Why You Should Consider Buying Some Bitcoin
I’d like to start off by saying that I am not a Bitcoin expert by any means. The code/tech is beyond my complete understanding, however I am learning more every day. I first heard about Bitcoin in 2010 but it wasn’t until late 2016/2017 that I started buying Bitcoin.
I will not be elaborating on the technical aspects in this article. If you want to learn more, check out the resources at the bottom of the page. The current price of Bitcoin may be different from the prices when I wrote this.
I’d recommend watching this fantastic 30 minute video by Andreas Antonopoulos.
For those who do not want to watch it but still want to know what Bitcoin generally is: Bitcoin is an open sourced software that acts as the first decentralized censorship resistant digital currency. It is a peer to peer system with transactions that are verified through network nodes.
There’s a finite amount, 21 million. Through mathematics, there will never be more, ever. A Bitcoin can be divided down to eight decimal places, 0.00000001 is the smallest amount that can utilized in a transaction at the moment, known as a Satoshi. The Bitcoin software is constantly being changed. Software is never truly finished. More and more research is being done to investigate and improve it.
Bitcoin Is Flawed
Nothing is perfect. Bitcoin has a plethora of flaws, as all software does. It’s important to know the weaknesses of this 100 billion market.
The UIX of the ecosystem is garbage.
If something isn’t easy to use, people aren’t going to use it. Design gravitates towards more simplistic interfaces. There are phones that are far superior to the iPhone in regards to performance, but the iPhone still dominates the phone market; its interface is simple and clean. The tech illiterate need to be able to use the tech easily, and that’s an area in which Bitcoin fails miserably. It’s easy to make mistakes and lose a lot of money. For mass adoption, this is a problem that MUST be fixed. Cryptocurrencies can disrupt countless industries, but without a good user interface/experience it’s as good as useless.
Wallets are lost easily.
Both paper wallets and hardware wallets are physical objects, so they can be lost. With a hardware wallet, you can recover your funds with a recovery seed. That’s not the case with a paper wallet, if it’s lost — it’s permanently gone. There are also software wallets, but you are trusting a third party to control the wallet so it can more easily be hacked/lost thus making it less safe than paper and hardware wallets. This issue is related to the previous point, but the user experience MUST be better if the ecosystem is to scale.
There’s no buyer protection when using Bitcoins as currency.
When goods are bought using Bitcoins, and the seller doesn’t send the promised goods, nothing can be done to reverse the transaction. This problem can be solved using a third party escrow service but then you’re back to trusting a third party to assume the role of a bank. When owning Bitcoin, you are the CEO of your own bank. However, you’re also the CSO, COO, CTO, and so on. There are a lot of responsibilities in keeping your money safe which isn’t convenient or even desired in some cases.
Risk of unknown technical flaws.
This point I don’t feel as comfortable talking about as I am rather ignorant of the technical knowledge required, but I do know that no software is perfect. There could be things that the developers overlooked and it could collapse the whole Bitcoin economy. E.g. Hal Finney found several bugs in Satoshi Nakomoto’s (creator of Bitcoin) software despite Satoshi being very confident before it was officially released. The security has improved exponentially as the ecosystem grew.
No valuation guaranteed.
No one can guarantee its minimum valuation because there’s no central authority to do so. If some large bag holders decided to “dump” all of their Bitcoins and leave the system forever, its valuation will decrease greatly in the short term which will immensely hurt users who have a large amount of wealth invested in Bitcoin.
The price is volatile, speculative.
Bitcoin’s price volatility is the most well known aspect. Hypothetically, it could go to 0. It could also go to 1,000,000. The price of Bitcoin is influenced by factors that don’t affect other markets. Hypothetically, if Satoshi’s funds suddenly moved from his wallet to an exchange to be sold, everyone in the Bitcoin community would know and the price would plummet.
In the past nine years, the price has gone from less than $.01 to greater than $6000. 100 billion dollars is rather small in comparison to other markets, so those with more money can easily influence the system. If a billionaire decided to suddenly put all of his money into Bitcoin, he alone could drive the price up hundreds of dollars.
