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What is Bitcoin? The Answer Has Changed Over Time

The question of what Bitcoin is and is supposed to be has gone through many different permutations over the years.

Certain viewpoints have ebbed and flowed with time, but it’s important to understand the evolution of these viewpoints, (and which ones are most popular) to be able to predict future events with some degree of accuracy.

Given that the history of Bitcoin is the genesis of an ideological compulsion towards decentralization as a moral good, Bitcoin supporters have adopted many different schools of thought on how the network should be developed going forward.

Some choose to refer to founding documents and early forum posts to attempt to decipher what Satoshi Nakamoto truly wanted for the currency. This is analogous to US Supreme Court justices poring over the Constitution and applying an originalist view to contemporary cases.

Others meanwhile reject textual exegesis and focus instead on a pragmatic analysis of Bitcoin’s worth and utility in the context within which it actually operates.

Many conflicts within Bitcoin have thus arisen from entities who hold visions of the protocol that are mutually exclusive — and this leads to friction when these visions cannot be reconciled. Visions of Bitcoin are not static. Neither is Bitcoin itself.

Technological developments, practical realities, and real-world events all have and will continue to shape collective views.

There are a grand total of seven main schools of thought concerning Bitcoin:

1. E-cash proof of concept: This was the first major narrative and the general view of what Bitcoin was in its earliest days.

Back then, cypherpunks and cryptographers were still appraising the nascent project and determining whether it worked, if at all.

Since all prior e-cash schemes had failed, it took a while for people to be convinced of its technical and economic viability and move on to more expansive conceptions of the protocol.

2. Cheap p2p payments network: This was an extremely popular and pervasive narrative. Some believe this is what Satoshi had in mind — a straightforward currency for peer to peer internet transactions. Much of the infighting between supporters of Bitcoin & Bitcoin Cash stem from this interpretation.

Afterall, since microtransactions are a key component of internet commerce, proponents of this view generally believe that low fees and convenience are an essential characteristic of such a currency.

3. Censorship-resistant digital gold: The main counterpoint to the p2p payments narrative, this is the view that Bitcoin primarily represents an untamperable, uninflatable, largely unseizable, intergenerational wealth store which cannot be interfered with by banks or the State.

Proponents of this view tend to de-emphasize Bitcoin’s use for everyday transactions, arguing that security, predictability, and conservatism in development are more important. We’re callously lumping in sound money believers into this camp.

4. Private and anonymous darknet currency: the view that Bitcoin is useful for anonymous online transactions, in particular, to facilitate black market online commerce.

This is not necessarily mutually exclusive with the e-gold position, as many proponents of the digital gold view believe that fungibility and privacy are important attributes. This was a popular narrative before the chain analysis companies had great success de-anonymizing Bitcoin users and selling the data to governments.

5. Reserve currency for the greater cryptocurrency industry: this is the view that Bitcoin serves an essential purpose as the native currency for the cryptocurrency/cryptoasset industry more generally.

This is a view espoused by traders for whom BTC is the numeraire — the currency in which the prices of other assets are quoted. Additionally, traders, businesses, and distributed networks that hold reserves in BTC de-facto endorse this view.

6. Programmable shared database: this is a slightly more niche view, and generally involves the understanding that Bitcoin can embed arbitrary data, not just currency transactions.

Individuals holding this view tend to see Bitcoin as a programmable, expressive protocol, which can facilitate broader use-cases. In 2015–16, it was popular to express the notion that Bitcoin would eventually absorb a diverse set of functionalities through sidechains. For example, projects like Namecoin, Blockstack, DeOS, Rootstock, and some of the timestamping services rely on this view of the protocol.

7. Uncorrelated financial asset: this is a view of Bitcoin that treats it strictly like a financial asset and finds its most important feature to be its return distribution or capital gains.

In particular, Bitcoin’s tendency to have a low or non-existent correlation to all manner of indexes, currencies, or commodities makes it an attractive portfolio diversifier.

Proponents of the view are generally not too concerned about owning Bitcoin themselves; they are instead far more interested in general exposure to the asset.

Put another way, they want to buy Bitcoin-flavored risk, not necessarily Bitcoin itself. As Bitcoin has become more financialized, this conception has gained steam among institutional investors in particular.

Featured image courtesy of Shutterstock. 

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