My response to a friend asked if she should start using Bitcoin
TLDR: I think Bitcoin is good for humanity, and it’s worth researching it to see if its right for you.
Disclaimer: This is not financial advice, this is my opinion.
I started out thinking this would be a quick, one or two short paragraph post but then I ended up writing nearly 2000 words. There’s no easy way to give a quick explanation of Bitcoin, and money is an important subject to weigh in on so my communication needs to be clear. I’m giving my opinion about an entirely different monetary system than we’ve had our entire lives. I wanted to spread some information that I’ve found through a couple years of research and trading. Above all I just want to live in a better world and I think there’s always room for improvement in all of our systems. I’m willing to experiment to find out how to do that. The text is footnoted to help you understand some of the jargon and facts.
I dedicate this to my brother who got me started with this. It’s his birthday today. Happy birthday Ty.
--
By now I imagine most of you know what Bitcoin is or have at least heard of it, but still most of you haven’t thought to buy any and use it. I think it could make our world a much better place if we all adopted it as a means of paying each other. I’ve bought a few things online with Bitcoin. It can be spent in person too. I prefer to spend it instead of debit/credit if the vendor I’m purchasing from accepts it, but many still don’t. I feel safer using it, it is more secure than Fiat currencies1. I think if you’re a vendor, you should consider accepting it, because it gives you access to more customers (the Bitcoin spenders).
I can understand peoples hesitation to buy it and use it, or get involved in other parts of the Bitcoin ecosystem. The price paired to Fiat currency is extremely volatile. It has a reputation for being used to purchase illegal goods and services, and it’s an obscure thing. Money in general is obscure because it has no intrinsic value (you can’t eat it, drink it, smoke it, wear it etc). Worth noting, exceedingly more Fiat currency is spent on illegal goods and services than Bitcoin is.2 I’ve heard many other criticisms’ as well. The fact you could buy some today, and it could be worth two thirds as much in a just a week; the cause being that many average people (or a few very rich people) decided to sell it.3 However, since Bitcoin’s inception, it has proven over and over again that if you hold on to it, it will increase in value over a long period of time. By doing this, it incentivizes saving. People don’t want to spend as much because it’s consistently increasing in value, so they save it instead. It increases in value when new Fiat currency flows into it from the public, and less Bitcoin flows out, which has been normal through its history. When more people are seeing that it’s value is going up, it incentivizes them to buy in. In theory, the ‘saving incentive’ means that people would buy less goods and services and conserve earth’s natural resources better. It is still in a very early stage in terms of becoming a meaningful currency that average people use, so these observations are speculative. It may sound like a Ponzi Scheme to some, but then what is Fiat currency if you look from a broad perspective?
The main reasons it outperforms Fiat currencies is because it’s decentralized, and censorship resistant. No one entity controls it. It is not the property of the bank of any country. Each users holds their own unique keys to their money. It can’t be manipulated by any government, bank, or corporation. The creator of the software is anonymous.4 It can do cross border payments in a manner of seconds, and for a tiny fraction the cost of fiat, and make what were once inaccessible payments, accessible. There is no borders with Bitcoin.
Governments tend to print money on a fairly regular basis which can artificially inflate prices of goods and services. Some very corrupt governments have printed so much money that it hyper-inflates their currency and becomes nearly worthless.5 Bitcoin has a fixed supply which will be about 21 million coins once it has all been mined6, so it’s not possible for it to be inflated. It’s built into the software to continue slowing production of new coins until it ultimately stops producing them.
There is still a risk of the price of Bitcoin going to zero, everyone could decide to sell it and it would become worthless. However that risk theoretically exists with many currencies and part of my interest is what’s happening in the future for our children and grandchildren. Every Canadian could trade all their dollars for, say, US dollars, making Canadian dollars worthless. However unlikely, it’s a theoretical scenario.
Everything starts somewhere. Bitcoin is brand new, it has only been in use for 11 years, but it’s possible it could be in use for the next 100 years and beyond. It depends on humanity’s decisions.
