On Bitcoin

Over the past couple of weeks, I have been listening to Michael Saylor and Robert Breedlove discuss some deep topics on civilization and how we got to the state of Bitcoin today.

It has been a fascinating discussion that I’m only about halfway through. I recommend checking it out if you have the time/interest.

Both Saylor and Breedlove are big advocates of Bitcoin. If you tune into the discussion, you will get the vibe that they are Bitcoin maximalists. They are. The conversation is a little cringe as a result.

To newcomers, it feels cultish. I still get that vibe. On the other hand, it’s inspiring to see a collective of people be so focused on evolving how we exchange goods and services. They also present a fantastic perspective on how our current monetary policy is broken on a global scale.

I came into the discussion with an open mind as I’m interested in learning more about cryptocurrency for both my personal finance goals and for my role as a product designer.

First principles

I first discovered Bitcoin through a few podcasts. One podcast, in particular, started with the principles of what “money” means. Eventually, that lead to reading the whitepaper and following more folks on Twitter who are also into the crypto world.

When you get down to the history of money and understand that the U.S. dollar is only a hundred-year-old currency, you start to think of first principles. This helps you understand more of how we got to where we are today. Before the dollar there was gold. Before gold, there were other coins/shillings. Before coins, there was bartering (trade).

If you fast forward to today you’ll see the current U.S. economy is quite inflated (around 7.5%). The trend I’m seeing is that will continue to rise.

After a global pandemic even more money was printed and circulated to help those in need in the form of stimulus.

While on the surface that may seem like it’s helping but in reality, it isn’t. When you print money you take a centralized approach toward keeping the economy sustainable. Doing this over and over again drives up the prices of everything. It’s the classic supply and demand problem.

With Bitcoin, there’s a definitive cap on how many Bitcoin will ever exist. That number is 21 million. You can’t create more Bitcoin like you can dollars.

This is in place for a few reasons. The cap will drive demand keeping the value from ever falling too far. This will also essentially cancel out any issues with inflation. That’s pretty great. There are more advantages.

Advantages of Bitcoin

• Decentralized - No one central power can dictate unlike nearly all monetary banking systems today.

• Digital/Easier to move - more efficient, faster, and convenient.

• Encrypted and Secure - A public ledger displays all transactions but they are anonymous. Each transaction completes via proof of work (hashing) so the network and transactees benefit.

• Peer-to-peer - a network that builds of the backs of everyone that contributes or helps mine Bitcoin. Trying to take it down is nearly impossible the more people mine Bitcoin.

• No waiting period - the infamous 2-3 business day hold doesn’t exist though there are transaction fees.

• Can transact globally - Unlike modern banks, moving money across borders is painless.

Disadvantages of Bitcoin

• It’s technical - Bitcoin isn’t as simple as cash in hand. You need a wallet and a way to send/receive to other wallets. This makes adoption a bit harder for less tech-inclined folks

• Security - The technical security of Bitcoin is fantastic but to hold any you need your own set of access keys. These can get into the wrong hands of others or worse lost leaving your wallet inaccessible.

• Adoption - Right now Bitcoin is looked at from a mixed set of viewpoints. Many people in the tech industry are in favor of it while other parts of the population (usually less tech-inclined) don’t want anything to do with it.

• Resource dependent - Mining bitcoin and keeping the network up takes substantial energy. Computers than mine have to do “proof of work” and that means running computations over and over essentially guessing a number. It seems simple but do that for every transaction on the network and it eats up energy fast.

• No real regulation yet - Bitcoin being so new means it’s bound to face future regulations. This could mean heavy taxation or even bans in some countries. China, for instance, banned Bitcoin in 2021.

• Bad actors - There are those people who will take advantage of the network and steal, spam, cheat, exploit, etc… It happens with any form of asset.

I’m bullish on Bitcoin as an additional asset in my portfolio. Stocks, bonds, and real estate were my primary way to invest prior to the crypto boom but now I’m considering allocating more toward the crypto space.

It’s not just from an investment perspective why I might make that move but more for the technology behind it. Our current system is broken. Every banking website is archaic and they aren’t moving fast enough to keep up with demand. I shouldn’t have to have a transaction pause at 4:30 PM on a Friday and resume at 8:00 AM on a Monday.

A simple bank transaction goes through all sorts of identity checks, fraud checks, and worst of all happens without your control. Something like Bitcoin fixes a lot of these problems.

Sure it’s not the perfect solution to all the problems but when you compare it to any other type of asset, it starts to make more sense to shift to.