What is bitcoin good for?

On today’s 12th anniversary of the bitcoin genesis block, at a time when bitcoin is reaching new all-time-high prices on a nearly daily basis, I find myself thinking about what bitcoin is good for. Not because I don’t know, but because there are still so many other people who apparently don’t know. This is totally understandable! Even in our hyperconnected, extremely-online world, it’s easy to get stuck in a knowledge rut or clique, unaware of major shifts happening just outside one’s peripheral vision.

If you find yourself becoming aware of bitcoin for whatever reason and wondering “what’s bitcoin good for?”, or come across other people asking this question and want a quick way to answer it, then this post is for you.

Protecting the long-term value of savings

The most popular use of bitcoin today, by far, is protecting the long-term value of savings. If someone has savings that they don’t plan to touch for many years, they can put those savings into bitcoin and be reasonably confident that over a many-years timeframe, the value of their savings will be equal to or greater than the value of their savings before they put it into bitcoin.

This use-case is perhaps best exemplified by the recent purchase of over 70,000 BTC for a price of $1.1 billion by the business intelligence firm MicroStrategy. Previously MicroStrategy’s corporate treasury was holding mainly U.S. Treasury bonds. But after COVID hit and Treasury yields began to plummet, MicroStrategy CEO Michael Saylor began to look for alternative assets to put the company’s savings into.

“We really felt we were on a $500 million melting ice cube,” Saylor told Bloomberg. He ended up deciding to put the majority of the company’s long-term savings into bitcoin.

What’s good for companies like MicroStrategy can be good for you, too. If you have long-term savings that you want to protect from currency inflation and unscrupulous money managers, bitcoin is good for protecting the long-term value of those savings.

* I should note that bitcoin is not yet that great at protecting the value of savings on short time periods of days, months, or even a couple of years. There have been periods of price volatility where the value of bitcoin has been significantly less than previous all-time-highs for months or years. In my opinion, bitcoin is best for savings that won’t be touched for five years or more.

Making the payments they don’t want you to make

One of the first uses of bitcoin outside of “toy” or “speculative” uses was in the online marketplace Silk Road. This marketplace enabled customers to buy and sell almost any product imaginable, excluding products that directly harmed or defrauded people such as guns, stolen credit cards, and child abuse imagery. The most popular products were illegal or semi-legal drugs.

Since traditional payment companies would have both quickly put a halt to payments through this marketplace and cooperated with authorities in the prosecution of buyers and sellers, the Silk Road turned to bitcoin. This eventually led to sitting U.S. Congressmen crying out about the dangers of bitcoin, which by this point was facilitating millions of dollars worth of drug transactions. But despite the anger of government officials, bitcoin was unaffected and went on to achieve even greater levels of adoption.

Nowadays, bitcoin is still used to buy and sell drugs online. But it is used for many other types of payments “they” don’t want you to make as well: payments for porn, for DIY gun tutorials, for civil liberties activists protesting extreme government oppression, for commerce between pariah states, and more.

If you want to buy or sell something online that your government and/or traditional payment processor doesn’t want you to, bitcoin is good for making the payments they don’t want you to make.

Timestamping digital files

The most important innovation to enable bitcoin was the invention of a decentralized timestamping server. This technology provides a way for computers around the world to keep time and come to agreement about the order of transactions without relying on a central authority. People have figured out how to use this timestamping feature for more than just tracking the movement of bitcoin. It is also possible to use this timestamping feature to prove that a given digital file existed at a certain point in time.

The timestamping feature of bitcoin can be useful for a lot of reasons, for example legal reasons, technical reasons, or even sentimental reasons. While these aren’t the most common or the most valuable uses of bitcoin (as measured in monetary value), these use cases do show that bitcoin is good for timestamping digital files.

Paying for smart contract execution

A natively digital money, bitcoin is programmable. This means that software developers can write programs that define how and under what conditions bitcoin can be transferred. This is useful for building all kinds of financial applications, including joint savings accounts, loans, financial derivatives, and more. To ensure that these programs are executed as expected, they are published to and enforced by a decentralized blockchain, either the bitcoin blockchain itself or a pegged sidechain.

There are now many different types of smart contracts that people can pay with bitcoin to execute: multisignature contracts, payment channel contracts, betting contracts, atomic swap contracts, loan contracts, and more. If there’s a smart contract that you’re interested in entering with other people or robots, bitcoin is good for paying for the execution of that smart contract.

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Email is probably the most popular decentralized messaging protocol, and I expect it to be around for a while. Add yourself to my email contacts if you would like to stay in touch! I will never sell, rent, or share your email address.