Back in 2010, my boyfriend met a friend at a coffee shop to process his first Bitcoin transaction. Something went awry and the $100 was never exchanged for 1,000 units of magical internet money. Had be bought, held, and sold at last year’s high, he would have netted just shy of $65MM. Of course, he’s happy it didn’t work out because he might not have met me, yadda yadda.. He’s totally sincere, but just imagine…
Betting On The Magic Beans
It took seven years and hundreds of explanations before something clicked. I was ready to trade in my stubborn old cow and start betting on the bag of magic beans.
We’ll start with this: I’m extremely risk-averse and fiscally conservative. For my 21st birthday, I was gifted $100 worth of scratcher tickets; I won nothing. I’m never bought a lotto ticket or scratcher card, nor gambled at a casino. Psychology studies have shown that we are more upset about losing $10 than we are happy about finding $10. Roughly speaking, losses hurt about twice as much as gains make you feel good. Yep, that is me.
The more I researched the mysterious magical beans and understood the science (it’s a science?!), the more confident I became that this tiny bean sprout was destined to grow into a towering beanstalk, a simultaneously simple and grandiose transport into the future of transactions.
What Is Bitcoin?
Last year, I offered a tepid argument for Bitcoin, suggesting it acts as a hedge against currency devaluation and hyperinflation. Despite the ongoing volatility, I’m more confident than ever in my choice to dollar-cost-average with weekly buys.
I don’t view Bitcoin (capital “B” is the network) the same way I do retirement accounts or ETFs. Rather, redirecting my US dollars from a bank account to bitcoin (little “b” is the asset) held in self-custody is my campaigning for a different trajectory–a brighter future.
Let’s begin the lesson. Bitcoin is made up of several layers:
At layer one, there exists the Bitcoin network – money, deep storage, global root trust. I’m voting, with my assets, for open source transactions on the blockchain, hopefully to one day also include government spending of my tax dollars.
At layer two, there exists the Lightning Network – cash, fluid payments, peer-to-peer trust. I’m advocating for peer-to-peer transactions across the Lightning Network, so I can buy chocolates from my favorite vendor at the farmer’s market without them being crushed by fees.
At layer three, there exists the Impervious Network – applications, streaming micro payments, and node federation. I’m celebrating the browser, set to launch in April 2023, which offers an anonymous, publicly accessible, decentralized data store. Think Zoom without Zoom, Google Docs without Google, payments without banks, and identity without the state.
In Defense Of Bitcoin
Let me reiterate, I am the most risk-averse person you will ever meet. I am frugal and highly-protective of my assets, albethey limited. After hundreds of hours of research, I don’t view Bitcoin as high-risk. Volatile? Yes. Still in it’s infancy? Very much so. But risky? Nope. (Side note: Most, if not all, non-Bitcoin cryptocurrencies are high-risk and most are scams.)
Here are the points that finally sold me on Bitcoin, specifically:
- It’s the worlds first digital property/commodity, hosted on most secure computer network in the history of the world.
- It’s a financial asset with a set of properties that have never existed before:
- Entirely digital
- Finite in a concrete way that Gold isn’t (there will only ever be 21MM bitcoin)
- Infinitely divisible (you can buy a tiny fraction of a bitcoin)
- Censorship resistant
- Basically impossible to manipulate at the monetary level without an unlikely and overwhelming consensus forming
- Deflationary (once again, an asset whose value is positively correlated with inflation)
- Agnostic to it’s users in a way that legacy/traditional finance isn’t (and pretty much guaranteed to be always be so at the protocol level)
- Transactions are push, not pull
- Easily transportable (think about the resources necessary to ship billions in gold across the world)
- It has a network effect that is extremely difficult to replicate or reproduce. Many have tried, only a few have come close. It’s possible that only the first cryptocurrency could ever grow organically in the way that Bitcoin has.
- A conservative development team and user base
- It’s extremely difficult to get new things added to the Bitcoin Core client
- Upgrades can’t be pushed or forced out to miners or users
- Miners and non-mining clients, like most users of software, are reluctant to upgrade
- For better or worse, the protocol is basically set in stone now and everything has to be backwards compatible to stand a chance of forming a consensus
- It can be relied upon for transacting with one main caveat, internet access is required. I can understand if you worry that the internet might not be around in a 100 years time (climate change, pandemic, nuclear war, pick your favorite apocalypse). But if it is still around, the probability that Bitcoin will still exist and have some value is high.
