Three Things to Know About Bitcoin

Release Date
February 17, 2015


Government Politics & Policy The Fed & Monetary Policy

Bitcoin can be a little confusing–maybe you’ve heard that black markets like the Silk Road use it, or heard stories about its ever-fluctuating market value. Jerry Brito, law professor and Executive Director of Coin Center, gives you the basics about Bitcoin, from how it works, to how many there are, to who can benefit from it. Hint: It’s not just criminals.

Bitcoin is the world’s first completely decentralized digital currency. The way to think about Bitcoin is like electronic cash, not money, but cash. If you think about cash, you’ve got a hundred dollar bill, and when you give it to somebody, now they have it and now you don’t. You can verify this by looking at your hands, it’s not in your hands, it’s in their hands. If you think about electronic payments traditionally, you have to always have a third party between you and the person you’re sending money to, somebody like PayPal or Visa. When you send the other person money, you’re not really giving them anything, you’re telling PayPal to please deduct an amount from your account and add it to theirs. Bitcoin is like cash, there’s no more PayPal, there’s no more bank, there’s no more Visa, there’s just you and the other person. You give them the Bitcoin, now they have it, and now you don’t.
Like any emerging technology, the first who rush in to adopt it tend to be criminals. If you think about the car, the first people to really put it to use were bank robbers, and police, who were still on horseback, couldn’t catch up. Bitcoin has had some of that. Like cars, just because criminals were the first to put them to use doesn’t mean that we banned or regulated them in any exceeding way. Eventually, law enforcement were able to catch up and deal with new technology being used by criminals.
An interesting thing about Bitcoin is that there will only ever be 21 million in circulation. Right now, we’re at about 13 million. Bitcoin was started in 2009, and at that time, there were 50 new Bitcoins introduced into the money supply every 10 minutes, but that halves every four years, so in 2013 that halved to 25 new Bitcoins being introduced every 10 minutes, and that’s where we are right now. In 2017 it’ll half again to 12.5, and continue to half again and again, so that we reach about 21 million in the year 2140 or so.
I know that sounds crazy, but what that gets you is predictability. You know exactly how fast the money supply is going to grow. If you’re worried that 21 million units is not enough to run an economy on, understand that Bitcoins, individual Bitcoins, can be subdivided to eight decimal places. If you take those into account, there are actually more Bitcoin units than there are currency units in the world right now.
Click here to learn more about Bitcoin and cryptocurrencies.