Why Bitcoin works
Bitcoin is an asset. It’s something that can be added to your portfolio of investments in stocks, real estate, bonds and other stores of value. Since it was built to take advantage of modern networking and computing technology, Bitcoin possesses qualities that make it resistant to devaluation and easy to transact.
Like gold, its value is derived from scarcity. It is “hard money.”
Like dollars and cents, it’s easily divisible, storable and transferrable.
Like real estate, it holds value over time.
[update 1/28/21: Unlike stocks, it is very difficult to manipulate. Because it is distributed and decentralized, it’s being referred to as “trustless.”]
How Bitcoin works
Bitcoin is essentially software. Mathematics and open source code designed to create a medium of exchange wherein there is a limit of 21 million tokens. Those tokens are each divisible out to 8 decimal places (0.00000001, aka a “satoshi,” or “sat”). When tokens change hands, the transaction is recorded on a ledger (the blockchain) that’s distributed across tens of thousands of nodes.
There’s one more key piece; the network effect. Bitcoin was launched via a whitepaper in 2008 and has been steadily picking up steam ever since. In countries experiencing financial crises and hyperinflation, citizens have acquired bitcoin to escape massive currency devaluation. And in addition to the network of bitcoin holders (likely north of 60 million according to statista data on blockchain wallets), there’s a fervent network of developers, miners and entrepreneurs that support the Bitcoin network and broader cryptocurrency ecosystem.
What’s next?
When Tyler Winklevoss (Gemini Exchange co-founder and Zuckerberg archenemy) learned about Bitcoin in 2013 he thought: “Either this Bitcoin was complete bullshit, or it was a really big deal.” (Bitcoin Billionaires)
Fast forward seven years and it’s safe to say Bitcoin is not complete bullshit. In fact I’d argue 2020 created a launchpad for Bitcoin to cross the chasm and become mainstream. When the exploding supply of money created by bailouts and stimulus packages is devaluing your dollars and the stock market has detached from reality, Bitcoin starts to feel like a relatively safe place to invest (even if only to diversify risk).
If Bitcoin ends up on the “really big deal,” side of the coin, it could change the world. And fast. Gradually, then suddenly, as they say. The price of a single bitcoin is up 319.0% from a year ago, and that growth will likely accelerate. NFL Player Russell Okung just negotiated bitcoin into his contract. And yesterday our government issued a letter offering cryptocurrency guidance for banks and other fintech companies, a move interpreted as validation and cooperation with the evolution of cryptocurrencies.
I have no business telling anybody what to do with their money, but like I said at the top I think Bitcoin is something worth watching and understanding.
What else?
That’s all for today. If there’s interest I’ll pen a part two in FAQ form that touches on some of the concerns and questions I’ve explored.
If you want to dig deeper, follow Yujia.
If you want to buy some satoshis, you can do it on Cash app or Gemini (<- invite link).
A great book that helped me understand where the current system is falling down is The Price of Tomorrow by Jeff Booth (@JeffBooth).
Thanks for reading,
Andrew
@agbegin
PS: “HODL” is a typo turned slang within the bitcoin community.
PS2: This should go without saying, but nothing in here should be construed remotely as investment advice.
PS3: Figure it’ll be interesting to track the price of bitcoin over time:
January 5, 2021 - $36,849 (The day before the Capitol was stormed)
January 28, 2021 - $34,237 (Gamestop short squeeze - Robinhood shuts down ability to buy 13 stocks)
February 8, 2021 - $43,447 Tesla announces that it bought $1.5B in Bitcoin
February 19, 2021 - $56,231 Bitcoin hits $1T in market cap
June 11, 2021 - $37,314 Tesla stopped selling cars for btc, El Salvador accepts as legal tender, US Congress holds hearings about CBDCs and cryptocurrency
August 6, 2021 - $43,235 The broader crypto community rallies to pressure congress to change crypto tax provisions in the infrastructure bill that could be impossible to follow, and could stifle US innovation.