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Currency is a tool which we use to exchange values. Earlier people were utilizing Gold and other valuable metals to exchange with goods required by them. Gold is tangible. If a certain amount of Gold were to be in your hand, it basically meant you owned it. Due to Gold’s obvious disadvantages, we started using paper money. What we currently are acquainted with is something called Fiat Currency. Which means we are basically assuming that a particular piece of paper is worth some value.
Before explaining what Bitcoin is, let me tell you a story, then you will understand how exactly Bitcoin works;
A lot of monkeys lived near a village. One day a merchant came to the village to buy these monkeys. He announced that he will buy the monkeys at Rs 100 each. The villagers thought that this man is mad. They thought how can somebody buy stray monkeys at Rs 100 each? Still, some people caught some monkeys and gave it to this merchant and he gave Rs 100 for each monkey. This news spread like wildfire and people caught monkeys and sold it to the merchant. After a few days, the merchant announced that he will buy monkeys at Rs 200 each. The lazy villagers also ran around to catch the remaining monkeys! They sold the remaining monkeys at Rs 200 each. Then the merchant announced that he will buy monkeys at 500 each! The villagers start to lose sleep! They caught six or seven monkeys, which was all that was left and got Rs 500 each. The villagers were waiting anxiously for the next announcement. Then the merchant announced that he is going home for a week. And when he returns, he will buy monkeys at Rs 1000 each! He asked his employee to take care of the monkeys he bought. He was alone taking care of all the monkeys in a cage. The merchant went home.
The villagers were very sad as there were no more monkeys left for them to sell it at Rs 1000 each. Then the employee told them that he will sell some monkeys at Rs 700 each secretly. This news spread like fire. Since the merchant buys monkey at Rs 1000 each, there is a Rs 300 profit for each monkey. The next day, villagers made a queue near the monkey cage. The employee sold all the monkeys at Rs 700 each. The rich bought monkeys in big lots. The poor borrowed money from money lenders and also bought monkeys! The villagers took care of their monkeys & waited for the merchant to return. But nobody came! Then they ran to the employee… But he has already left too! The villagers then realised that they have bought the useless stray monkeys at Rs 700 each and unable to sell them!
That is how Bitcoin works. The Bitcoin will be the next monkey business. It will make a lot of people bankrupt and a few people filthy rich in this monkey business.
So what it is Bitcoin?
Nowadays most of the money is just in the form of numbers. So there is a possibility that the same money can be used for multiple transactions. To avoid this, banks keep a ledger to keep track of all the transactions essentially acting as a centre. Hence our conventional money is called as Centralized Currency.
Some computer scientists were not satisfied with a third party (bank) keeping track of transactions. This is when Satoshi Nakamoto comes in and proposes an entirely different solution where there is no 3rd party involved. There comes Bitcoin, decentralized currency.
Bitcoin is a digital or virtual currency. It is a form of cryptocurrency. Bitcoin is the first global, decentralized currency that allows you to send money from one person to another without involving a third party broker. No central bank or authority controls it. You can use it to buy products and services electronically. Decentralized currency is like the Internet. There is no one entity owning it (yet).
Who’s behind it?
The founder of Bitcoin is Satoshi Nakamoto, an anonymous online alias for a forum poster. The founder remains unknown, and no one truly knows who the actual founder is. At the moment, Bitcoin is owned by the community as a whole, as it is an open source initiative, with no single owner behind it. It is a community movement.
How is it different from normal currencies?
A financial institution issues and controls the normal currencies. For example – Federal Reserve System of the United States issues US Dollar and Reserve Bank of India controls Indian Rupee. The organic nature of the bitcoin sets it apart from normal currencies. It is not controlled by any central authority or institution. It is fully decentralized. It is maintained by the bitcoin network. It is a network of connected computers and ASIC machines. These machines and computers take part in confirmation of the transactions.
What did billionaire CEO Warren Buffett say about Bitcoin?
Buying Bitcoin is Not Investing: Warren Buffett
Published on: The Economic Times| May 01, 2018
Warren Buffett, the 87-year-old American investor and CEO of Berkshire Hathaway, has again scorned investment in cryptocurrencies, claiming that “buying bitcoin is not investing”, in an interview with Yahoo Finance in Omaha, Nebraska, over the weekend. “There are two kinds of items that people buy and think they’re investing,” he said. “One really is investing and the other isn’t.”
He added: “If you buy something like a farm, an apartment house, or interest in a business … you can do that on a private basis … and it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you. “Now, if you buy something like Bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.” Buffett went on to suggest that such investments are merely a speculative “game” and a “gamble” and that “no one knows exactly what (bitcoin) is”.
The so-called ‘Oracle of Omaha’ has repeatedly poured contempt on the crypto industry, claiming with “almost certainty” that cryptocurrencies “will come to a bad end”, in an interview in January, all the while admitting that cryptocurrencies are “something I don’t know anything about”. Buffett has been recycling the lack of intrinsic value argument since 2014 when he first dismissed bitcoin as “a mirage” on CNBC.
Buffett has also wielded the bubble argument against bitcoin, as well as stating that BTC cannot be valued because “it’s not a value-producing asset”. The Oracle’s anti-crypto stance is shared by ousted Paypal CEO Bill Harris, who called bitcoin a “scam” this week, and Buffet’s vice chairman at Berkshire Hathaway, 94-year-old Charlie Munger, who thinks interest in bitcoin is “simply disgusting”.
Warren Buffett Says Buying Bitcoin Is Gambling, Not Investment; don’t confuse speculation with investment.
Published on: Forbes Magazine| April 30, 2018
Speaking on the subject of buying cryptocurrency, Buffett explained: “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you want to gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing”.
Thanks for reading…
