So you’re asking yourself, what is Bitcoin, really? You may have heard catch phrases in the media describing it as cryptocurrency, digital gold, or peer-to-peer cash — or maybe even that it’s magic internet money, a Ponzi scheme, or nothing more than the next tulip mania.
In any case, it’s hard to understand Bitcoin if you don’t understand the problem that Bitcoin solves — that is: money, or more accurately, the broken monetary system of modern, government-issued fiat currencies that we all participate in.
The broken-money problem
If you live in the United States, or another western, developed country, fiat currencies such as the dollar may not seem that bad. But for millions of people around the world who have suffered through hyperinflation, the problem is painfully obvious.
You see, while we may not suffer from hyperinflation, our currency is debased all the same, and that results in a loss of purchasing power over time, which over the course of decades is staggering. The US dollar alone has lost 97% of its purchasing power since the Federal Reserve was created in 1913, and every single other country that issues fiat currency has a similar, if not worse, track record.
To add insult to injury, experts assure us that inflation is necessary to support a growing economy, but of course nothing could be further from the truth.
Their reasoning is hard to follow, but as best I can tell, the theory is that as the economy grows, there will be more demand for money — and not enough to go around for all the people who want to save, and ultimately transact, in it. If we go with this assumption, the obvious solution would be to divide the existing money into smaller units (think silver vs. gold), but the traditional financial system has no practical way to do this, so instead they print more currency.
Unfortunately, the money-printing causes inflation, which ultimately impedes growth rather than accelerating it. This is the real reason the government funds economists who promote modern monetary theory — because the system is based on debt that cannot possibly be fully repaid, most of which comes from the government’s deficit spending.
Inflation effectively devalues existing loan balances and pushes the risk of default into the future. In the short run, credit defaults can cause lots of pain and disruption in the economy, as we saw during the great financial crisis of 2008, so money-printing becomes like a giant game of musical chairs — but where the music can never stop, because otherwise the economy will crash.
Why deflation isn’t the boogeyman
In this context, the Federal Reserve and other central banks around the world are hailed as the defenders of the economy, ensuring that we have a healthy level of inflation so the economy can continue growing. At the same time, deflation is characterized as a boogeyman that will cause all sorts of problems — but of course this couldn’t be further from the truth as well.
Under a Bitcoin standard, deflation would be natural, expected, and even welcomed, as productivity gains and technology would deliver ever more value to buyers, and debt would only be issued out of actual reserves — not printed out of thin air like in our fractional-reserve banking system, where banks loan out demand deposits.
Contractually, bank customers have the right to demand repayment of such deposits at any time without warning, and this has led to countless insolvencies and bank runs, which then cause the government to print even more money to bail out the banks.
For more details on deflation and why it’s actually a good thing in the context of a full-reserve banking system, read the introduction to The Price of Tomorrow, by Jeff Booth. For more information on the divisibility of money, and how much money is the right amount of money, read chapter 10 in Principles of Economics by Saifedean Ammous.
Hard money and the rise of fiat
Now, most people intuitively understand that it’s inherently unfair that normal people have to work hard to earn money, while the government can just print it. This is why monetary metals, such as gold, have been used as money for thousands of years.
Bringing new gold to market is hard, so people naturally gravitate toward using it as money over other commodities that are easier to produce. In other words, people prefer gold because it is hard money, meaning it has the lowest inflation rate.
The problem with gold is that it’s not easily divisible and it’s hard to securely transport, and these factors are what led to the rise of fiat currencies in the first place. People preferred to keep their gold on deposit and instead trade slips of paper representing the gold, but this system requires a trusted third party to actually hold the gold.
At first this service was offered by goldsmiths, and then banks, but eventually the governments of the world couldn’t resist the temptation to grant themselves a monopoly on money issuance because of the power it bestows. That is, you can issue more slips of paper without acquiring more gold, and thus fund your operations without having to raise unpopular taxes.
Of course, people eventually got wise to this reality, but by then it was too late. In the case of the United States, Nixon “temporarily” suspended the convertibility of dollars to gold in 1971, and this policy continues to this day — meaning that the dollar is no longer really backed by gold, but rather the full faith and credit of the United States government.
This has led to endless deficit spending and a growing national debt that will probably never be repaid, and politicians have little incentive to change because any cuts or austerity measures jeopardize re-election. The only choice is to print more money, which leads to more inflation and more debt, which leads to more money-printing and more inflation.
Unjust weights and measures
On the surface, inflation may not seem all that bad because, after all, asset prices continue to go up and to the right. But this is why inflation disproportionately helps some at the expense of others, a phenomenon known as the Cantillon Effect.