This is a chart of the price of bitcoin over it's lifetime, relative to US Dollars. It has followed this parabolic curve it’s entire existence, and never fallen below it. One Bitcoin was worth a fraction of a penny when the software was first developed, to now over US $8000. It is, undoubtedly the best financial investment of all time for early adopters.7 If it continues to follow the parabolic curve, it will be worth US $1,000,000 around the year 2030. However, that’s a big if - no one knows precisely why it follows the parabolic curve, and if it will continue along it. There are only theories. One of them, the Stock to Flow model,8 is very plausible. It doesn’t explain the parabola per se, but gives evidence of what drives the price.
What I would recommend if you’re interested, is to first do as much research as possible, then if you still feel it’s a good idea, try buying a small amount and see how it goes. You would be helping grow the ecosystem. You can buy as a little amount as you want. It is infinitely divisible. Remember, this is not financial advice. You must be willing to lose what you put in. There are also security measures that you should be aware of before purchasing. I can help you with this if you ask me. Also, as I side note I’m trying to encourage that people never sell for Fiat, and instead hold or spend it. This is what is best for the ecosystem. However I understand the desire to exchange back to Fiat to make profits that you can spend at the grocery store, or wherever. I do this myself.
Technically, a trader is anyone who buys or sells. For those wondering what professional traders actually do, they provide liquidity9 for the market, so others can buy and sell easily. There is no get rich quick scheme. It takes just as much work, or more than the average job to make a living at it. In time you can get more efficient, and some people are able to master it and get rich from it, not unlike many other types of business. I am far from a master, but would be happy to teach what I know.
This only scratches the surface, there are still many questions to be answered such as: how does our society work with this, how are governments responding, how can you loan and borrow Bitcoin, how are taxes paid, where can you spend it right now, what’s the best time to buy, where do you buy and sell it, how do you store it, how does mining work, what about all the other crypto-currencies, what is the blockchain, what is cryptography, what do you do about slow transaction speeds, and many more. I’ll do my best to answer if you ask me, but some of the answers are just my opinion based on the different sources I’ve read throughout the past few years.
I don’t know if I’m right or wrong about the future of Bitcoin but my estimate is that it will be around for a long time to come. I’m doing the best I can to piece the puzzle together. Some of the facts I stated could have different interpretations. I did my best to fact check before posting because I think telling the most precise truth is most important, especially for something that could change everything we know about money. I might have got some facts wrong. If you see something please let me know.
Thanks for reading. Leave a comment, ask me questions. Ask your friends questions and please share this freely. Cheers
For similar content, find me on twitter @ aSongForThis
Footnotes:
1 Fiat Currencies are what most people use around the world right now, including USD, CAD, EUR, JPY etc.
2 Cryptocurrency research firm Chainalysis noted that dark web transactions now account for just one percent of Bitcoin transactions, down from 30 percent in 2012.
3 When the software was first introduced to the public, there wasn’t nearly as many people involved, so a small minority of people who hold Bitcoin, hold large stacks of coins from the very early stages of development. These coins are being distributed to the public as time goes on, so intra-day trading can be very volatile in part due to these people selling and buying large amounts whenever they want, and often at strategic times, and likely working together at times. They’re often referred to as Whales, along with whoever else has large stacks of coins.
4 There are several people who claim to be the creator of Bitcoin software, but there has never been verified proof. When the software was released, a paper explaining the purpose of it was released with it, called the “white paper,” and was authored by an anonymous person who went by Satoshi Nakamodo. Weather the name’s real or fake we don’t know, and we may never, and it may be more than one person. The paper can be seen at bitcoin dot org
5 Examples include Venezuela, Hungary, Yugoslavia, and Zimbabwe.
6 Miners run the Bitcoin software, it is free and open-source. Miners solve complex math equations to verify transactions, and get rewarded for it. The costs of mining are hardware and electricity. Anyone can mine Bitcoin. Miners get rewarded with freshly minted coins and transaction fees. After all 21 million coins built into the software are minted, there will be no more. Miners are still necessary to settle transactions, and will earn their Bitcoin solely from transaction fees. This wont happen until the year 2140.
7 If you invested US one hundred dollars in mid 2010, and sold in late 2017, you would have made between US 30 to 40 million dollars, depending on the exact timing.
8 A model created by an anonymous Bitcoin user that has garnished much attention. I can’t post a link so search “Stock to Flow Model medium”
9 Liquidity is a term used to describe the availability of an asset. Bitcoin has enough liquidity for most common investors.
