Why Bitcoin is important

In the previous article in the series about Bitcoin, I talked about what it is for, where the main idea was this: holding and transferring a digital asset without a company keeping the central ledger.

And that is more important than the price it trades at today.

The price changes every day, while Bitcoin's economic proposition remains (and will remain) the same regardless of its market price.

Why Bitcoin was created

Bitcoin was launched in 2008 through a document signed by Satoshi Nakamoto, a name whose real identity is still not known for certain.

Its goal was to create an electronic cash system that allowed payments to be sent directly between people without relying on a financial institution acting as an intermediary.

The problem was not only that bank transfers could be slow or expensive. Digital money has a basic difficulty: you have to prevent one person from spending the same amount twice.

In traditional systems, a bank or company maintains the database and decides which transactions are valid.

Bitcoin proposed another solution. Instead of trusting a single entity, it uses a network of computers that shares information, applies common rules and keeps a history of transactions.

The way it does this, through mining and proof of work, helps order transactions and makes it harder for someone to alter the record however they like.

The difference is that the network's basic operation does not depend on a single company maintaining a private database.

What digital money without intermediaries brings

The main innovation is that Bitcoin lets you own and transfer a digital asset without needing an account with a specific institution. If you control the keys to a wallet, you can authorise transactions from anywhere with an Internet connection.

This makes two things possible.

The first is self-custody of your funds. With bank money, the bank records your balance and lets you use it (or not) under certain conditions. With Bitcoin you can take custody of your funds yourself, although you can also delegate it to platforms such as centralised exchanges such as Binance.

For each person, one custody method or another may be preferable, but the important thing, what Bitcoin introduced, is having that option.

The second thing made possible by the structure of its system is the difficulty of confiscating the funds. And it is just as important as the previous one. Think about it: if there is no entity where your funds are deposited, there is no institution to seize or intervene in.

This gives each person a degree of freedom that is ENORMOUS, in a context where governments increasingly monitor and restrict us.

Fighting inflation

As if the above were not enough, the network also operates with known issuance rules.

There is no authority capable of increasing the maximum number of bitcoins through a unilateral decision as central banks can, leading to inflation that gradually erodes the value of your saved money year after year.

For people who distrust monetary policy or live in places with highly unstable currencies, this predictability can be especially attractive. After all, one bitcoin will be worth one bitcoin today and tomorrow too.

International money

Another contribution is that the network has been international from the start. There is no Spanish Bitcoin and another US Bitcoin that need to be exchanged with each other.

The same rules apply regardless of where the people carrying out the transaction are located.

Value that takes up no space

Bitcoin is often compared with gold. In fact, it is called “digital gold”, in the sense that it is an asset, a store of value that, in theory, does not depreciate over time (in the long term).

However, one fundamental difference is the amount of space that value occupies.

A gold bar takes up a certain amount of space. And it is not exactly light. A thousand bars, don't even get me started.

However, one, ten or one hundred thousand bitcoin take up no space, at most the space occupied by the hardware wallets that give you access to them (each one is like a USB flash drive).

That lets you pass all kinds of controls, such as airport security, without problems and carry your capital with you at all times, if that is what you prefer.

Why Bitcoin can have value

Of course, all this has costs. Your own responsibility increases (especially with self-custody), transactions are difficult, if not impossible, to reverse, and the experience is less straightforward than using a banking app.

And as Uncle Ben used to say: with great power comes great responsibility.

Bitcoin's importance lies in having proved that this system can exist, not in it being perfect.

That said, the fact that a technology is important does not automatically mean its asset has to be worth a lot. It is essential to understand that, like any financial asset, bitcoin's price depends on there being people willing to buy it and hold it.

Those of us who assign value to it usually point to the ability to transfer it globally without trusted third parties, its resistance to confiscation, its limited supply, the difficulty of counterfeiting it, and the size and security of the network that uses and protects it.

Its critics point out that it generates no income by itself, that it is highly volatile and that demand can change.

Next steps

Below are the next articles in the series. They are designed to be read in order if you do not know much about Bitcoin, but each one stands on its own, so you can jump to whichever interests you most:

Frequently asked questions

Why is Bitcoin important?

Bitcoin is important because it proved that a digital asset can be held and transferred without a company, bank or institution keeping the central record of transactions.

Why was Bitcoin created?

Bitcoin was created to enable electronic payments directly between people without relying on a financial institution acting as an intermediary.

What problem was Bitcoin trying to solve?

One of the main problems was preventing double spending in a digital-money system without relying on a bank or company to decide which transactions were valid.

How does Bitcoin avoid depending on a central entity?

It uses a network of computers that shares information, keeps the transaction history and applies common rules to determine which transactions are valid.

What does self-custody of Bitcoin mean?

It means that you control the keys needed to access and move your funds through a wallet, instead of delegating that responsibility to a bank, exchange or other company.

Do you have to custody your bitcoins yourself?

No. You can use self-custody or delegate it to a third party, such as a centralised exchange. The important thing is that Bitcoin lets you choose between both options.

Why is Bitcoin considered difficult to confiscate?

Because if you control the keys yourself and the funds are not deposited with an institution, there is no specific company or bank that can directly block access to them.

How is Bitcoin related to inflation?

Bitcoin has known issuance rules and a maximum limit that cannot be increased by a unilateral decision from a monetary authority.

Can a government or central bank create more bitcoins?

It cannot unilaterally decide to increase Bitcoin's maximum supply in the way a central bank can increase the amount of a traditional currency.

Why can Bitcoin be useful in countries with unstable currencies?

Because its issuance rules do not depend on the monetary policy of a specific country. For people living with highly unstable currencies, that predictability can be attractive.

Is Bitcoin international?

Yes. The same network and the same rules work regardless of the country where the people carrying out a transaction are located.

Why is Bitcoin compared with gold?

It is compared with gold because some people see it as a possible store of value and because its supply is limited. That is why the term “digital gold” is also used.

What advantage does Bitcoin have over gold for transporting value?

Bitcoin lets you move large amounts of value without physically transporting a heavy or bulky asset. Access can be maintained through the keys to a wallet.

Why can Bitcoin have value?

People who assign value to it often point to its limited supply, the ability to transfer it globally without trusted third parties, the difficulty of counterfeiting it, and the size and security of its network.

Does Bitcoin being important mean its price has to rise?

No. The technology or system being important does not guarantee that bitcoin will increase in price. Its market price also depends on demand and on people being willing to buy and hold it.

What arguments do Bitcoin critics use?

Among the main ones are that it generates no income by itself, that its price is highly volatile and that demand can change over time.

What risks come with having more control over your bitcoins?

Your responsibility also increases. If you use self-custody, you must protect the keys properly and, in addition, Bitcoin transactions are very difficult to reverse once completed.