Before we examine what Bitcoin or digital currency is, we need to know what currency and money are.
What is money?
Money is something that is widely accepted for purchasing goods and services, or paying off debts and taxes. You might think that money is limited to paper bills and minted coins, but the reality is that anything can be money, as long as it meets these basic uses:
- A unit of account
- Medium of exchange
- Store of value
Looking back in history, the items our ancient ancestors once traded and exchanged were considered their money. These included everything from shells and animals to silver and gold. In modern times, we see this reflected in places where government money has little value, such as prisons, where cigarettes and fast food are recognized units of account!
From the 14th to the 20th centuries, snail shells were used as currency for trade and commerce across Africa and Asia. Durable, divisible, identifiable, and scarce, the shells were the natural currency of the pre-coin era. Other items like glass beads, rocks, and salt were also used in various cultures. Imagine: You might walk across rocks in the ocean today that once counted like dollars in a bank account. Those ancient currencies are all worthless today because they eventually fell victim to the value killer : hyperinflation .
Gold Standard
For a few short decades from the late 1800s to the early 1900s, under the gold standard, banks held gold reserves and issued paper “certificates” or “statements” to customers that represented receipts for their gold reserves. Simply put, people needed a way to make small, everyday payments that were easy to carry and store. They certainly weren’t going to be cutting up small pieces of gold bullion to buy groceries, because shaving or cutting up gold bullion to pay for, say, a cup of coffee was never a viable option.
Fiat or government-backed money
Money and currencies that are printed or distributed with the backing and commitments of governments and countries are called fiat. As mentioned above, for several decades and under the gold standard , governments received paper receipts, which we know today as “banknotes”, in exchange for gold that people deposited in banks. The banknotes of that time had the inscription “Your gold receipt at the bank”!
Dollar Standard
After the US banks ended the golden age of the gold standard for various economic and political reasons, they immediately replaced it with the dollar standard , which we still see today in use in other countries and governments. In the dollar standard, money is no longer printed in the equivalent of the value of gold reserves in US banks, and instead, the US government prints money indiscriminately, regardless of its gold reserves, based solely on the need for money, according to periodic approvals and needs. This alone has increased liquidity in society and increased inflation in the US and countries with a similar standard.
That’s right, dollar bills printed and distributed by the government have no backing. Fiat money is just paper with security labels on it! The only reason it has value is because the government says so, and that’s not a good thing. Eventually, the wheel of the economy will take its course and may one day make the dollar worthless.
This is not an irrational scare tactic. We have seen this play out in countries like Venezuela, where government corruption has rendered their national currency (the bolivar) virtually worthless after suffering inflation rates of nearly 54 million percent a few years ago.
What is digital currency and cryptocurrency?
As mentioned in Step 1 about blockchain, Bitcoin is an online currency or money whose transaction information, including the sender’s address (Bitcoin), the recipient’s address, and the time of the transaction, is stored in a distributed ledger called a blockchain . If you remember, I said that between the pages of this ledger, or rather, between the blocks of the blockchain, a password (in technical terms: hash) is exchanged to maintain the continuity, security, and correct order of the blocks.
After the introduction of blockchain technology by Satoshi Nakamoto , other currencies inspired by this technology have been born over time. Any type of money or currency that is created based on blockchain technology and encryption is called encrypted currency or crypto currency . As I mentioned in step 1 , the word crypto is the Persian equivalent of the phrase Cryptography . On the other hand, we also know that the English equivalent of the word currency is Currency , and that is why encrypted currencies are called Cryptocurrency , Cryptocurrency , or Cryptocurrency .
On the other hand, we see that in Persian, the term digital currency is mistakenly used for this type of currency. Digital currency, as its name suggests, is the currency that we use today in a digital and electronic form . For example, today we use less paper money of the rial and instead, we use the electronic and digital version of the rial in mobile apps or bank cards. The same is true for the dollar and the euro . Today, dollars and euros are exchanged all over the world through mobile applications and in an online and digital form , not paper.
So, it is better to use the term digital currency for the digital version of traditional currencies such as rials and dollars, etc., and the term cryptocurrency for Bitcoin and other blockchain currencies . Of course, there is no need to be too strict because, unfortunately, the term digital currency has been used incorrectly among Persian speakers for years. I think that it is enough for now that we have understood what cryptocurrency or crypto currency is . So in the next steps and on this website , wherever I use the term “ digital currency ” or “ digital currency ”, you will know that I mean crypto currency or crypto (cryptocurrency) .