Bitcoin is NOT anonymous.
Companies like Chainalysis actively watch the blockchain, from their site: “Through formal partnerships with Europol and other international law enforcement, our investigative tools have been used globally to successfully track, apprehend, and convict money launderers and cyber criminals.” If you’re interested in a completely private and secure currency for whatever reason, I’d suggest looking into Monero.
Progress is slow.
There is no single person controlling Bitcoin like there would be at a business. At a business, the CEO can quickly and easily make crucial decisions to advance the company. That’s impossible in Bitcoin. Disagreement is all too common. All BIPs (Bitcoin Improvement Proposals) go through extensive reviews and are sometimes heavily debated. They take a long time before they’re implemented, some believe this process to be far too slow and will eventually lead to the demise of the network due to its inability to keep up.
There are bad actors.
Bad people are in every field. In Bitcoin, there are some bad actors who want to control the whole blockchain. The more money you have, the more influence you can acquire in the ecosystem. Large amounts of money can buy more miners (== hashpower), Bitcoin companies’ support, and advertisements. There are many actors who simply have different visions and are not innately evil; the bad actors try to deceive the ignorant for personal gain instead of distinguishing the differences and allowing the user to come to their own conclusion. E.g. The only company producing ASIC mining chips will only accept Bitcoin Cash (BCH), forcing others to support a different chain despite not having majority support.
That Being Said, I Believe Bitcoin Will Change The World.
It sounds ridiculous, but it’s important to remember that we’re fundamentally flawed because we don’t acknowledge the phenomenon of black swans until after they occur. Some examples of black swans are the personal computer, World War I, the dissolution of the Soviet Union, 9/11, and the internet. Very few people believed in the internet and now it’s difficult to imagine life without it; Bitcoin will be the same.
One of the biggest arguments against Bitcoin is the bubble argument. Bitcoin is magical internet money created out of thin air, the constant increase in price is a clear indicator that everything is going to come crashing down, right? Nope.
Comparing the dotcom bubble to Bitcoin is fallacious. Bitcoin is the core concept like the internet itself while dotcoms were mere derivatives. The dotcom bubble is comparable to an altcoin bubble (which I do believe to be the case currently).
To anyone who believes this is a bubble and that it must stop at some point, I’d advise them to read this. TL;DR: as long as people believe something has value, it has value. If you are of the belief that something has no intrinsic value and therefore has to be a bubble, then you must call anything without intrinsic value a bubble.
Why does fine art have value? Why do old stamps have value? Are we in a fine art and old stamps bubble?
The Banks Are Corrupt
The decentralized, censorship resistant properties are the most valuable aspects. It’s important because it allows ANYONE to participate. In the United States, almost 90% of adults have some sort of formal account, but roughly half of the adults in the world are unbanked. As a result, poor people are often forced to borrow money from informal lenders who generally charge high fees, according to the World Bank. The poor remain poor, the rich remain rich, a tale as old as time. Bitcoin allows everyone and anyone to be their own bank and have total control over their own funds. When you have money in the bank, you don’t truly own that money, you own an IOU from the bank for an equivalent amount to your money. You could argue that I’m splitting hairs, but it makes all the difference.
E.g. You’re a 25-year-old hardworking single mother who has two part time jobs to put yourself through night school. Your most recent pay check has been direct deposited into your bank account and you’re happy because it’s been a rough week and you worked extra hours to buy a present for your son. You go to the store to buy the gift, but your credit card is declined. You try your debit card but that’s also declined. You carry a little cash, but not enough to pay for it entirely because cash is slowly becoming obsolete. A long queue starts forming behind you and you’re not sure why it’s not working so you quickly apologize, put the present back, and embarrassingly exit the store. You call your bank and they tell you that because you purchased something suspicious a few days ago, your account is now locked and your funds are inaccessible while the bank looks into it. Days pass by — meanwhile you are depending on your parents for support because you still have to attend school and feed your child. Eventually you get an email, your account is now officially closed. You also have to pay a $30 late fee (and an additional $25 for every additional day) because your account was overcharged by this month’s $24 electricity bill because your automatic payment wasn’t sent because your account was locked. Your car also broke down and your ex got married, sorry.
