What is Bitcoin and Why Does it Matter For Creators?
This is the third installment in an ongoing series breaking down innovations in Web3 for creators and why it matters to writers, course creators, coaches, consultants, and anyone looking to create value on the internet.
Today, I’d like to discuss a topic that you can’t help but associate with any conversation about Web3 or the blockchain: Bitcoin.
My goal is that hopefully once you’ve read this article, you’ll have a high-level grasp of the historical background of Bitcoin, and how it came to be (enough to sound reasonably intelligent to your peers).
You’ll be able to start getting creative about how Bitcoin factors in to the future of online business, and building community.
So without further adieu …
What is Bitcoin?
Bitcoin was invented by an anonymous person who calls himself Satoshi Nakamoto. He published his invention as open source software under the name “bitcoin” in 2009. Bitcoin is a digital currency, or “peer to peer electronic cash system” that exists only as long as people are willing to use it. If no one uses it, it doesn’t exist. No government, bank, or company owns it. It is not backed by anything physical, so its value is based solely on demand.
For a fascinating deeper dive, check out the original published Bitcoin white paper.
In a sense, Bitcoin is what kicked off the entire Web3 revolution that is currently underway.
It’s important to note that Bitcoin isn’t really a currency at all. It’s just a number. A number representing something else.
That other thing is called “the blockchain”, which I break down in layman’s terms here.
Bitcoin as a store of value
Have you ever really taken pause to think about what money is?
To quote the St. Louis Federal Reserve, money can be thought of as having 6 important characteristics, as demonstrated through relationship to two examples of ways you might represent money: a cow, and a stack of 20 dollar bills (equal to the value of one cow).
This break down really helped me grasp these characteristics:
- Durability. A cow is fairly durable, but a long trip to market runs the risk of sickness or death for the cow and can severely reduce its value. Twenty-dollar bills are fairly durable and can be easily replaced if they become worn. Even better, a long trip to market does not threaten the health or value of the bill.
- Portability. While the cow is difficult to transport to the store, the currency can be easily put in my pocket.
- Divisibility. A 20-dollar bill can be exchanged for other denominations, say a 10, a 5, four 1s, and 4 quarters. A cow, on the other hand, is not very divisible.
- Uniformity. Cows come in many sizes and shapes and each has a different value; cows are not a very uniform form of money. Twenty-dollar bills are all the same size and shape and value; they are very uniform.
- Limited supply. In order to maintain its value, money must have a limited supply. While the supply of cows is fairly limited, if they were used as money, you can bet ranchers would do their best to increase the supply of cows, which would decrease their value. The supply, and therefore the value, of 20-dollar bills—and money in general—are regulated by the Federal Reserve so that the money retains its value over time.
- Acceptability. Even though cows have intrinsic value, some people may not accept cattle as money. In contrast, people are more than willing to accept 20-dollar bills. In fact, the U.S. government protects your right to use U.S. currency to pay your bills.
Bitcoin, and other cryptocurrencies maintain all these characteristics of money, as long as the demand continues to exist and people believe that there is inherent value in the system.
Money has always had three functions: store of wealth, unit of account, and medium of exchange. The US Dollar is what’s called Fiat money since it hasn’t been backed by gold since 1971. It’s just paper that represents the people’s trust in the government and their ability to oversee the economy successfully.
Here’s an article written by someone more knowledgeable than me on how Bitcoin fulfills the role of money.
With a basic understanding of the characteristics of money, and a working definition of Fiat Money, we can look at how Bitcoin is different:
Distributed – Bitcoin does not have a central authority, governing back or network of middlemen involved in recording transactions.
Immutable – Bitcoin has very specific rules that cannot be changed, and by design in the code there can never be more than 21 million Bitcoin, which also speaks to limited supply
Public – Anyone with access to the network can view the records of Bitcoin transactions. All transfers are transparent to participants and transactions are logged publicly.
OK, if you are still with me, I think it’s important to note that I have ZERO background in economics or finance, so please take what you’ve read as coming from someone with only a healthy interest in further exploration of the topic at hand.
