A Beginner's Guide to Cryptocurrency & Bitcoin: Part 1 - The Concept of Money and Bitcoin

For many of us, the world of cryptocurrency, Bitcoin and altcoin is a mystery. You have heard that it's worth a lot of money and you probably have some questions in your head like, "How can digital currency be worth anything?", "How does it work?", "Is it safe?", "Is this just a fad?"

Before jumping into bitcoin or cryptocurrency directly, I feel it's important that we cover some fundamental concepts of money. This will make it a lot easier to understand why Bitcoin became what it is today.

What is money to you? It’s that piece of paper in your wallet that you give to someone in return for a product or a service. There usually is a number on that piece of paper that everyone agrees that that’s what it’s worth. You can get more of these pieces of paper by working for it; by putting your time and dedicated effort to a task, but somehow it always seems like it’s never enough.

Dedicated Effort + Time, earns you Money

Never enough of it. This is called scarcity. Scarcity is what makes money valuable. If anyone could print money freely, it would have lost its value entirely. So the fact that there’s a bank out there that says there’s only so much money available in the market, makes what you have in your pocket that much more valuable.

Scarcity = Value.

I think you can begin to see where I’m going with this. In ancient times, before money was invented, people had to barter trade their goods for other goods. Bread for cheese, for example; or cattle for metal. The problem with that is, you can’t walk around with ten loaves of bread ready to trade them with people. So the concept of money as stored value came about. There were in the form of seashells, stones, copper, gold; anything that is scarce, requires dedicated effort and time to acquire would in fact be a universally accepted form of money or currency.

That’s how Bitcoin works. The people who designed Bitcoin made it finite. There will only be 21 Million Bitcoins being churned out in its lifetime. In order to mine for Bitcoin, a person has got to specially setup his computer and dedicate it to solving the Bitcoin puzzle which takes a fair amount of time to complete. Once the puzzle is solved, 1of 21 Million Bitcoin is produced. The time taken to mine a single Bitcoin increases as the Bitcoin stockpile decreases. Bitcoin started 8 years ago, so you can imagine at which point of the curve you are at now if you’re thinking of coming on board as a miner. It is widely believed that the Bitcoin will hit its cap in 2140.

So now you understand why Bitcoin can be considered money. Now the next question is…. How do we define its worth? Isn’t it after all just intangible bits and bytes floating around in the digital world? What gives Bitcoin the worth it has today?

​Click on Part 2 of this video series to find out.

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