Twitter aSongForThis
Disclaimer: This is not financial advice, this is my opinion.
I started out thinking this would be a quick, one or two short paragraph post but then I ended up writing nearly 2000 words. There’s no easy way to give a quick explanation of Bitcoin, and money is an important subject to weigh in on so my communication needs to be clear. I’m giving my opinion about an entirely different monetary system than we’ve had our entire lives. I wanted to spread some information that I’ve found through a couple years of research and trading. Above all I just want to live in a better world and I think there’s always room for improvement in all of our systems. I’m willing to experiment to find out how to do that. The text is footnoted to help you understand some of the jargon and facts.
I dedicate this to my brother who got me started with this. It’s his birthday today. Happy birthday Ty.
--
By now I imagine most of you know what Bitcoin is or have at least heard of it, but still most of you haven’t thought to buy any and use it. I think it could make our world a much better place if we all adopted it as a means of paying each other. I’ve bought a few things online with Bitcoin. It can be spent in person too. I prefer to spend it instead of debit/credit if the vendor I’m purchasing from accepts it, but many still don’t. I feel safer using it, it is more secure than Fiat currencies1. I think if you’re a vendor, you should consider accepting it, because it gives you access to more customers (the Bitcoin spenders).
I can understand peoples hesitation to buy it and use it, or get involved in other parts of the Bitcoin ecosystem. The price paired to Fiat currency is extremely volatile. It has a reputation for being used to purchase illegal goods and services, and it’s an obscure thing. Money in general is obscure because it has no intrinsic value (you can’t eat it, drink it, smoke it, wear it etc). Worth noting, exceedingly more Fiat currency is spent on illegal goods and services than Bitcoin is.2 I’ve heard many other criticisms’ as well. The fact you could buy some today, and it could be worth two thirds as much in a just a week; the cause being that many average people (or a few very rich people) decided to sell it.3 However, since Bitcoin’s inception, it has proven over and over again that if you hold on to it, it will increase in value over a long period of time. By doing this, it incentivizes saving. People don’t want to spend as much because it’s consistently increasing in value, so they save it instead. It increases in value when new Fiat currency flows into it from the public, and less Bitcoin flows out, which has been normal through its history. When more people are seeing that it’s value is going up, it incentivizes them to buy in. In theory, the ‘saving incentive’ means that people would buy less goods and services and conserve earth’s natural resources better. It is still in a very early stage in terms of becoming a meaningful currency that average people use, so these observations are speculative. It may sound like a Ponzi Scheme to some, but then what is Fiat currency if you look from a broad perspective?
The main reasons it outperforms Fiat currencies is because it’s decentralized, and censorship resistant. No one entity controls it. It is not the property of the bank of any country. Each users holds their own unique keys to their money. It can’t be manipulated by any government, bank, or corporation. The creator of the software is anonymous.4 It can do cross border payments in a manner of seconds, and for a tiny fraction the cost of fiat, and make what were once inaccessible payments, accessible. There is no borders with Bitcoin.
Governments tend to print money on a fairly regular basis which can artificially inflate prices of goods and services. Some very corrupt governments have printed so much money that it hyper-inflates their currency and becomes nearly worthless.5 Bitcoin has a fixed supply which will be about 21 million coins once it has all been mined6, so it’s not possible for it to be inflated. It’s built into the software to continue slowing production of new coins until it ultimately stops producing them.
There is still a risk of the price of Bitcoin going to zero, everyone could decide to sell it and it would become worthless. However that risk theoretically exists with many currencies and part of my interest is what’s happening in the future for our children and grandchildren. Every Canadian could trade all their dollars for, say, US dollars, making Canadian dollars worthless. However unlikely, it’s a theoretical scenario.
Everything starts somewhere. Bitcoin is brand new, it has only been in use for 11 years, but it’s possible it could be in use for the next 100 years and beyond. It depends on humanity’s decisions.
This is a chart of the price of bitcoin over it's lifetime, relative to US Dollars. It has followed this parabolic curve it’s entire existence, and never fallen below it. One Bitcoin was worth a fraction of a penny when the software was first developed, to now over US $8000. It is, undoubtedly the best financial investment of all time for early adopters.7 If it continues to follow the parabolic curve, it will be worth US $1,000,000 around the year 2030. However, that’s a big if - no one knows precisely why it follows the parabolic curve, and if it will continue along it. There are only theories. One of them, the Stock to Flow model,8 is very plausible. It doesn’t explain the parabola per se, but gives evidence of what drives the price.