One of the interesting aspects of the cryptocurrency market is the myriad of terms used to describe this type of currency. While cryptocurrencies are based on decentralized blockchain and cryptography technology, the terminology used to describe them varies. Examples of terms used in different countries include digital currency in Argentina, Thailand, and Australia, virtual commodity in Canada, China, and Taiwan, crypto-token in Germany, payment token in Switzerland, cyber currency in Italy and Lebanon, electronic currency in Colombia and Lebanon, and virtual asset in Honduras and Mexico!
What problems does Bitcoin solve?
Focus
Bitcoin eliminates the need for a centralized third party system – such as a central bank – to validate and verify transactions. Instead of relying on the current financial system to broker our transfers and settlements, Bitcoin works purely peer-to-peer, eliminating the need to trust a central or centralized government controller.
Perhaps the most important feature of Bitcoin is its decentralization. This feature separates Bitcoin from the central banking system we are currently accustomed to. Our banking system around the world is inherently centralized because our money is controlled and distributed by the government . We call this money “ fiat ” – which comes from the Latin word Fiat , meaning “to assign authority”!
When you hold a centralized fiat currency like the US dollar ( the current world reserve currency ) or the Chinese yuan, you are forced into a financial system that can change the rules at any time. You are exposed to a large banking system that charges you overdraft fees, requires minimum balances, and lends your money to other people to pay you less than 1% annual interest. Of course, this interest in Iran is sometimes close to 30%.
While big banks in the United States have healthy competition and therefore incentives to offer better and free services to customers, many countries around the world do not offer these perks. In fact, many banks outside the US charge their customers to keep their money in the bank!
Isn’t that theft? You can keep all your cash under your mattress!
Unbanked people
Although keeping money under your mattress or pillow may seem like a joke, the reality is that more than a billion people around the world who don’t have access to a bank use physical, insecure piggy banks!
Financial services create costly barriers, such as fees, minimums, and identification requirements, that prevent people from benefiting fairly from the financial system. Furthermore, not everyone in the world has access to a competent, safe, and insured central banking system. The unbanked must participate in programs imposed on them by their government, no matter how unstable or corrupt the program.
Because no one is in charge of Bitcoin, Bitcoin works for everyone. Rather than having someone at the helm, the Bitcoin network works based on the consensus of everyone participating in it . (By consensus, we mean one-sided agreement.)
No matter what country you are in or how your government is controlled, your wealth is secured by the Bitcoin blockchain, and no one has the authority or power to change that. While it is technically possible to “ hack ” or control Bitcoin, I explained in Step 1 why this would never happen.
Bitcoin is an opportunity for the unbanked to store and grow their wealth in a secure way, where no one can be restricted or excluded, and it doesn’t matter what your credit score is!
Privacy
In traditional banking, you are subject to rules and restrictions based on government identification. This leaves everyone vulnerable to fraud. If someone steals your identity, they can hack into your bank cards, make purchases or commit fraud in your name, and destroy your wealth and reputation.
With Bitcoin, your participation is not tied to your identity. Anyone and everyone can participate anonymously because your names and personal data are not tied to Bitcoin blockchain transactions .
Although most cryptocurrency exchanges (places where you can buy Bitcoin) have a Know Your Customer (KYC) process in place, requiring you to verify your identity with a selfie or video and photo ID, once you’ve moved your Bitcoin out of the exchange and into your wallet, all transactions will be anonymous from that point on. I’ve written about cryptocurrency wallets , authentication on centralized exchanges , and transferring cryptocurrency to an exchange in the next few steps .
Ultimately, no one controls Bitcoin at the highest level. But Bitcoin allows you to be your own bank and control your wealth completely without anyone else’s supervision .
Verifiability
Bitcoin enables a special kind of authentication that is not possible with fiat (government-backed money) . For example, there are so many counterfeit dollar bills in circulation (the U.S. Treasury Department estimates that one in every 10,000 bills is counterfeit) that ordinary people cannot detect them. But no one can create counterfeit bitcoins because the Bitcoin network is secured by a public blockchain, using cryptography, so that anyone can access and verify the authenticity of any real bitcoin.
Inflation
Governments are allowed to increase the money supply whenever they want. They want you to think they have everything under control (and they literally do). Here’s the thing: they’re stabbing you in the back while they’re shaking your hand. Looking at the excessive money printing in countries like Venezuela and Zimbabwe, we see that hyperinflation is occurring and progressing in these countries. If we’re to learn from history, we need to find workable solutions to the vulnerabilities that previous currencies fell victim to. But instead of worrying too much about the things we can’t change in fiat, we can look for real solutions.
