use a financial institution like a bank if he wants to pay money digitally (online).

What if, though, HS kid didn’t have a bank account? No lemonade for, Molly. Ask your parents.

Thankfully, HS kid does have a savings account.

This poses a problem, though, when our survival depends on these banks.

The bank’s management might enjoy juices but despise lemonade made by an ex-con, for instance.

…….

Therefore, the bank may decide to exercise its discretion and prevent HS Kid transaction because the bank is not a lover of Ex-con Lemonade. The cupcake industry is banned from the bank’s services.

How shocking! I tell you, it’s heartless!

Alternatively, the bank could impose additional costs for internet transactions.

Or, even worse, the financial institution views ex-cons — and anyone who deals with them — as “inherently bad”.

Thus, HS kid, despite being a student, is considered “evil” when he bargains with an Ex-con for cupcakes.
HS Kid’s bank account may be frozen as a result, rendering him unable to access his funds. Poor HS kid, hu just can’t get in!

HS’s kid savings are being held in limbo by the bank. The bank is the only institution with access to his funds. This is centralized because authority rests with a single organization.

The term “centralized” describes a system in which authority is exercised from a single location.

…….

Frustrated by her lack of cupcake, Molly wants one badly.

I could save time and save fees at the bank if I could just pay with cash. Sorry about that! That’s terrible!

If only there were a digital kind of currency.”

That’s completely under my command.

As the narrator says, “I want to be able to use this digital form of cash just like the cold hard cash in my tail, where I can spend it however I want with whoever I want without needing the approval of any person, company, or institution.”

Thus, Molly’s primary desires are:

Currency that can be used like cash on the Internet….
That’s a distributed system.
One may say that decentralization is the antithesis of centralization. When things are decentralized, no one person or group is in charge.

When power and authority are devolved to various stakeholders, we say that the system is decentralized.

Financial “decentralization” refers to the removal of middlemen like banks and other financial institutions.

This would allow you to freely conduct monetary transactions with your digital currency without fear of having them blocked or of having your funds frozen or otherwise confiscated.

Distributed digital currency is what Molly is after.

However, this is really challenging to achieve.

The reason(s) why…