Money is a standardised and transportable means of exchange that allows us to exchange an item of worth for goods or services. In its coin form, money has been around for about 2500 years and in the past has taken on many forms (to varying degrees of success) such as paper, salt, livestock, ivory, gold, silver and even teeth.

Thankfully these days we don’t have to contend with the possibility of dealing in whales teeth or salt in the hope of making a purchase. Things have moved on a bit since 500-600 BC when it’s believed the first coins were minted as a method of payment off an Island in ancient Greece. Pace of change has only accelerated and in relatively recent times such as the post WWII era, we have seen significant changes to our own monetary systems and our methods of exchange.

Events such as a move away from the gold standard (where currencies were once backed by a real asset in Gold), introductions to the metric standards, advancements in technology paving the way for cheque and card payments, and of course the introduction of telephone and internet banking have led to significant change in their own right.

Born out of the financial crisis in 2008, Bitcoin was designed as a peer-to-peer electronic money system that could be used for transactions over the internet, sent directly from person-to-person without the need for third party involvement.

Unlike your Pound, Dollar, Euro, or Yen there is no central bank controlling the Bitcoin network or no government who can yet freeze or lay claim to it.

Instead of a central bank, the bitcoin network is run by a decentralised network of computers participating in the ecosystem working to record and verify every transaction that takes place.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

– Satoshi Nakamoto, Bitcoin inventor

You can spend it. It is like digital cash so it can be transferred freely from person to person like bank notes and coins, without the involvement of third parties (e.g., banks, brokers).

You can also save it. Many view bitcoin as a great store of value, like Gold, Silver, or fine art, that will appreciate over time. Bitcoin is sometimes referred to as digital Gold. More on this later.

To best explain this, let’s take a look at a very simple transaction between two people. Mary agrees to transfer £1000 to Paul in return for some goods. Pretty straight-forward, right?

Well actually, if you think about it there are a lot of potential problems here. For example, can Mary trust Paul is providing the correct or genuine bank details? If cash is used, can Paul trust that Mary isn’t using stolen or counter-fitted notes? Can he trust that Mary’s cheque won’t bounce? Can either of them trust that their banks will honour and/ or process the transaction without problem? If mediation is required how does each party trust that they can give or get their money back? There is a common element to all of those potential issues, and that is trust. Where there is an element of trust, fraud and indeed human error, are inevitable. The problem that Bitcoin solves is that it caters for a monetary system that is trustless, it allows for willing participants to transact directly with each other without the need for a third party in a secure and immutable way.

In many cases you wouldn’t; it depends on the size of the transaction.

As bitcoin is like digital cash and operates on a peer-to-peer basis, it is not beholden to the machinations of a centralised banking system, transactions are relatively fast and cheap. An example of this can be seen in a transaction that took place on the 26th October 2020 where 1.15 billion dollars worth of bitcoin (£860 million) was moved from one digital wallet to another at a total cost of around £2 and took seconds to complete. That’s moving an amount of money equivalent to the GDP of a small country for the cost of a take-away latte.

Compare this to your typical Visa card transaction or a time when you’ve ever had to send money abroad or wait for a cheque to clear. Consider the number of different banking institutions, IT systems, 3rd-party bodies involved in any of these transactions and the cost and time taken to complete them. The Bitcoin network has non of these overheads, it just pays miners a fee for processing the transaction.

That said, using our previous example, because of the way Bitcoin works you could incur the same transaction fee of £2 when transferring the GDP of a small country, or literally a latte. The fee incurred is not impacted by the amount being transferred. For more information about blockchain and how mining works, please refer to our guide here.

This is the complicated bit.

As we now know, Bitcoin is run by a decentralised network of computers acting as participants in a vast ecosystem. These participants referred to as nodes and there are tens of thousands of them.

When a bitcoin transaction occurs (e.g., someone buys something or transfers some bitcoin), a record of that transaction is recorded into a memory pool on the network (a bit like a queue).