- Spending power is down drastically since the 1970s. Bitcoin may be my only opportunity to create generational wealth.
I’m under no illusion that most usage is speculation today. But Bitcoin is obviously potentially useful right now in any country that has weak monetary policy (Venezuela, Argentina, Turkey, Vietnam). This “oh shit, I need to shove what little wealth I have somewhere” use-case will only become more viable as global internet penetration increases and the cryptocurrency concept becomes more widely understood.
Long-term success is not guaranteed, but I’m bullish. Gold has a 5,000-year history as a financial asset. Bitcoin has a little over ten years. It’s still early. And, in my view, it’s an asset that is very much underrated.
I’d rather have this bag of magic beans rather than that stupid old cow, that’s for sure.
Disclaimer: Of course, this is not financial advice. Do your own research. It’s a volatile asset, so don’t put in money you can’t afford to lose.
If you’re interested in learning more for yourself, I would highly recommend starting with Robert Breedlove’s interview series with Michael Saylor. This is what sold me. Also, the Swan Signal blog has some great content.
If you’re interested in purchasing bitcoin, my preferred platforms are Gemini Exchange for one-time purchases or buy orders and Swan Bitcoin for recurring purchases. If you use this link to set up an account with Swan, you’ll get $10 in bitcoin to start with, and I’ll get 1% of your 1% purchase fee ($0.01 per $100 you invest) for one year.
My goodness…your scope of knowledge…about so many things! No boundaries — amazing, Erin! 😉
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I’m just a nerd, partnered with an even bigger nerd. 🤓🤓 Our scope of useful and useless knowledge is endless!! 🤣😂🤣😂🤣
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No, no, no…never useless. I learned a heap from reading this post! Keep it all coming…you’re a marvel! 😎😎😎
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Thank you for explaining bitcoin. Mike and I have had a hard time trying to wrap our heads around the concept. We’ve even driven 100 miles to see the outside of a bitcoin mine – it’s huge – but we still find the investment in bitcoin hard to fathom.
It’s really hard to understand. As I mentioned, my boyfriend spent 7 years trying to sell me on it and I wouldn’t bite haha! If you are interested in trying to wrap your head around it, this article is a good layman’s guide: https://thesovereignspirit.substack.com/p/what-is-bitcoin-and-why-should-i
Also, something that helped me is I don’t view bitcoin as an investment, as I don’t speculate or gamble with my money. Instead, I view it as participation in a monetary system that’s better than the current standard. I can’t afford tangible assets like gold and real estate and I don’t trust deflationary fiat currency, so I’m *storing* my money in a deflationary asset as a hedge against inflation. The bitcoin a small fraction of my assets compared to savings/retirement accounts to minimize risk, but hopefully enough to help if the dollar collapses (we’re mirroring every other historical collapse of civilization so, in my mind, that is a possibility within my lifetime).
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“there will only ever be 21MM bitcoin” why is that?
So, by design, the bitcoin blockchain is built to only release a fixed number of bitcoins through mining (high-powered computers solve hard math equations to earn bitcoin), and the hard-coded logic cannot be tampered with. The mining reward is structured to decrease after every 210,000 mined blocks. Since the combination of block difficulty and solving time is about ten minutes, it takes around 4 years to reach the halving point, at which time the reward is cut in half. This process will continue until around 2140, at which time will be essentially no reward for mining bitcoin and the fixed maximum supply of 21 million bitcoins will be reached. The number 21 million is mid-point that (back in 2009) made sense whether the digital currency remained niche or went on to become a widely-recognized global currency.
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Hmmm… I like the concept, but find “the hard-coded logic cannot be tampered with” somewhat doubtful.
I can completely understand and relate to the skepticism. It took me 7 years of research and asking questions before I understand and trusted the system enough to store my assets there. Bitcoin has been out in the wild for 14 years now, is fully open-source and transparent, and requires consensus from a certain percentage of participants to implement a change. I would think that if there was a way to break or manipulate the protocol, it would have been discovered and taken advantage of, but that is always a possibility with such a new and ever-evolving technology.
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