I was also fed up with hearing so much about cryptocurrency it in the media and not understanding it. So, over the past two weeks, I dove deep and learned what I could to be satisfied.
Rip brought up some fundamental questions that I've asked and gotten answers to, some more satisfying than others. You can take these notes as a non-technical summary of my understanding. I'm still learning and not bent on the success or failure of crypto. It is a fascinating system with a lot of merit, though.
1) Gold Vs. Bitcoin:
Gold is hardly used for anything. It's inside our tech and jewelry, but besides that, I've learned that its true "utility" lies mostly in its scarcity and stability. Not as a raw material like oil or iron. There's a limited amount and only a little bit more is mined each year and kept in vaults. That's good for people when it comes to storing their wealth somewhere outside of cash for the long term (decades).
Bitcoin's "utility" is the same. There will only ever be 21MM of them, no matter what. In this way, it's better than gold, since everyone knows the exact and fully "diluted" cost. It will not inflate over time, we won't find more in the ground each year.
The "math puzzle" needed to mine more Bitcoin (using CPU power) isn't useful in the same way that mining for gold isn't useful. It's the actual gold, or the Bitcoin, that matters. The mining is just the hard-ass work you need to get to it. That work matters for the end value to exist in some way, but it's not the purpose. No analogy is perfect, but thinking of Bitcoin as digital gold rather than currency has helped a lot.
2) Currency Vs. Asset.
For now it's an asset, like gold. You can technically buy stuff by handing over a chunk of gold, but who does? The car dealer you mentioned that takes Bitcoin would probably take gold, too. Accepting Bitcoin is probably just marketing these days. Holding it as a long term treasury asset is how I've understood it to make the most sense.
Also like gold, there are many layers between you and the actual, hard asset to make it practical. Fiat money is one. Credit cards, bank accounts, Apple Pay, Paypal. It may be a way to store your wealth that can then be traded into currency when needed or borrowed against, but infrequently.
3) Privacy and taxation.
If it's an asset and you make money on it, then you should be taxed, right? Deal with it! The point is not to get away from being taxed like with some exotic bank account. That's a different discussion that's been going on much longer. If you want to hide your money, go ahead, but your local laws still apply!
4) Why bother?
There are many reasons. I'll try to appeal to freedom loving side in people (not being political!).
- It is truly "peer-to-peer". If you store your wealth in any asset (gold, real-estate, barbells, firearms), you may want to transfer that to someone at some point. This is much easier if the asset is digital and already secure. Trying to move $100k of gold is going to take weeks and cost you a lot in security and logistics. If the asset is digital, it's much cheaper and takes minutes. It is also direct. You send me $100k, and no one needs to get involved for me to receive it. (Feel free to try it!). This is true for any amount, any person, anywhere across the world. This offers a lot of freedom to many people who don't currently have it and retains more of the value of the asset.
- It is a "trustless" system. You don't need to trust a central bank, mint, gov't or corporation to check for double-spending or protect you against fraud. The way the network is built allows this. That's a complicated thing but well understood by those who put in the time.
- The "counterparty" risk is almost zero. You don't rely on anyone else staying in business/surviving a revolution for you to keep or to transfer what you have. Your warehouse full of Picassos won't catch fire while the sprinkler system fails and the fire department is having lunch.
- The network is spread across thousands of users. It is not centralized with one of the above mentioned entities. The control and honesty is spread across the masses, not a small group of people.
- Informed population. At least my experience is that by researching this, I've learned more about fiat money, assets and security risks than I ever have. If more people took the time to learn about crypto and took away just the tangential lessons, we'd be better off. Have you ever considered what it takes to really secure your own asset, without relying on anyone else?
This isn't exhaustive and it doesn't get into the technical aspect of how it stays together in the face of hacking attempts and the like. Blockchains, Hashing, SHA-256, and so on. All interesting and robust, but too much for my poor brain in most cases.
If you've read all that, thank you for the chance to practice my understanding. I'd love to hear other's opinion. So far, when it comes to points "against" Bitcoin, I've heard a lot of "well, it just doesn't seem like it should work".
Andres
PS. I bought about $200 of Bitcoin so that I could understand the process from end to end. At least it was about that much when I bought it. I'm comfortable with losing it all. Or maybe I'm already rich, who knows...