When I Buy Bitcoin, What Am I Buying?

What is a Bitcoin, really? This is a question plenty of newcomers to the technology ask, and often, it’s the first question they will be googling. There are a lot of answers to it. Commonly, people might respond by saying:

“A Bitcoin is a unique digital token that has value.”

And they’d be right.

But they’d also be wrong.

So let’s see if we can break it down a little bit by analyzing that sentence. Let’s start with the first word.

“A.” Well, that’s not quite right – a Bitcoin isn’t just a single unique digital token. It’s best to think of a Bitcoin as an amalgamation of 100 million satoshi. A satoshi is the nickname for the smallest currently usable unit on the Bitcoin protocol – equal to 0.00000001 BTC.

But it’s also incorrect to think of it just as 100 million satoshi. The smallest unit usable on the blockchain is 0.00000001 BTC for no real reason – it could be changed by changing the protocol, if the value of a single satoshi was ever enough to justify doing so. Perhaps one day it will be. So, back to the question: What is a Bitcoin?

“unique.” Well, that’s correct. Each satoshi – and thus, each Bitcoin – has its own completely beautiful and unique history of changing hands. Some have changed hands many times, others very few. I’ve even speculated that there are some Bitcoins in particular whose history gives them greater value. Specifically, Satoshi sent 10 BTC to Hal Finney, one day about 5 years ago. You can see the transaction here. Those Bitcoins are truly special – ten of a kind. They are the first transaction ever made on the Bitcoin network, and they came from Satoshi. Quite a cool legend, don’t you think? So – unique. Yes.

“digital.” Yeah, you could put it that way. They don’t exist in the physical world – they only exist within the network of computers and information that makes up the blockchain.

“token.” Well, following our discussion about a Bitcoin being simply a hundred million satoshi stapled together… no, not quite, but almost. It’s more like a collection of tokens than like a single token; or perhaps a token that can be ripped up into many smaller tokens, each with worth in proportion to the fraction of the whole it represents. If a dollar bill is torn in half, each half is worthless; if a Bitcoin is torn in half, each half is worth half a Bitcoin. A dollar bill is a single token; a Bitcoin is something more.

“value.” Yes, it represents value – but only because value is assigned to it.

At the end of the day, what is a Bitcoin? A Bitcoin isn’t anything tangible, or even anything real. A Bitcoin is the acknowledgment of the miners of the network that you have ownership over a hundred million satoshi in their group ledger, the blockchain. Nothing less, and at first, it might seem, nothing more – until you realize just how much that means. Each of those hundred million satoshi could be used to represent an asset – tagged with a hashed message to signify its worth as something much greater than a satoshi. Remember “unique”? Uniqueness allows assignation of special properties.

Remember “value”? You can create your own, because they are unique.

Remember “token”? By adding value to the unique satoshi you own, you make them into individual tokens – stock certificates, perhaps.

Remember “digital”? They can’t be lost, burned, destroyed, maimed, and if you do your job, not stolen, either.

Remember “A”? More like a hundred million – or perhaps even more.

A Bitcoin is many “things,” and one “thing” – but owning a Bitcoin is freedom, responsibility, and participation in something wondrous.