Previously, we could only dream of such impossible things. Now, we have Bitcoin. In Bitcoin, no one has control. The supply of Bitcoin is limited to 21 million . There will never be more Bitcoins. No one can print more Bitcoins and increase the money supply like we are currently printing dollars. Unlike fiat currencies , Bitcoin does not erode your purchasing power over time, and you do not experience inflation with Bitcoin .
No one knows where the 21 million Bitcoin cap came from. It was probably just an arbitrary number. However, the important thing is that this number can never be changed. It is built into the Bitcoin software code. Obviously, there are more than 21 million people in the world. This means that not everyone can own a full Bitcoin. In fact, there are twice as many Bitcoins in the world as there are millionaires today. This should give you a good indication that Bitcoin will become more valuable in the future, as Bitcoin adoption continues to grow.
While fiat dollars can be printed indefinitely, the result of Bitcoin’s supply cap is “scarcity.” As demand for Bitcoin increases , its price and therefore its purchasing power also increases.
Bitcoin is a currency that solves the problems of currency devaluation. In Step 6 of the 21-Step Crypto Mentor tutorial , I examine Bitcoin’s fixed supply cap and learn why Bitcoin never loses its purchasing power like any other currency.
Bitcoin Standard
The common language of the world may seem to be English. Our common means of communication is web-based. But our current monetary system is a complete mess that could be fixed under the Bitcoin standard. With a common currency that doesn’t rely on a centralized power and is free from war, Bitcoin could become our global currency that knows no borders or permissions, bringing us one step closer to achieving “global civilization.”
The Euro as a Case Study
The European Union has united most of Europe under a single currency . This has enabled EU countries to grow economically in a stable and efficient manner. The common currency has enabled the capture of a larger market that can easily share trade and business operations across borders while maintaining stability and cooperation between countries.
There is just one major flaw: it is centralized. The European Central Bank (ECB), like any other central bank, has the authority to implement its monetary policy strategy by dictating the desired inflationary policies and increasing the money supply as it sees fit. This means that trust in the ECB is required.
Destroying trust
A country like the United States would probably never join a currency union that requires trust in other countries because it wants to be a strong bulwark, and it already is. That’s why a centralized global currency will never work, because countries are constantly fighting for power.
Unfortunately, many other countries rely on the US dollar as a reserve currency because their own currencies are not as efficient as the US dollar. This creates an imbalance and dependency on a national government that others have no control over. All fiat currencies are sinking ships, and the US dollar ship happens to be in more attractive waters to sink.
Bitcoin very kindly solves this problem by not requiring the permission of a centralized authority to function properly, allowing the mechanisms of a free market economy to fall into place organically like dominoes.
Bitcoin eliminates the need for a fragile system of trust that constantly hangs in the balance of power above us.
Bitcoin may be something that unites the world in a way that has never been done before. But it doesn’t just implement a potential global common monetary policy . In fact, many things can be built on top of the Bitcoin network, allowing us to create an internet that has the same security and transparency as the Bitcoin blockchain.
With Bitcoin, no one person can decide for themselves what Bitcoin is worth. Instead, the entire Bitcoin network agrees to assign a specific monetary value to Bitcoin, based on its demand (which increases over time). Not to mention, it does so without the threat, violence, and power that all fiat currencies use. The value of the Bitcoin network and all transactions that take place on it are secured by a blockchain that is managed automatically and without intermediaries.
Unlike gold, Bitcoin cannot be melted down to make jewelry or cut into thin sheets to decorate your delicious food. Bitcoin is not intended to provide you with a physical service, but rather to be a medium of exchange, a store of wealth, and a peer-to-peer electronic cash (person-to-person, without intermediaries) that you can access with your mind !
And frankly, that’s an advantage over gold. Its value is not tied to physical uses and instead relies on a very predictable scarcity .
But if you don’t want to use this magical online currency , you can buy heavy gold bars that are expensive to store and pray that we don’t see gold being mined from other planets or newly discovered reserves flooding in and increasing the supply of gold. If that were to happen, you wouldn’t be able to sell your gold quickly before the price plummets .
Why do some governments want to ban Bitcoin?
Governments trying to maintain their central bank power are insinuating that Bitcoin is an evil that works against the betterment of society.
To quote Senator Elizabeth Warren: “ Cryptocurrencies undermine the government’s ability to sustain strong economic growth over time… Online theft, drug trafficking, ransomware attacks, and other illegal activities are all made easier by crypto .”
Experts estimate that over $412 million was extorted from criminals via cryptocurrencies last year. However, he and (similarly) other politicians fail to mention that the United Nations estimates that between $800 billion and $2 trillion in fiat money is laundered globally each year (about 400 times more than cryptocurrencies). In 2020, the criminal share of all cryptocurrency activity was just 0.34%.
