Bitcoin derives its value from freedom

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An earlier version of this article appeared on Medium on September 25, 2019.

Something special happened in the first year or so after Satoshi gave us Bitcoin, something that no one expected and many thought was impossible. Try to imagine Bitcoin back then, before you could buy things with it, before there was an exchange rate, before anyone really knew what, if anything, would happen. Bitcoin didn’t start out as money. It turned into money, but he did it unlike all the money that came before him. For all the things Bitcoin has made possible, for all the ways it is changing in our world, we don’t fully appreciate or even understand what happened in those early days, when it was just a toy. for geeks.

Any other currency predating bitcoin – in the long history of human civilization – was valued for reasons other than its use as currency. Cattle in Africa, postage stamps in prison, seashells and precious metals have all been used as currency and fit this pattern. The only exception is fiat money – something that is declared to be money by an authority – but even national fiat currencies were once backed by something with a previous value, like gold.

Bitcoin changed all that. Bitcoin had no previous value and no one was obligated to use it, but it somehow became a medium of exchange. People who do not understand and care little about bitcoin can still accept it as a means of payment because they know that it can be used to pay for something else or be exchanged for conventional money.

People often mention the pizzas that were bought for 10,000 bitcoins and, in hindsight, laugh at the guy who ate what was to become a multi-million dollar lunch. I’m more interested in the person who gave up two perfectly good pizzas for a single bitcoin. What did they see in those bits and bytes, that digital signature on something people called a blockchain? Whatever the motivation of the pizza seller, maybe he also called the first miners who couldn’t liquidate but happily hoarded. It may have inspired those who simply donated thousands of bitcoins. Either way, it was something new.

Classical economics says that the exchange will only take place if both parties place more importance on what they get than what they give up. So where does the value come from? Bitcoin should never have taken off, but it did. Even a new product has some value, and early adopters take the risk of not getting their money’s worth, but they still expect to profit from the exchange.

Early Bitcoin users, on the other hand, had no way of knowing what we are doing now. All they had was a dream, a conviction and an infectious enthusiasm enough to ignite a digital device in a multibillion dollar phenomenon whose effects we are only now beginning to see.

I’ll tell you what I think happened, but the truth is nobody knows. It’s like magic that bitcoin can somehow come from nothing and, without any prior value or authoritative decree, turn into money. But bitcoin did not appear in a vacuum. It was a solution to a problem that cryptographers had struggled with for many years: how to create digital money without a central authority that couldn’t be tampered with and trusted.

This problem persisted for so long that some left the solution to others and dreamed instead of what our future would be like if decentralized digital money were to exist. They dreamed of a future where global economic power was accessible to all, where value could be transferred anywhere with the push of a button. They dreamed of prosperity and freedom, depending solely on the mathematics of strong encryption.

Bitcoin was therefore born on fertile ground and was recognized by those who awaited it. It was a historic moment for them, far more important than the pizzas or the utility bills from mining. The promise of freedom and the lure of fate energized the first community. Bitcoin was consciously, but spontaneously, used as money while no one was watching, and our world will never be the same again.

This is a guest article by Ross Ulbricht. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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