These transaction are then picked up and processed by these nodes (super computers) on the bitcoin network and then grouped into blocks. Once a block of transactions is formed, it is broadcast to the bitcoin network and verified by all other recipient nodes. Each block added to the network is linked to the previous block in a chain. This is called The Blockchain. The role carried out by these nodes on the network, to group transactions into blocks and verify them, is called Mining.

Mining in this instance is a record-keeping service, achieved through computer processing power. It is the job of Miners to keep the blockchain consistent, complete, and unalterable. In return for this role, miners are rewarded with a number of newly minted bitcoins for each block successfully added to the network.

The blockchain is like a database but unlike a traditional database where transactions can be added, moved, deleted, and modified, on the blockchain only additions are permitted.

What makes bitcoin such a secure financial system is that a copy of the bitcoin blockchain is stored on every participating node in the entire bitcoin ecosystem. Therefore, once a block of transactions are confirmed the blockchain is updated across the entire ecosystem – this makes for an immutable record. Compare this to your current bank account where there is one centralised record of transactions, one point of failure for hackers to access and one system controlled by a ‘trusted’ third-party. With bitcoin, your record of transactions is literally replicated across thousands of nodes in the network which independently maintain integrity of the transactions.

Written into the bitcoin protocol is a fixed total supply of 21 million bitcoins. At the time of writing 18,571,656 of these bitcoins have been released into the ecosystem. As we have learnt, new bitcoins are minted and distributed to the miners in return for their role in securing the network – when a new block is added to the blockchain.

The current reward is set as 6.25 bitcoins per block that is mined, at current prices that reward stands at about £145,000 per block. Written into the protocol is an event which sees the reward half every 210,000 blocks, this essentially reduces the supply of new bitcoins being minted, increasing scarcity. On average, a new block is added every 10 minutes and so it’ll take until roughly 2140 until all bitcoins are in circulation. It’s important to state again: there will only ever be 21 million bitcoins. This scarcity is a key characteristic in why some say bitcoin is a great store of value.

Why is this fixed supply limit important? Well it means bitcoins have scarcity, they should hold their value over time. This is in contrast to the traditional monetary system which uses a mechanism of ‘money-printing’ a.k.a quantitative easing to stimulate the economy. When money is pumped into an economy like this it causes inflation, i.e., your purchasing power with that £50 note you have is going to be less in the very near future.

In the same way a Pound or a Dollar is divisible, i.e., 5p, 50p, etc., a bitcoin is divisible down to 0.00000001 with Satoshi or sats) being the denominating factor. Sats is named after the creator of bitcoin, Satoshi Nakamoto and there are 100 million sats in a Bitcoin.

A store of value is something that maintains its value over time, rather than depreciating. They are an asset, a currency, or a commodity that can be exchanged in the future without suffering depreciation. Things like Gold, Silver,
and fine art are all considered to be really good stores of value because they have scarcity and maintain their value, or appreciate in value, over time. For example, ten years ago (2010) Gold finished the year with a weekly moving
average price (WMA200) of $500 (£371), cut to 2020 and that figure stands at $1150 (£854). Gold has appreciated over that ten year period, by over 100%.

Compare this to the cash in your wallet. If you had stashed the same amount away under your mattress for the last ten years and tried to spend it today, your purchasing power would have dwindled down to £274 – that is a decrease of 26%. The reason for this is inflation. Simply put, inflation is the rate at which goods and services increase over time, and therefore it signals the decline of purchasing power for your currency.

Some view inflation as a key function in enabling monetary policy makers the ability to balance the supply and demand dynamics of the economy. It is not my intention to argue whether inflation it is good or bad, but what is clear, is that when inflation is too high the effects can be economically devastating (just google Zimbabwe or Hungary and hyperinflation). We live in times of consistent quantitative easing (printing more money), 0% interest rates, and rising inflation, government backed bonds that yield next to nothing, rising house prices, and rising costs of goods and services. Most likely, the money in our bank accounts are going to be worth less next year than it is today.
Bitcoin is a store of value that transcends government and banks, it is controlled by no-one. It is a secure, long duration, safe haven asset that is not just for investors but for every person on the planet who wants to preserve what they have.