I’m most interested in going deeper as it relates to the future of online business and the support of independent creators, authors, and course creators.
I’ve linked to what I believe to be reputable sources, so if you wish to go deeper into the history of money and Bitcoin, please follow the breadcrumbs.
Now that we have a bit of background on Bitcoin as a store of monetary value, let’s talk about why this matters to creators.
Here’s 4 Reasons Why Bitcoin is Relevant to Your Online Business:
Bitcoin leads the way in the form of consumer adoption as many other currencies continue to emerge.
It’s unclear to me if Bitcoin will be the winner and most widely accepted cryptocurrency in the long-run, but for now it certainly is.
Investopedia states that In 2017, Bitcoin accounted for more than 80% of the overall market capitalization of crypto markets. By 2021, that share was down to less than 50%.
So while it’s true that demand has dropped over time as Ethereum has emerged and given rise to DeFi, Bitcoin also continues to maintain its position as a “gold standard” of sorts as a digital currency.
Bottom line: Understanding Bitcoin’s role in how we’ve gotten to where we are today with cryptocurrency adoption is valuable.
Bitcoin is already accepted by more established brands than you think, with many more to follow.
Notable brands to accept digital currency at the close of 2021 include Microsoft, Starbucks, AT&T, Home Depot, and Amazon. You can check at more comprehensive list here.
As more brands make it feel safe and acceptable to transact using Bitcoin, the more demand there will be from your customers inquiring about this.
Enough to take pause and start considering a response.
Bottom Line: All online business owners should at least be thinking about solutions for accepting Bitcoin and other emerging cryptocurrencies.
Studies reveal that merchants that accept Bitcoin attract new customers and sales.
Published in 2020, Bitpay shared a study done by Forrester consulting that suggests that their customers who offered Bitcoin on average experienced a 40% increase in new customer sales, and two times the average order value.
This doesn’t surprise me at all, given that anecdotally I’ve seen many entrepreneurs in my circle put up big $ using their crypto wallets citing it as “play money” given all the big gains over the past few years.
It might be irrational and slightly stupid, but it’s similar logic to why I dropped premium coinage this past week for the chance to own part of a Snoop Dogg song.
And as a side note, would you ever bet against Snoop? Talk about longevity as an artist.
Bottom Line: Theres beginning to be documented evidence that companies that accept cryptocurrency acquire more customers and have higher average order value.
Accepting Bitcoin can reduce merchant transaction fees which translates to a better bottom line.
This is something I never really thought about until I started doing research for this article.
With Bitcoin, there are no concepts of overdraft fees, transfer fees, or foreign transaction fees. These are all mechanisms put in place by the “middlemen”, as represented by banks. Since middlemen don’t really exist in the decentralized model, there could be substantial savings in the forms of fees.
Online businesses on average, pay Stripe 2.9% plus 30 cents per transaction to accept credit cards online. Paypal charges businesses roughly the same. With cryptocurrency, you may still pay a transaction fee depending on the network, however it’s usually in the ballpark of .5 to 1%. In other cases it’s completely free.
The Bottom Line: For many businesses, electing to transact in cryptocurrency could amount to substantial savings.
In closing, it is my hope that this essay serves as a catalyst for many online business owners and course creators who might be leaving money on the table when it comes to accepting online payments in the form of Bitcoin or other cryptocurrencies.
Of all digital currencies at present, Bitcoin and Ethereum are the most widely accepted, and there are available solutions for beginning to take payments. Bitpay was the one that jumped out on first pass, although I’m sure as I continue to dig deeper, theres a host of other options.
While this may not be the highest priority in your business, I’d argue that you’ll be well-served by starting to build a plan in 2022 for how you’ll begin to incorporate crypto payments into your business.
I’d also stress test your accountant to see if they are keeping up with this topic, or start looking at hiring a crypto-friendly firm. This is a conversation I’ve already had with mine.
Interested in continuing to learn more about Web3 and Crypto topics that relate to running an online business as a coach, consultant, or course creator?
check out these additional links:
Looking to explore this exciting world of blockchain and Web3 in a deeper way, but not quite sure where to start?
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