Bitcoin Definitions
If I had a Bitcoin for every time someone gave me a definition of Bitcoin, I would already be living in the Bahamas.
Bitcoin is notoriously hard to pin down. No one definition captures it perfectly. However, when you hear a number of definitions together, you begin to get an idea of what it’s all about.
Many definitions of Bitcoin involve comparing and contrasting with other forms of money and value. It’s a necessary process to go through to reach understanding.
Below are five definitions that broadly cover the essence of Bitcoin.
Definition 1 – Digital Gold
Gold has been a form of money for millennia. The Romans, Greeks, Indians – and many other ancient civilisations – all used gold coins to transact. What was the attraction of gold as money?
For money to be effective, it needs to be scarce, difficult to make, durable, divisible, and portable (you can add other adjectives, but these are some of the main ones). Gold has all of these characteristics.
Effective forms of money, like gold, are known as ‘sound money’. Bitcoin is sound money, too, as it is:
- Scarce: There will only ever be 21,000,000 of them. Guaranteed. Over 94% of all Bitcoin that will exist is already in circulation.
- Difficult to make: You have to use electricity and special computer hardware to create more Bitcoin. There is massive competition around the world to make new Bitcoin – involving large corporations – and it’s very hard indeed to be successful.
- Durable: Bitcoin is stored securely in an online, immutable database called a blockchain, backed up by countless computer ‘nodes’ all over the globe.
- Divisible: Each Bitcoin comprises 100,000,000 smaller units called ‘Satoshis’ or ‘Sats’.
- Portable: It can be sent over the internet anywhere in the world, quickly and at low cost. You can also travel across borders with your Bitcoin safely stored as 12 words inside your head. It’s wild.
So, in summary, Bitcoin has many of the characteristics of a long-established sound money like gold, but as it’s native to the internet, we can call it ‘digital’ gold.
Definition 2 – Inflation-Busting Store of Value
Gold has been used for centuries both as money in the form of coins, but also as a store of value. In other words, gold represents a way of protecting your wealth against the ravages of inflation.
Bitcoin is also a store of value. If you put your money in Bitcoin, it will generally hold its value better than if you leave it in your local currency. We’re talking about in the medium to long term. In the short term, the price of Bitcoin can be very volatile.
We can illustrate this with a home buying example. Here is a table showing the cost of an average house in the USA in 2016, 2020 and 2024 both in Dollars and Bitcoin, and a possible scenario for 2028:
| Year | Cost in Dollars | Cost in Bitcoin |
|---|---|---|
| 2016 | $306,000 | 437 Bitcoin |
| 2020 | $336,000 | 30 Bitcoin |
| 2024 | $415,000 | 7 Bitcoin |
| 2028 | $500,000 ? | 1 Bitcoin ? |
The implications of the table above are remarkable. Houses are getting more and more expensive in Dollar terms, but getting dramatically cheaper and cheaper in Bitcoin terms.
If you extrapolate the data to the year 2028, the average house might cost $500,000 after inflation, but the Bitcoin price might only be 1 Bitcoin!
Can you imagine? If you buy and hold 1 Bitcoin today, it might get you a whole house in four years’ time. Mic drop.
By tracking the cost of an item like a house in both your local currency and Bitcoin, you are using Bitcoin as a ‘unit of account’.
Definition 3 – Apex Predator Cryptocurrency
If the great white shark is the apex predator of the oceans – right at the top of the food chain – Bitcoin is the apex predator of cryptocurrencies. We compare Bitcoin with other cryptocurrencies in Section #8, but for now let’s just say Bitcoin is the boss.
You use currencies to buy things, but there aren’t yet many shops and online retailers that accept Bitcoin. This is gradually improving, as adoption spreads around the world.
However, Bitcoin isn’t a normal currency like Euros, Pounds, Dollars, Swiss Francs or Yen. It’s a currency based on ‘cryptography’.
Cryptography – first used nearly 4,000 years ago, but brought into the digital realm in the 1970s – is a way of making communications secure. It uses advanced mathematics to encode data that can only be decoded by someone who possesses the right decryption key.
When you first get Bitcoin and secure it with your own wallet, you set up two cryptographic keys: one public key, and one corresponding private key, that only you know, used to approve Bitcoin transactions that you wish to make. For more details, go to our How does Bitcoin Work? page.
Comparing Bitcoin to gold again, you can see how Bitcoin is an improvement on gold. Gold could never be secured using digital cryptography. If you bury your gold in the ground and someone finds it, it’s gone.
Backed by cryptography, Bitcoin can never be taken away from you, as long as you keep your private key…well, private.
Buying things with Bitcoin in shops or online also makes it a ‘medium of exchange’. You exchange Bitcoin in return for other goods. This is another definition that Bitcoin as a cryptocurrency is trying to achieve. Once Bitcoin becomes ubiquitous, the medium of exchange’ box will have been ticked.
Definition 4 – Resistance Money
We wouldn’t be doing Bitcoin justice if we omitted this penultimate definition of Bitcoin as ‘resistance money’.
The term was coined by Andrew M. Bailey, Bradley Rettler and Craig Warmke in their book entitled – you guessed it – ‘Resistance Money’.
Do you live in a country where Big Brother is watching you? Many nations around the world have governments that surveil and control their citizens or minority groups much more than is necessary or healthy.
If you live in one of these countries, Bitcoin gives you the opportunity to regain some control, privacy and self-respect. How?
- Bitcoin is decentralised – There is no authority or central bank managing Bitcoin or telling you what you can do with it. You’re free to use it as you like, whenever you like.
- Bitcoin is immutable – Bitcoin transactions are recorded on a permanent online ledger called a blockchain. It’s impossible to alter any of these transactions once recorded, in other words, the government can’t steal your money.
- Bitcoin allows direct transactions between individuals – Bitcoin is a ‘peer-to-peer’ network, meaning you can send Bitcoin to anyone with an internet connection, anywhere in the world, without any intermediaries getting in your way or potentially seizing your funds.
- Bitcoin is private – Although your public key is on display in the blockchain if you make a Bitcoin transaction, it’s impossible for anyone to know which private key the public key corresponds to. They can surveil funds and transactions located in the blockchain, but they can’t know those funds belong to you. Be aware, though, that if you send Bitcoin from a centralised exchange account in your name to a public Bitcoin address, then the authorities can track the transaction and would logically assume that you have the private key that corresponds to that public address.
Definition 5 – Bitcoin is an unstoppable, inflation-resistant, digital money that lives permanently in the internet, bringing you financial freedom and privacy
There’s a lot to take in when reading all of these definitions. Bitcoin is unique, a totally new technology.
The final Definition 5 above is an attempt to bring together the main elements of all of the definitions in just a few words.
Summary
- Gold has been an effective form of money for centuries.
- Bitcoin can be considered ‘digital gold’, as it has many of the sound money characteristics of gold.
- Bitcoin is an improvement on gold, as it is secured cryptographically, meaning no-one can steal it from you.
- Bitcoin is a great store of value in the medium to long term, as its guaranteed scarcity makes it inflation-resistant.
- You can buy things in Bitcoin, but worldwide adoption is still limited.
- Bitcoin helps persecuted people in authoritarian regimes achieve financial sovereignty and privacy.
Useful Resources
> Watch Joe Bryan’s brilliant video explaining why our current financial paradigm causes so much harm and how Bitcoin can help us escape:
> Here Natalie Brunell runs through a quick history of money and shows how Bitcoin has come out on top:
> Find out more about the brilliant book Resistance Money: www.resistance.money
Where to Next?
If you’ve been reading the sections in order, the next page we recommend is How does Bitcoin Work?