There are many misconceptions surrounding bitcoin and cryptocurrencies in general. That is to be expected as it is a complicated topic that is making big changes to how we live our lives. Let’s start by tackling some of the most common misconceptions:

Bitcoin is Volatile

Historically, because Bitcoin is an emerging asset and also because a large proportion of the Bitcoin supply has been concentrated in the hands of a few hundred/ thousand owners it has become synonymous with large fluctuations in price.

Swings of 30% are not uncommon, however it is important to consider that since its inception in 2009, Bitcoin has increased on average 200% year on year.

Also, as Bitcoin matures this ownership centralisation is diminishing as more and more institutions and private investors add Bitcoin to their Balance Sheet and portfolios.

Considering this, an investor would need to ask themselves one question: could you accept the short-term volatility for long-term reward?

Bitcoin is just for Criminals

This stereotype originated when bitcoin transactions were involved in transfer of goods on the dark web. Bitcoin (although other cryptocurrencies are better) was perhaps a popular choice because it acts in much the same way as cash
(harder to trace than credit card transaction) but with the convenience of being digital.

However, when this is compared with the amount of traditional pounds/ dollars that are laundered, counterfeited, stolen, etc., each and every day some would argue it’s an unfair criticism. For example, a recent report by the United
Nations office of Drugs and Crime (UNODC) showed that for each $1 spent in bitcoin on the dark web, $800 was laundered in US Dollars.

Bitcoin is not eco-friendly

This has some truth in respect to how the bitcoin ecosystem operates but again, when compared with the machinations of the traditional banking system it’s perhaps an unfair criticism.

As we have learned, the bitcoin ecosystem relies on the computational processing power of super-computers (miners) to secure the network. The computational power uses tonnes and tonnes of electricity and a recent study found that the annual bitcoin electricity footprint was equivalent to that of Chile in South America.

This is a lot of energy. But compare this to the energy consumption of the traditional banking system: all the buildings, staff, and materials that make up the infrastructure, and one could argue bitcoin comes at a fraction of those
energy cost.

It is also worth noting that bitcoin is still in it’s infancy. 2009 was the year of the first bitcoin transaction and with the pace of technological change one would expect the energy consumption of the computers required to secure the network will decrease over time.

Bitcoin has no intrinsic value, it’s just code on a computer

This is true. But does that matter? After all, money has no intrinsic value either, right? Both cash and bitcoin have no intrinsic value, only relative value. Their worth is measured by the ability to exchange it for something of value
to the owner. Think about it, that £20 note in your wallet or purse has no value whatsoever apart from an acceptance by your government that you can exchange it for an item of value.

What happens if that government change the rules? Or debase the currency? You are suddenly left with a piece of paper that is either useless or worth less than it was yesterday.

So what are the attributes of money and does Bitcoin fit:

• Acceptability: Money needs to be accepted by most people. Thanks to solutions like the Crypterium Card, you can spend bitcoins and other cryptocurrencies all over the world.
• Interchangeable: You can trade bitcoin against other cryptocurrencies, as well as the US dollar, the Euro, the British Pound, etc.
• Scarcity: For a currency to have value, it should be limited. Only 21 million Bitcoins will ever be mined, which means that supply is indeed limited.
• Transferability: Blockchain technology makes cryptocurrencies the easiest, fastest and cheapest way to send and receive money internationally.
• Durability: Cryptocurrencies are stored on decentralized networks which guarantees longevity as long as these networks stay active. Divisibility: You can conveniently buy fractions of cryptocurrencies. For example, you can buy 0.001
  Bitcoin