Why does Bitcoin exist?
Why does Bitcoin exist?
If you think about the reason someone starts a business or works on a project, it’s caused by some type of pain (or a problem) that someone wants to solve.
For example – a gas station exists because people fear running out of gasoline. McDonalds exists because people feel the pain of hunger. If something wasn’t painful, people wouldn’t want to part ways with their money.
The same is true with Bitcoin. In this post, we’re going to answer the question – why does Bitcoin exist?
Why does Bitcoin exist? Here’s what the creator said.
In this post written back in 2009, Satoshi Nakamoto (the anonymous person who created Bitcoin) described why they created Bitcoin:
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.Satoshi Nakamoto (the anonymous person who started Bitcoin)
In other words, currency and moving money requires trust, but history is filled with examples of central banks and normal banks (like Wells Fargo) screwing people over.
Let’s unpack why trust matters, and why you should be skeptical of people in power, especially when it comes to your money.
Reason #1: You shouldn’t trust central (government) banks
The first reason why Bitcoin exists is because history is filled with examples of governments and central bankers taking advantage of their positions of power, which typically happens when things go wrong.
About 2000 years ago, people in the Roman empire “clipped” coins, shaving off some of the corners of coins in order to create more money to use in the economy.
You can see an example of coin shaving below:
Another example from Rome – Nero (the emperor) reduced the weight of the coins, using less metallic content as a way of cheating the system so they could create more money.
This is called currency debasement.
Currency debasement is when the government robs you of the money that you worked hard for. Instead of stealing the money from your bank account, they just create more money, so the money you hold is worth less than before.
This can be a slow and gradual process, but sometimes it can happen quickly too. For example, in Germany in the 1920s, they debased their currency that it became worthless in a few years.
Modern-day examples of currency debasement
It’s easy to think that currency debasement as something that happened in the past, but the reality is that this is a modern-day phenomenon that is happening right now.
For example, Zimbabwe has a 100 Trillion Dollar bill!
Here’s a few other examples of modern-day currency debasement. In Lebanon, inflation is up 140% in one year. In Turkey, the same is unfolding right now.
Michael Saylor did a great job outlining this phenomenon when he appeared on Tucker Carlson’s show (you can watch it here).
But that could never happen here in America, right?
Currency debasement is happening in the US too!
Things haven’t been that bad in the US compared to the other countries listed above (yay), but currency debasement is still happening in the United States.
For example, older people talk about how candy, gasoline, and other items used to be much cheaper compared to today. A few weeks ago my grandfather was talking about how he could buy a brand-new truck for $5,000 dollars back in the 1960s.
You can see how the purchasing power of the dollar has dropped over time in the graph below:
My first “real” job was at McDonalds fifteen years ago. I could afford a chicken sandwich for $1. Now, it costs at least $1.50.
The current rate of annual inflation is 6%. If you hid $100 under your mattress, $100 would give you $55 of buying power 10 years from now if today’s inflation rate continues.
In other words, your money is constantly losing value because the central banks are constantly making more money! For example, in 2020 alone, almost 1 in 5 dollars were created. You are getting screwed over, especially if you try to save it.
Reason #2: The banks shouldn’t be trusted (like Wells Fargo, Citi Bank, etc)
The next reason why Bitcoin exists (according to the creator) is that you shouldn’t trust the banks either. Satoshi Nakamoto mentioned a few reasons in the original thread posted earlier, like credit bubbles and identity theft.
2008 (credit bubble)
For example, consider the 2008 housing crisis that screwed over a ton of hard-working people and crashed the economy, forcing many people out of their homes:
This is one of several reasons why banks shouldn’t be trusted. Other examples include identify theft and other ways they mess with the system for their own personal benefit.
Who are you going to trust?
The financial system needs trust to function, but history is filled with examples of times when these people can’t be trusted to act in our best interest.
So what do we do? Who are we going to trust?
What if there was a way to establish trust between two people without requiring a person or a bank in the middle?
That seems ideal if we could pull it off. No people, no problems!?
Why Bitcoin? My reasoning..
I like Bitcoin because I don’t want to trust other people with my money.
I know that even good people screw up, and bad people screw up all the time. I don’t want them handling my money, printing more of it, and stealing from my bank account.
Bitcoin makes it so I don’t need to trust people. I’ll discuss more in another post. If you’d like to keep reading, check out the next post in the series – “What problems does Bitcoin solve?“