What is Bitcoin?

Onramp Deep Dives
Written by David Nagle

Onramp is proud to bring you an article by David Nagle neatly summarizing the identity and heart of bitcoin.

David is an experienced TradFi veteran & strategic advisor to Onramp. He spent 34 years at DL Babson & Co. in Boston, specializing in Fixed Income as a bond analyst, trader, and portfolio manager.  

David’s work focused on institutional clients and he played a key role in the growth of a Stable Value product to over $20 billion in AUM. He later became responsible for overseeing Barings’ U.S. Institutional High-Grade business with over $100 billion AUM. David departed the world of traditional finance in 2021 and has since focused his efforts on bitcoin, most recently joining Onramp as a strategic advisor.

Here is David’s latest analysis: “What Is Bitcoin?”…

What is Bitcoin?

Recently, CNBC Squawkbox aired an engrossing debate between co-anchors Joe Kernen and Andrew Ross Sorkin, igniting a fiery exchange about Bitcoin. Joe persistently queried his colleague, asking, “At what price will you FINALLY believe?” Sorkin, sporting a sly smile, indicated skepticism. Nevertheless, amidst the banter, an interesting point surfaced, one that resonates with a common conundrum faced by those attempting to grasp the essence of Bitcoin.

In discussing Bitcoin, Sorkin remarked, “I just think it’s a, very hard… because it’s such an abstract concept that it’s like a non-existent thing. Even though I know it’s a thing for some people. It’s… I think a lot of people look at it and go hmmmmm…. Maybe?!! I know it’s a very philosophical thing!” – Andrew Ross Sorkin, CNBC 12/5/23

For Sorkin, Bitcoin epitomizes an abstract, intangible concept, an ethereal philosophical exercise – something not real. This revelation is noteworthy precisely because it’s Andrew Ross Sorkin, an anchor for one of America’s most prominent business shows – someone astute and financially literate – yet even he struggles to comprehend what Bitcoin truly represents.

How can this be? To those who have already been down the rabbit hole, such unawareness might appear ludicrous. However, this might just be the primary reason why many people remain on the sidelines, hesitant to engage, and may never own a single satoshi, because they simply don’t understand what Bitcoin is!

There’s an adage: to truly grasp a concept, one must be able to teach it. While it may be tempting to snicker and just toss newcomers a copy of Saifedean’s book, truthfully that is kind of lazy, a bit mean and generally not helpful. Overcoming the challenges posed by traditional finance, technological barriers, and personal biases is indeed a daunting endeavor, one we should approach with empathy (especially if it’s your friend, relative or someone else you care about). Confronted with too callous of a pitch, newcomers may be dissuaded from making an allocation or even peering down the rabbit hole.

Consider this: if handed a fiat currency note from the United States, Japan, or Europe, with a number on it, Andrew would undoubtedly express gratitude. He would instinctively recognize its universal spending power, not to mention the ability to exchange one note for another (albeit at an inconvenient location for a hefty fee). He’d know that it might get him a coffee in one country, but maybe not in another. He would definitely keep the change from his purchase safe in his pocket, along with the rest of his fiat notes because he already understands that if he loses it, it is gone forever. Plus, he could always spend the rest later or even deposit it in his 401k retirement account for a rainy day.

However, if I tried to present Andrew with some bitcoin, the reaction might be far different. Andrew’s skepticism stems from regarding Bitcoin as abstract and non-existent, thereby emphasizing the need to clarify its fundamental nature.

So, what if we took a moment to help Andrew by explaining the reality of Bitcoin?

The Bitcoin Reality

A good start would be to tell Andrew that he can do everything with the bitcoin just gifted to him that he can do with those dirty old fiat notes, and more. He can carry it on vacation and exchange it for other currency, though he won’t have to if the place he’s going to accepts payment in BTC. He can send it to someone almost instantly, for a minimal cost – or just keep it for later spending, or long-term saving. Good news there is he won’t be hassled with multiple accounts at nosy financial institutions. And he can store his BTC in his pocket, on his computer, a digital wallet, a custodian or even in his own head – wherever he wants, really.

Contrary to Sorkin’s perception, Bitcoin is not an abstract concept; rather from first principles thinking, it consists of two basic components:

  1. A ledger  

    Bitcoin is a decentralized, immutable network of computers, all over the world, all owned by individuals, running a common open-source software program. The program (or protocol), established by a pseudonymous man, woman, or group of people named Satoshi in 2009, maintains a ledger, which is just a fancy word for a set of accounting books – just like the ledgers run by every financial institution you deal with today EXCEPT TradFi institutions’ are private. The ledger keeps track of all the bitcoins in circulation AND all transactions, ever, for every single bitcoin. Simply put – a ledger that tracks the money supply and how it has been used.

  2. A key pair  – one public and one private

    Utilizing cryptography, the practice of securing and decoding information using very complex, mathematical algorithms, Satoshi devised a revolutionary means of creating a new form of digital money. Now instead of a Federal Reserve bank note (with a picture of a dead President on it), when you convert some other currency into BTC, what you will have is a set of digital keys (typically a series of words, a passphrase, numbers and letters) which are connected. Importantly, the public key is recorded on that ledger, along with your BTC holdings information. The private keys allow you to sign, or authorize digital transactions by proving that the BTC belongs to you!  

Like a safe deposit box, without your private key – you don’t get in. Unlike a deposit key, or a bank account – you can store your digital keys in lots of easy, private and secure places, including your own brain (i.e. memory). Without it however – you don’t get your BTC, nor does anyone else!

So there you have it. Bitcoin is a ledger and a set of keys.

To summarize for our friend Andrew: Bitcoin is a tangible, large, secure, distributed, permissionless, immutable global network of computers running a program/protocol which collectively maintains a verifiable, blockchain-based ledger. This ledger chronicles the transaction history of each and every bitcoin ever created (mined). All day, every day, around the globe, bitcoin is being used as a savings vehicle (store-of-value) as well as a currency (medium of exchange) for transactions of every kind, large and small.

Like fiat, if you want to own some of that currency, you can buy it, steal it, trade for it or work for it. However you acquire it, to use BTC you will have to prove that you own it and there’s only one way to do that with the combination of public and private keys that you, yourself are responsible for securing.

Like other tangible objects, you can measure and interact with that network, and most importantly you can truly own your portion of it, in bitcoin – a currency which solves virtually all of the problems typically associated with central bank fiat money. Just remember – if you lose those keys, your BTC wealth is lost. Gone. Forever. Just like a wallet full of cash that falls overboard into the ocean.  

In conclusion, we need to help the Andrews of the world understand that Bitcoin is not as complex or ethereal as they think. It’s not a concept and it’s not a philosophical thing. It’s real, digital money. Digital gold that can be acquired, held, utilized – and lost just like your dollars, yen, euros and krugerrands.  

Call me silly, but that sounds very real to me!!