It seems like it’s all about control : the government currently regulates the economy by manipulating fiscal and monetary policy to boost economic growth. But our trust in government means our trust in people who are dishonest, make decisions based on lobbying, and proudly bail out big banks without regard for what happens to the people (see, for example, the 2008 financial crisis).
In China, Bitcoin has been “banned” many times in various forms. In general, China’s stance has been very anti-Bitcoin because they want to create a digital yuan in the form of a CBDC (Central Bank Digital Currency) that can be controlled and monitored. Bitcoin scares those with centralized control, so if people choose something that governments can no longer manipulate and control, they will try to stop it. But that won’t work even if they shut down the internet!
Concerns about mass adoption
If the government tries to ban Bitcoin or cryptocurrencies, what will most likely result is a huge backlash from the cryptocurrency community, garnering media attention around the world and causing people who were never interested in Bitcoin to now at least start looking into it. But “what if the government can’t stop Bitcoin? They can at least stop people from adopting it, right?”
Governments may think they can slow down Bitcoin adoption, but their efforts may not pay off for them.
Let me introduce you to the Law of Unintended Consequences . Some of my favorite examples are the Cobra Effect and the Streisand Effect . Both are examples of situations that end up happening exactly the opposite of what was intended.
Every time Bitcoin is declared “banned,” it becomes the biggest free marketing campaign Bitcoin has ever had.
The walls they have built to hold people back are finally coming down. This is a revolution against the existing corrupt financial system that has hurt so many for so long, and whether our leaders want to admit it or not, change is coming.
How will the extreme volatility in Bitcoin’s price affect the path of the Bitcoin standard?
When we talk about the volatility of fiat currencies, we think of governments that can become corrupt and make poor financial decisions, such as printing excessive amounts of money. But there are also concerns about the volatility of Bitcoin, as its price fluctuates so much that it cannot be used as an everyday currency.
There is a difference between volatility here: Bitcoin is secure, fiat is insecure. Bitcoin is volatile, fiat has a relatively stable price (at least in powerful countries). In order to use Bitcoin in the way we currently use fiat, Bitcoin needs to become stable. So, the question remains: How can we implement the Bitcoin standard when its price fluctuates so much in terms of dollars or other fiat currencies?
Will Bitcoin replace fiat?
There are a few hypothetical scenarios that could play out. Some people think fiat will never disappear, while others think Bitcoin will completely upend the existing financial system. Whatever happens, one thing remains true: Bitcoin is here to stay and will continue to play an increasing role in our global financial system.
Realistically, Bitcoin will not completely overhaul fiat. However, anything is possible, and this is a scenario that has not been played out before and is therefore very difficult to imagine. If Bitcoin were to replace fiat, it would probably require the goodwill and goodwill of governments around the world to move towards this decentralized currency. Given what we know about governments, this scenario seems very unlikely.
Instead, the path to global adoption is more like individuals choosing to own a store of wealth that they control. Keep in mind that since Bitcoin is permissionless, implementing appropriate privacy measures means that Bitcoin can be used and held in places far from government oversight and control.
Most likely, we will continue to use Bitcoin as a store of wealth (assets like real estate or stocks). By storing a portion of Bitcoin as collateral, people can borrow fiat money to pay for everyday living expenses. There are a few lenders in some countries that have already implemented this feature.
CBDCs: Central Bank Digital Currencies
Many politicians are calling for the implementation of CBDCs – a centralized digital currency – that would allow governments to retain central oversight and control over monetary policy. This, if implemented, may come with less privacy than the cash system we still use.
They foolishly think that this will destroy the entire cryptocurrency industry. However, many people are afraid of CBDCs like the digital yuan, which potentially violate personal privacy and security. This may push Bitcoin adoption forward as people look for the only true solution to independent money: Bitcoin.
Prices of consumer goods
When we think about Bitcoin volatility, we measure it in terms of its value in dollars or whatever fiat currency it is. But if we really accept the Bitcoin standard (a market without fiat), then what exactly are we comparing the price of Bitcoin to? Isn’t a Bitcoin today the same as a Bitcoin tomorrow? Isn’t 50 Satoshis the same as 50 Satoshis? (Each Bitcoin is 100,000,000 Satoshis: 1 BTC = 100,000,000 SAT )
As technology advances, consumer goods should naturally become cheaper . But central governments are trying to manipulate markets and prevent deflation at all costs, so I invite you to consider replacing the current system with Bitcoin. For more on this topic, I encourage you to read the book “Tomorrow’s Price,” by Jeff Booth.