Powerful and well-connected people are closer to the money printer, in the sense that they receive newly created currency first in their banks and financial institutions. They are then licensed to issue loans and earn interest on the new money, which is used to purchase assets, goods, and services before prices rise.
Poor people generally don’t own many assets and are not in a position to issue loans, and so they’re left behind as Cantillionaires watch their portfolios go up and to the right.
If all of this is starting to make your head spin, that’s normal. The injustice of the system is so stark that it can be hard to believe, and so most people assume there must be some explanation that only the experts can understand. Unfortunately, as well-meaning as these experts may be, many of them have been taught by an educational system that is funded — and thus influenced — by the same people who benefit from maintaining the status quo.
Sadly, the status quo is effectively a wide-scale system of unjust weights and measures, as the denominator of every transaction and account balance in the economy is being increased without people really knowing about it or understanding what’s happening.
The Bible explicitly forbids such practices as an abomination to the Lord:
You shall have just balances, just weights, a just ephah, and a just hin.
Leviticus 19:36
Then later:
A full and fair weight you shall have, a full and fair measure you shall have, that your days may be long in the land that the Lord your God is giving you. For all who do such things, all who act dishonestly, are an abomination to the Lord your God.
Deuteronomy 25:15–16
In this context, we can start to see the need for something like Bitcoin and how such a system is in accordance with Scripture. You see, unlike every other money in the world, Bitcoin has a fixed supply, meaning that no one — no matter how powerful — can create more Bitcoin than the code allows, which is 21 million Bitcoin.
If you’re interested to learn more about how this is possible, check out River’s excellent article, Can Bitcoin’s Hard Cap of 21 Million Be Changed?
If you want to understand more about Bitcoin’s scarcity and why it’s such a big deal, read chapter 1 in Gradually, Then Suddenly by Parker Lewis. And finally, if you want a deep dive on the history and theory of money, and how it’s broken, read Broken Money by Lyn Alden, or watch her excellent summary video. I’ll put links to all of these resources below.
Is Bitcoin really the solution?
So we’ve identified the problem, but is Bitcoin really the solution? The first sentence of the original white paper, published in 2008, goes like this: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
In other words, Satoshi — the pseudonym for the creator of Bitcoin — intended Bitcoin to be money that doesn’t require trusting a third party. Remember, in the case of gold, and later fiat currencies, people are trusting a third party such as a bank or the government to be honest.
Bitcoin, on the other hand, assumes that no one can be trusted in the face of such temptation, and so it creates a decentralized system where no single person — or node, in Bitcoin parlance — needs to be trusted, because each node maintains a copy of the entire blockchain, or ledger. Any transaction can be easily verified by any participant in the network, and transactions cannot be duplicated or faked due to an ingenious technical innovation called proof of work.
Proof of work anchors Bitcoin to reality, because real-world energy use is unforgeable from a physics standpoint. This is the only decentralized way to prove that something actually happened before something else in a digital system, which is also known as the double-spend problem in the theory of decentralized ledgers — we’ll cover this more in a later part.
How Bitcoin can have value
For now, you might be thinking: that’s all well and good, but why or how does Bitcoin actually have any intrinsic value when it isn’t backed by something physical or useful for anything?
Well, for starters, as Christians, we know that there are plenty of non-physical things that have value. For example:
A good name is to be chosen rather than great riches, and favor is better than silver or gold.
Proverbs 22:1
In other words, a good reputation — something that is not physical — is more valuable than silver or gold, both of which are physical monetary metals. Of course, there are also plenty of examples of digital things that have value, such as a manuscript for a novel, or the pictures of your children in the cloud. So it can’t really be that Bitcoin has no value because it’s digital and not physical — but what about the fact that it isn’t useful for anything, or that it has no utility?
The idea is that monetary metals, like gold, are valuable because of their industrial use cases. But the reality is that the majority of the value of gold currently comes from what economists call its monetary premium, which is a fancy way of saying how much value people assign to something for its use as money — that is, something that can be used as a store of value, medium of exchange, or unit of account.
And just because something isn’t used for all three of these functions at once, it doesn’t mean it can’t be considered money. For example, gold isn’t really used as a medium of exchange or as a unit of account anymore, but it’s still widely regarded as a great store of value.
Of course, when something is used as money, that in itself is also utility, but for the purpose of this discussion it’s useful to carve out that particular use case from the rest, so that we can compare how much utility value something has versus its monetary premium.
There are plenty of examples of market goods that have a monetary premium in our world, such as gold, real estate, and art, and each of these goods has a different ratio of utility value to monetary premium.
