Bitcoin, cryptocurrencies, and blockchain technology are at the leading edge of innovation in places like Silicon Valley. Increasing, more and more tech startups are integrating blockchain technology in some form to their business model. The industry is attracting the best and brightest developers and software engineers in the world. But the reality is the vast majority of people do not have the faintest clue how cryptocurrencies work. Many believe it’s ‘too technical’ given their non-technical background. But just how difficult for those less technically minded to grasp? How easy is it for someone to start learning and using the technology?
Bitcoin – Not Just a Currency
Bitcoin is not merely a currency. At a core level, it’s a way for two parties to transact who do not trust each other without needing to involve a third or trusted party. Bitcoin combines a few key technologies together including a distributed decentralized ledger known as a blockchain, a consensus algorithm known as ‘Proof-of-work’ that allows participants to determine what transactions are valid and what are not, and a hashing algorithm known as SHA-256.
I’ve talked to many lawyers, accountants, and even some economists who don’t understand anything about Bitcoin. Yet, they have no desire to learn since they are under the assumption it’s very technical and really only for computer-savvy people. Frankly, this not true; it’s simply not necessary to understand technicalities of how these technologies work to use or own bitcoin. Most things that need to be learned are non-technical in nature and can easily be picked up by young children or those with no technical skills.
When learning about cryptocurrencies, it’s true that there’s a deep rabbit hole some people end up going down. But at a basic level Bitcoin is quite easy to use from a technical standpoint. The biggest challenge for most people is not learning the very basic technical skills necessary to hold/use cryptocurrency (such as setting up a wallet). The biggest challenge is grasping what Bitcoin is from a political, philosophical, historical, and economic point of view. What makes Bitcoin have value? And even much more basic questions like ‘What is Money’?
The Basics and the Technical Barrier
Using cryptocurrencies requires taking custody of your own funds. This is not something we are typically used to. We are all used to leaving money in our bank accounts, holding mutual funds, investments, or holding cash. The first challenge involves understanding that any money you own isn’t really yours. These assets are all custodial in nature in one way or another, with cash arguably being an exception. When currency is in your bank account it belongs to the bank. The bank effectively writes individuals an IOU for what the individual or entity has given the bank.
You might think that if you have $100 of cash on you that will always be worth $100, even if the purchasing power of that $100 declines over time due to inflation. But you’d be wrong. The banknote(s) is worth $100 because the central bank of a given country has dictated it’s worth $100. But that can easily be rescinded. In fact, that’s exactly what happened in India in 2016 and people had mere hours to deposit or exchange old banknotes before they were deemed worthless.
Bitcoin isn’t like that. Bitcoin is pseudonymous in nature. When you own Bitcoin, you own it and no one else can change that; it’s ‘immutable’ so to speak. But this is provided you actually own it and you’re not letting another party store it on your behalf such as a cryptocurrency exchange. When you allow other parties to store it, they can be hacked, go bankrupt, steal your funds, or elect to make you jump through hoops to get it; just like a bank frankly. Hence the importance of holding Bitcoin in your own ‘wallet’
What is a ‘wallet’?
The term ‘wallet’ is somewhat of a misnomer because unlike the wallet you keep in your pocket, it doesn’t actually hold anything. A wallet is simply a device, program, or a medium (such as a piece of paper) that stores a public/private key combination. This combination can be used to access your assets which are always stored on the applicable blockchain. Assets can be moved to and from other public addresses which may be controlled by other individuals or entities.
The public address functions similar to a publicly shared username who you’d let other people know about if you want them to pay you in the applicable currency. The private key is similar to a password, albeit a very long and extremely secure. It cannot be changed. You can own or control as many addresses as you like, and none of them explicitly have your name on them.
No one can take funds out of your ‘wallet’ without knowing the applicable private key, not even you. An important thing to take away from this is that when you own cryptocurrency, you really do own it. It cannot be taken away from you unless someone finds the applicable ‘password’. And if you lose it, you lose your funds. Individuals truly are responsible for their own security, which is not something people are used to.
From a technical standpoint, creating a wallet and understanding that funds are effectively sent to and from different public addresses and private keys function as unchangeable passwords tied to those public addresses is all someone really needs to know to be able to use cryptocurrency. And wallets are incredibly easy to create. There are plenty of mobile apps and downloadable software available so that allows users to create a wallet and pay for goods and services at merchants who accept it as a form of payment.
The Non-Technical Barrier
Knowing what a wallet is and how to use it is not enough to make most people comfortable with owning or using cryptocurrency. While people often have many other questions, some of which are semi-technical and related to how and why bitcoin works, the majority are political, economic or philosophical in nature. Even though it’s not necessary to understand bitcoin better technically than what I’ve described in order to use it, many people do try to learn the basics of how bitcoin works from a technical perspective. For example, “How are my public & private keys linked, and how can I be sure no one else has them”. Knowing the answer to this question isn’t necessary to use Bitcoin, but many people don’t feel comfortable investing or holding Bitcoin unless they have a basic understanding & ability to answer simple questions like this.
The bigger obstacle for most people to overcome is why to ‘trust’ Bitcoin, which is trustless in nature. It involves challenging basic political, economic, financial, and philosophical principles and beliefs held since childhood. Some common criticisms and challenging things people need to take the time to understand are below:
Why does Bitcoin have value? It isn’t backed by anything!
Bitcoin is a pump and dump; eventually, it’ll be worth zero.
What is money and what are the fundamental features of money?
How well do existing currencies, cryptocurrencies, and assets perform the functions of money?
Why would I want to put money into a god damn computer program/computer code?
Bitcoin isn’t a currency because it’s not backed nor supported by any government.
Bitcoin is just useful for criminals.
The Bitcoin network could simply be hacked and all the funds would be gone.
My bank offers me digital currency, Bitcoin isn’t much different except for being far less stable in value.
Bitcoin has no intrinsic value.
Bitcoin will never be useful because it’s not ‘stable’ and never will be.
All these common criticisms can easily be addressed with the appropriate political, economic, financial, social, and historical context, but it’s out of the scope of the article. Nonetheless, it is not necessary to know the answers to these arguments/questions before using or investing in cryptocurrency. However, most people would be understandably uncomfortable investing money or storing wealth in cryptocurrencies without knowing such answers.
Viability of Cryptocurrencies as a Store of Wealth
Cryptocurrencies are just one of many ways individuals can elect to use to store their wealth. And there are a variety of reasons individuals may want to use cryptocurrencies to do that such as:
- They don’t want to entrust a corporation or bank
- They don’t like the idea of a government controlling their wealth
- They are worried about inflation (controlled by a government) eating away at their wealth
- They are worried that one day they will no longer have access to their funds or their wealth may be taken away from them by government or a financial institution
- They are worried about transactions being ‘reversed’ (e.g. if the individual was committing fraud which they profited from, they wouldn’t want those funds taken away)
- They want to hide their assets in a location they only have access to, for a variety of possible reasons.
So if a non-technical individual wanted to ‘trust’ cryptocurrency as a store of wealth but didn’t have any prior knowledge, just how easy would it be for them to do so successfully? The answer is it would be extremely easy as it requires extremely modest technically capabilities; not much harder than using the internet. What is more difficult, or rather time-consuming I should say is getting to the point where an individual is comfortable storing wealth in the form of cryptocurrency. People don’t want to invest in something which they don’t really understand. Getting ‘comfortable’ with cryptocurrency is far more time consuming than merely learning about the technology itself. However, it can be easily be done by anyone, technical or not, if they are willing to dedicate some time to learn more about it.