Bitcoin: The Currency of Trust

The internet is evolving, yet trust is at an all time low. But don’t worry, Bitcoin is here to save the day.

A Brief History

Bitcoin was created by someone with the alias of Satoshi Nakamoto. No one knows who the true creator is, but we do know that they changed the world. Bitcoin started slowly, but has come a long way.

• 2008 – Bitcoin is created
• 2011 – Bitcoin is popularized for it’s use on Silk Road
• 2018 – Bitcoin peaks to $20k per coin, then crashes
• 2021 – Bitcoin hits $1T valuation

ELI5 Bitcoin

Bitcoin is a different form of money. Instead of being controlled by the government, it is controlled by a combination of the internet, networks and math. Normally the government can print as much money as they please, and they have historically abused this privilege. Bitcoin is decentralized, so it’s not controlled by any authority. All transactions are recorded by a network of computers on a digital ledger. The supply of Bitcoin is predetermined, so Bitcoin can be considered a potential hedge asset long term (i.e. similar to Gold).

In reality, Bitcoin is much more complicated than this. If you want to dive in, I recommend the Bitcoin white paper, this YouTube video and this podcast.

HODL (Hold on for Dear Life)

Every day a new HODLer is born (someone who buys, but never sells Bitcoin). How many people do you know who recently became interested in Bitcoin? How many do you know who lost interest in Bitcoin? It’s a one-way street into cult town. What happens when you have a large group of individuals who never sell? But this isn’t only a narrative, the HODL waves back what I’m saying. HODL waves (chart below) show how long it has been since each Bitcoin was used in a transaction (i.e. sent/received). You can see the older waves just keep growing. These are HODLers. If more and more people who buy then HODL, what will happen to price? No sellers, only buyers drives up price (especially given limited supply).

My Personal Journey with Bitcoin

I remember hearing about Bitcoin in 2013. Like most when first introduced to Bitcoin, I didn’t get it. I thought it was what Doge coin is. I gradually, then quickly educated myself on Bitcoin. The quickly came early in 2017 when Bitcoin was early on in a major bull run. Many sketchy individuals were pumping Bitcoin and many bears have proven to be dead wrong. I can’t remember what exactly made me first purchase crypto, but in mid-2017 I bought Bitcoin and Ethereum. I continued learning and quickly favored Bitcoin (for a plethora of reasons). I kept stacking satoshis (1 million satoshis = 1 bitcoin) for the next few years. Through that time, Bitcoin was an extremely volatile yet great investment.

Bitcoin is my largest holding (stock or crypto), by far. That’s what happens when you have something 10x and never sell. My joke is that I’ll sell one of my bitcoins when I can buy a house with it. That day might be coming sooner than later.

Wrecking the Bears (a.k.a Rodgers to Cobb)

Let’s take the most common Bitcoin bear cases and make some counterpoints.

Replicable – Bitcoin has a limited supply, but the tech behind Bitcoin can be easily be replicated? Essentially, anyone can replicate the code of Bitcoin. Sounds pretty bad right? Not really. Bitcoin isn’t about code, it’s about trust. People are gaining trust in Bitcoin, not the code behind Bitcoin.

Store of Value – One of the key features of currencies are that they are a store of value. Essentially, what you can buy today with your currency today should be similar to what you can buy tomorrow. Right now, due to the volatility of Bitcoin, I wouldn’t consider it a store of value. Is this a death blow? No. Building trust takes time. Right now Bitcoin might be more a speculative asset than store of value, but that doesn’t mean that it can’t transition. I do believe that Bitcoin will be eventually become a store of value.

Intrinsic Value – Most reserve assets have an intrinsic value (i.e gold is used in electronics). Bitcoin doesn’t have any intrinsic value. SELL SELL SELL? No. Intrinsic value is really just a form of trust for reserve assets. Instead of using intrinsic value as a form of trust, Bitcoin has digitized trust. Plus, intrinsic value was always a dumb idea to begin with. How does gold’s intrinsic value help it? It really doesn’t when you have such a wild swing between intrinsic and reserve value.

The Flippening – Cryptocurrencies may be the future, but Google beat Yahoo, so why won’t a different, more advanced cryptocurrency overtake Bitcoin? Maybe. Cryptocurrencies are awesome, but I believe Bitcoin has developed a level of trust that will be hard to displace. Tech is far easier to disrupt than trust. I do think Bitcoin will co-exist with several other cryptocurrencies in the long term.

Tulip Mania – In 1637 the price of Tulips skyrocketed then crashed. How is this related to Bitcoin? It isn’t.

Double Spend Attack – What if the blockchain became corrupted? Essentially the same Bitcoin would be spent in two different places at once (BAD). Would a double spend attack be the end of Bitcoin? It wouldn’t be good. If Bitcoin is driven by trust, a double spend attack would be very bad. I’d argue the likelihood of this is extremely low though. It would require more than 50% of miners to all collude. Given the distribution of miners, this is very unlikely. The only potential problem is that a high proportion of miners are in China. A coordinated act by the Chinese government could be a risk (but with low likelihood and potential resolutions).

Regulation – The government has long used (and abused) monetary policy as a tool. If Bitcoin becomes widely accepted, won’t it be regulated? Who knows what the government will do, but at a certain point the train has left the station. Bitcoin has a cult-like following that will fight hard against any anti-Bitcoin regulation. I wouldn’t rule this out as a concern, but the longer Bitcoin thrives, the less my concerns in this area would be. Bitcoin isn’t really a threat to the government, it is a minor inconvenience. I don’t see anything imminent.

Too Late – Bitcoin has been on a wild ride, but the market cap is $1T already. Is it too late to buy Bitcoin? You are too late to get filthy rich, but you can still get rich off of it. Gold has a 10x market cap and that assumes gold as the ceiling. I think Bitcoin can surpass gold’s market cap. $1M per Bitcoin isn’t out of line.

Wrap It Up

Bitcoin comes with an absurd amount or risk, yet feels inevitable. The government has lost it’s right to control your monetary future. Whether Bitcoin becomes digital gold or something so much more, it has already changed the world and will continue to do so.

Long Bitcoin, short the bankers.