Albeit a very specific scenario, it’s completely plausible. Banks may close deposit accounts for any reason and without notice. This issue is governed by the Deposit Account Agreement you received when you first opened your account. If you have a savings account, there are limits to how much you can withdraw so even if you wanted to withdraw all of your money immediately, you wouldn’t have the ability. My point is that your money isn’t as accessible as you think and that your account could be closed at any point. It doesn’t happen very often, but it occurring just once is already too much.
I believe most modern day big banks are evil. Generally, they take advantage of the lower classes, they’re ‘too large to fail’, and not responsible for actions (too much risk consolidation). The leaders of these big banks are the very worst; they receive hundreds of millions in bonuses in times of hardship. The Financial Crisis of 2007–2008 is the best example of these problems.
Centralization does not exist in nature. Decentralization is usually the way nature organizes things; you don’t see hierarchal systems very much. Usually you’ll see loosely coupled decentralized systems that create complex behaviors as a result. One really interesting example given by Andreas demonstrating this was about leaf cutter ants; they as individuals are rather simple in regards to their actions and behavior. Once there’s several hundred or thousands, they begin to perform remarkably complex behaviors like farming aphids like we do cattle. This behavior doesn’t exist in individual ants, but as a result of many of them interacting. Bitcoin can be compared to this, a decentralized system where all of the simple individual members of the network are interacting to create complex behaviors. These peer to peer transactions cut out the middleman (the bank) and in time the role of banks will be severely reduced.
I personally believe that the divisiveness in the community is the greatest threat to Bitcoin. In Bitcoin, there are soft forks and hard forks. Soft forks are changes to the bitcoin protocol wherein only previously valid blocks/transactions are made invalid, a softfork is backward-compatible. A hard fork is more contentious, it’s a change to the bitcoin protocol that makes previously invalid blocks/transactions valid, and therefore requires all users to upgrade. The two most recent hard forks being Bitcoin Cash (BCH) and Bitcoin Gold (BTG). Due to Bitcoin’s code being open sourced, it allows for people to ‘fork’ the blockchain and pursue their own vision at whim. However, miner support is needed for verification of transactions to have a successful Bitcoin blockchain. If you own one Bitcoin (BTC) before a fork, you will own both versions of Bitcoin after the fork.
E.g. I fork Bitcoin and create Bitcoin Zhang (BTCZ), everyone who owns the original Bitcoin automatically owns both versions BTC and BTCZ. Everyone who owned Bitcoin since 2009 owns every single fork of the blockchain that has happened. Imagine a ‘fork’ in the network as a road or path that started off at the same place but eventually splits up, like the picture provided.
Bitcoin developers often have differences in vision, specifically in regards to scaling the network. The network at its current capacity cannot handle an exponential increase in transactions. For further adoption, the network MUST scale, which is why picking the way to scale is so controversial. When they cannot come to an agreement, they typically fork the chain or go to an alternative cryptocurrency project. If you’re curious about the source of the turmoil, look into off-chain versus on-chain scaling. The debate about scaling is VERY heated.
So now we know that there are Bitcoin forks. I assume this causes confusion among people who are thinking about joining the community. Roger Ver, a well known figure in the community, claims that the real Bitcoin is Bitcoin Cash (BCH) and that all others are ‘altcoins’ or ‘shitcoins’ (derogatory terms for cryptocurrencies that are believed worthless). This just shows that there are bad actors in the community who are driven by greed and power. The forks in Bitcoin cause confusion and division in the community (check out /r/btc versus /r/bitcoin for a clear difference). Money is directed at projects of little promise, and once said projects die, investors lose funds and the regulators step in. I don’t think the issue is big enough to end Bitcoin, but I think they have the ability to do a large amount of damage which would take a long time to recover from.
