The “Why” of Bitcoin and Cryptocurrency

Explaining why cryptocurrency matters to people new to the industry can be tricky. But after testing about 20 different methods, I’ve settled on a basic approach that’s getting great results.

I start with the “what.” I always use bitcoin as my example. It’s by far the easiest to explain, the most relevant and arguably the most serious cryptocurrency project.

And I start by telling them that bitcoin is a way for people to transfer value (money) between themselves without banks or middlemen.

Then I explain that bitcoin was ultimately designed to be an alternative financial system. It’s not just “digital cash.” It’s a network complete with security, custody, transaction settlement, lending, borrowing, etc.

Of course, I mention that the number of bitcoins is strictly limited to 21 million. I contrast bitcoin’s limited supply (scarcity) with government/fiat money, which can be printed to no end.

Each bitcoin can be broken up into 100 million pieces, so it’s highly divisible. You can send $0.10 worth of bitcoin or $10 million worth to someone just as easily.

It all runs on a decentralized network of servers all over the world, operates 24 hours a day and has a nearly flawless security record.

But Why?

Most people get the “what” of bitcoin. It’s the “why” they have trouble with. Why do we need bitcoin?

The why of bitcoin is actually pretty simple. Many of us think we’re going to need new ways to buy stuff, store value and transfer money in the future.

We think we’ll need an alternative to fiat money because fiat is directly tied to all the debt that’s piling up around the globe. When debt becomes a problem, the currency eventually becomes a problem. Historically, debilitating inflation is the result.

Bitcoin opens the door to a different path for the world to take. Instead of spending too much, piling up debt and creating money out of thin air, we could start to live within our means by using sound money (like bitcoin) to do our business.

Saifedean Ammous, author of The Bitcoin Standard, explains a few of the possible implications in a recent article:

Certainly, there is appetite for a credible alternative to government-controlled fiat currencies. In the nine years that it has been trading, bitcoin has appreciated 700 million percent against the dollar, despite the naysayers and warnings of its impending collapse.

Perhaps the most compelling argument for bitcoin is the completely apolitical and predictable monetary policy it operates within. Bitcoin cannot be used for quantitative easing, for example. You can’t just print more of it when the whim takes you. If bitcoin’s continued growth deprives central banks of the ability to finance catastrophic wars by printing money, or if it prevents even one more tragic incidence of hyperinflation, the energy consumption required to mine it will be the best bargain humanity ever got.

Well said. The current system enables reckless government spending that is utterly unsustainable.

And I’ll admit that cryptocurrency surpassing fiat is an ambitious, crazy vision. But something’s got to change – and soon. Many of us think decentralized, sound money is the best place to start. It’s a way to vote with your wallet for a new system.

This explanation has had surprisingly good results. When I first tried it, I thought I’d be laughed out of the room.

But for the most part, people get it. They know something is wrong with our financial systems. Most can’t predict what will happen with our mounting debts and liabilities, but they don’t think it’s going to be a fun outcome.

So explaining that bitcoin is essentially designed to offer an alternative to this has good results.

I make sure to mention that bitcoin and other projects are nowhere near done. We’ve got a long way to go to compete with dollar-based Visa and SWIFT payment networks.

Fortunately, many very smart teams are working on different ways to scale up crypto networks to these levels. And they’re funded by many of the world’s best venture capitalists.

Meanwhile, huge players in the financial world, including Fidelity and ICE (Intercontinental Exchange), are launching enterprise-grade custody solutions.

Although not everyone in the crypto community is comfortable coming out and saying “We think the world needs an alternative money system, ‘cause the old one looks about done”… ultimately that’s the feeling driving this movement forward.

Good investing,

Adam Sharp
Co-Founder, Early Investing