How AI Helps in understanding, analyzing, and using cryptocurrencies?
1. Education & Simplification
- AI-powered tutors (like Copilot) explain complex blockchain concepts in simple terms.
- Example: Explaining hash functions or decentralization with analogies and interactive quizzes.
2. Market Analysis
- AI models detect patterns in price volatility and provide predictive insights.
- Example: Spotting unusual trading activity that might signal pump-and-dump schemes.
3. Fraud Detection
- AI scans blockchain transactions to identify suspicious activity.
- Example: Detecting wallet addresses linked to ransomware or money laundering.
4. Portfolio Management
- AI tools recommend diversification strategies based on user risk profiles.
- Example: Suggesting a mix of Bitcoin, Ethereum, and stablecoins for balanced exposure.
5. Sentiment Analysis
- AI monitors social media and news to gauge market sentiment.
- Example: Predicting short-term price movements based on Twitter trends.
Use Cases / Examples
- Crypto Trading Bots: AI-driven bots execute trades automatically based on market signals.
- Smart Wallets: AI helps users manage private keys securely and alerts them to phishing attempts.
- RegTech (Regulatory Technology): AI assists exchanges in complying with KYC/AML rules by automating identity verification.
- Crypto Education Platforms: AI personalizes learning paths for beginners vs. advanced traders.
FAQ
Frequently asked questions about Bitcoin, Cryptocurrency, and Digital Currency
Q1: What is the difference between digital currency and cryptocurrency?
A: Digital currency refers to electronic versions of traditional money (like dollars or rials in banking apps). Cryptocurrency is a decentralized, blockchain‑based currency (like Bitcoin or Ethereum) that uses cryptography for security and does not rely on banks or governments.
Q2: Why was Bitcoin created?
A: Bitcoin was designed to eliminate the need for centralized banks and governments in financial transactions. It enables peer‑to‑peer transfers, protects against inflation through a fixed supply cap (21 million coins), and offers privacy and verifiability via blockchain technology.
Q3: How does cryptocurrency differ from fiat money?
A: Fiat money (like the US dollar) is government‑issued and can be printed without limit, leading to inflation. Cryptocurrency is decentralized, has limited supply, and is secured by blockchain, making it resistant to inflation and counterfeiting.
Q4: What problems does Bitcoin solve?
A:
- Removes reliance on banks for transactions.
- Provides financial access to the unbanked.
- Protects against inflation and currency devaluation.
- Enables anonymous, secure transactions.
- Offers global, borderless transfer of value.
Q5: How can AI help in understanding and using cryptocurrency?
A:
- Education: AI tutors simplify blockchain concepts.
- Fraud Detection: AI scans transactions for suspicious activity.
- Market Analysis: AI predicts price trends and volatility.
- Portfolio Management: AI suggests diversification strategies.
- Sentiment Tracking: AI monitors social media to gauge market mood.
Q6: What are real‑world examples of cryptocurrency use?
A:
- Payments: Buying goods/services with Bitcoin.
- Remittances: Sending money across borders quickly and cheaply.
- Investments: Holding crypto as a store of value.
- Smart Contracts: Automating agreements on platforms like Ethereum.
- Stablecoins: Using USDT or USDC for stable digital transactions.
Q7: Is cryptocurrency legal everywhere?
A: No. Some countries (like El Salvador) embrace Bitcoin, while others (like China) restrict or ban it. Regulations vary widely, and many governments are exploring Central Bank Digital Currencies (CBDCs) as alternatives.
Q8: Can Bitcoin replace fiat money?
A: It’s unlikely to fully replace fiat in the near future. Instead, Bitcoin is more commonly used as a store of value (like digital gold), while fiat remains dominant for everyday transactions. Hybrid systems (crypto + fiat) are emerging.
Q9: What risks should beginners know about cryptocurrency?
A:
- Volatility: Prices can swing dramatically.
- Security: Losing private keys means losing funds.
- Regulation: Laws differ by country.
- Scams: Fake exchanges and phishing attempts are common.
- Technology: Requires basic understanding of wallets and blockchain.
Q10: How do I start using cryptocurrency safely?
A:
- Learn the basics (blockchain, wallets, exchanges).
- Use reputable exchanges with KYC verification.
- Store crypto in secure wallets (hardware or software).
- Diversify investments; don’t put all funds in one coin.
- Stay updated on regulations and market trends.
Before proceeding to Step 3 , let’s get acquainted with the symbols (BTC, ETH, …) and logos of the top twenty cryptocurrencies in terms of market capitalization :
Also know that on some websites and exchanges, the Bitcoin symbol is XBT !