What I would recommend if you’re interested, is to first do as much research as possible, then if you still feel it’s a good idea, try buying a small amount and see how it goes. You would be helping grow the ecosystem. You can buy as a little amount as you want. It is infinitely divisible. Remember, this is not financial advice. You must be willing to lose what you put in. There are also security measures that you should be aware of before purchasing. I can help you with this if you ask me. Also, as I side note I’m trying to encourage that people never sell for Fiat, and instead hold or spend it. This is what is best for the ecosystem. However I understand the desire to exchange back to Fiat to make profits that you can spend at the grocery store, or wherever. I do this myself.
Technically, a trader is anyone who buys or sells. For those wondering what professional traders actually do, they provide liquidity9 for the market, so others can buy and sell easily. There is no get rich quick scheme. It takes just as much work, or more than the average job to make a living at it. In time you can get more efficient, and some people are able to master it and get rich from it, not unlike many other types of business. I am far from a master, but would be happy to teach what I know.
This only scratches the surface, there are still many questions to be answered such as: how does our society work with this, how are governments responding, how can you loan and borrow Bitcoin, how are taxes paid, where can you spend it right now, what’s the best time to buy, where do you buy and sell it, how do you store it, how does mining work, what about all the other crypto-currencies, what is the blockchain, what is cryptography, what do you do about slow transaction speeds, and many more. I’ll do my best to answer if you ask me, but some of the answers are just my opinion based on the different sources I’ve read throughout the past few years.
I don’t know if I’m right or wrong about the future of Bitcoin but my estimate is that it will be around for a long time to come. I’m doing the best I can to piece the puzzle together. Some of the facts I stated could have different interpretations. I did my best to fact check before posting because I think telling the most precise truth is most important, especially for something that could change everything we know about money. I might have got some facts wrong. If you see something please let me know.
Thanks for reading. Leave a comment, ask me questions. Ask your friends questions and please share this freely. Cheers
For similar content, find me on twitter @ aSongForThis
Footnotes:
1 Fiat Currencies are what most people use around the world right now, including USD, CAD, EUR, JPY etc.
2 Cryptocurrency research firm Chainalysis noted that dark web transactions now account for just one percent of Bitcoin transactions, down from 30 percent in 2012.
3 When the software was first introduced to the public, there wasn’t nearly as many people involved, so a small minority of people who hold Bitcoin, hold large stacks of coins from the very early stages of development. These coins are being distributed to the public as time goes on, so intra-day trading can be very volatile in part due to these people selling and buying large amounts whenever they want, and often at strategic times, and likely working together at times. They’re often referred to as Whales, along with whoever else has large stacks of coins.
4 There are several people who claim to be the creator of Bitcoin software, but there has never been verified proof. When the software was released, a paper explaining the purpose of it was released with it, called the “white paper,” and was authored by an anonymous person who went by Satoshi Nakamodo. Weather the name’s real or fake we don’t know, and we may never, and it may be more than one person. The paper can be seen at bitcoin dot org
5 Examples include Venezuela, Hungary, Yugoslavia, and Zimbabwe.
6 Miners run the Bitcoin software, it is free and open-source. Miners solve complex math equations to verify transactions, and get rewarded for it. The costs of mining are hardware and electricity. Anyone can mine Bitcoin. Miners get rewarded with freshly minted coins and transaction fees. After all 21 million coins built into the software are minted, there will be no more. Miners are still necessary to settle transactions, and will earn their Bitcoin solely from transaction fees. This wont happen until the year 2140.
7 If you invested US one hundred dollars in mid 2010, and sold in late 2017, you would have made between US 30 to 40 million dollars, depending on the exact timing.
8 A model created by an anonymous Bitcoin user that has garnished much attention. I can’t post a link so search “Stock to Flow Model medium”
9 Liquidity is a term used to describe the availability of an asset. Bitcoin has enough liquidity for most common investors.
Twitter aSongForThis
Disclaimer
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