Bitcoin is unique in that it’s the first good where the entire value comes from its monetary premium — but that isn’t a strike against it, but rather one of its greatest strengths. Throughout history, the market good that has the smallest utility value relative to its monetary premium has typically served as the best and hardest form of money, and this is due to multiple reasons that we don’t have time to cover here.
The point is that humans have always converged toward the hardest market good, which results in the highest monetary premium — and by that metric, Bitcoin can never be bested, because it already has a 100% monetary premium.
If you want to understand why this is the case, or just want more details about this subject in general, read chapter 3 in Broken Money and chapter 3 of The Bitcoin Standard by Saifedean Ammous.
Subjective value and “backing”
And one final note on the idea that things can have intrinsic economic value in the first place. Austrian economics provides an alternate take, claiming that all economic value is subjective and determined at the margin.
That is, nothing in the physical world has any economic value until a rational individual who is forced to economize assigns value to that thing. We say this value is subjective because individuals all have different wants and needs at any given moment.
For example, all humans value water, but someone in the middle of the Sahara desert will probably value water much higher than someone with access to running water in their house — that is, until they come across an oasis and have had their fill of water. This is why we say value is also determined at the margin: if there is an abundance of a thing relative to how much of it we need, we will value each additional unit or quantity of that thing less and less.
If you’re really into economics and want to go down this rabbit hole, read chapter 2 in Principles of Economics.
But what about the idea that Bitcoin has no value because it isn’t backed by anything? After all, the dollar was backed by gold, and now it’s backed by the full faith and credit of the United States of America — or, as Bitcoiners sometimes joke, proof of war.
The idea here is that fiat currencies, like the dollar, don’t really have any value in and of themselves, but rather that they derive value from an underlying thing that does have value. Of course, the full faith and credit of the US isn’t a physical thing, but we’ve already covered how non-physical things can have value.
In the case of the gold-backed dollar, the idea was that gold was the real money and the dollar just represented a claim on a particular amount of gold. This argument just leads back to our original discussion about intrinsic value, so you really just need to establish that comparing Bitcoin to gold is more appropriate than comparing it to the dollar.
That is, Bitcoin, like gold, is valued directly — it doesn’t derive its value from something else, and its value isn’t intrinsic, but rather subjective, coming from its usefulness as a money to individuals who prefer it. And these people aren’t just speculators.
Not the next tulip mania
Unlike the tulip mania, Bitcoin has stood the test of time, and every time it has crashed and been declared dead, it has never trended to zero — instead, it has always come roaring back with new all-time highs.
This is not the classic chart of a speculative bubble that never comes back. A better analogy would be the dot-com bubble in the early 2000s. That bubble was based on an underlying technology that did have value — the internet — but the hype went too far too fast.
In hindsight, investing in companies like Amazon, even at the height of the dot-com bubble, would have been a genius move. But just like Amazon now, you might still object and say that all the gains have already been made and it’s too late to get in.
In other words, it’s not that Bitcoin has no value, but rather that it has no value in terms of future investment gains. But here’s the reality: everyone thinks they’re too late to Bitcoin, regardless of when they’re thinking about getting in.
It doesn’t matter if you looked at Bitcoin at $100 or $1,000, because at every one of those times, Bitcoin had been trading at a tenth of its value just a short time before. The fact is, as of early 2025, we’re still very early to Bitcoin, and the market cap of Bitcoin relative to the total addressable market is minuscule. Alternatively, if we continue with the comparison to internet adoption and the dot-com bubble, it’s like we’re still in 1994.
For more information on Bitcoin’s potential and where we are in the adoption curve, check out Bitcoin University’s video, Too Late to Buy Bitcoin?, Michael Saylor’s talk, There Is No Second Best, or read chapter 21 in Broken Money.
For more details on proof of war, read chapter 7 of The Bitcoin Standard and chapter 12 of The Fiat Standard, also by Saifedean Ammous. For more discussion on Bitcoin not being backed by anything, read chapter 3 in Gradually, Then Suddenly. And finally, if you really want to dig into the technical details of how Bitcoin works, start with 3Blue1Brown’s video, But how does Bitcoin actually work?
To recap
So, to recap: first we established the problem — that monetary debasement is too great a temptation for a centralized authority, and every government does it. Next, we showed how Bitcoin solves this problem through the combination of a decentralized ledger, known as the blockchain, and a technical innovation called proof of work. And finally, we explored the theory of money and how Bitcoin can — and does — have value.
But you may still be wondering: is Bitcoin a scam, a Ponzi scheme, a waste of energy — or even worse, is Bitcoin evil, because it’s used by criminals, or because it’s worldly, or promotes wealth inequality? We’ll take on all of these questions in the next part.