Its greatest weakness, the community, is also its greatest strength. Bitcoin is what it is because it is decentralized and censorship resistant. When something becomes decentralized, it becomes less efficient. Dictatorships are brutally efficient because there’s no argument; one person is making every decision. We the people give up efficiency in order for us to have power, we avoid the abuse of power from central authorities.
From Satoshi Nakomoto’s introduction:
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non- reversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.
This is NOT Financial/Investment Advice — Just My Opinion
The price is volatile. It’s only nine years old, as it gets older it will be less volatile. Bitcoin has not dipped past 40% its value in the past two years. Gold’s price is relatively volatile too, the price increased by 11.6% in 2008. Gold has been around since early civilizations, an 11.6% fluctuation is extremely large for a multi-trillion dollar market.
The USD has had an average annual inflation rate of 1.41% from 2009–2016, meaning that the USD has lost 11% in spending power since 2009 (to 2016) and it’ll continue to lose more. This is because there’s an unlimited amount of US dollars as the government needs money for military spending and bailing out the big banks. Bitcoin’s supply will never change, through public key cryptography and blockchain technology, it is verifiable that there will only ever be a maximum of 21 million Bitcoins in circulation. This means that it’ll continue to gain value because of its deflationary properties.
Money talks. Throughout history, money has always talked, and money will always talk. Money has flowed into Bitcoin absurdly quick. I’m not sure who said it (please send me a message/comment and I’ll edit it in) but they said ‘lesson from the internet is that whatever China bans, invest in’ E.g. Facebook, Google, and Twitter. Now it is Bitcoin.
The cumulative value of Bitcoin is greater than the value of Bitcoin (BTC) itself. Bitcoin Gold (~$125) + Bitcoin Cash (~$450) + Bitcoin (~$6000) + two futures Bitcoin Segwit2x (trading at ~$1000) + Bitcoin Unlimited (future but estimated to be ~$200). In time, I believe Bitcoin will absorb its forks and gain their value.
In the last five years, Bitcoin has had a +~$6000,+60,673.65% change.
Imagine a scenario where a person stopped an unhealthy/expensive habit and invested it into Bitcoin. Let’s say I quit smoking weed/cigarettes, stopped eating fast food, and/or stop drinking. This saves me ~$20 a week. Over a year, that’s already more than $1000, If I bought Bitcoin in 2015, buying $20 worth of Bitcoin every week for the whole year, it’d be worth more than $10,000 today. It’s not too late to do something like that today. Bitcoin will continue to appreciate.
There are 7.6 billion people in the world and 21 million Bitcoins. That means there are only 0.00276315789 BTC (15.81 USD [2017.10.25] for every person in the world. The population is sure to rise, and as a result there will be less Bitcoin per person, thus making it more valuable.
There’s already been a fair amount of bitcoins forever lost, through faulty transactions or loss of hardware. In addition to that, a fair amount of people who owned bitcoin may have died at some point and forgot to pass it on. Satoshi Nakomoto, the creator and founder has been estimated to have around 1 million Bitcoins, which have not been touched in the past eight years. All of this just makes the available Bitcoins more valuable.
Right now it’s being used as the new digital store of value, not as a currency. Many people who buy it are known to ‘hodl’ their Bitcoins and not spend it as they strongly believe that it will grow in value. This hodling mentality allows the price of Bitcoin to rise faster as the assets are no longer being circulated.
Gold’s market size was ~6.3 trillion at the end of 2014. Bitcoin’s market right now at the time of writing is 100 billion. Hypothetically, if Bitcoin was to reach a market size a tenth of the size of gold’s market, one Bitcoin would be ~$38000 USD, not taking inflation of the dollar in account. I think it can be more than a store of value, providing even more value. This software can change beyond recognition, unlike gold which will always be the same.
It’s much easier to buy some Bitcoin in comparison to buying something like gold. Let’s say I do have a lot of money and I want to buy a large amount of gold, where do I store pounds of it? Do I really own the gold if I don’t personally store it? How do I know that multiple people don’t own the same gold that’s stored abroad? What about the security aspects? These are some problems associated with gold that Bitcoin doesn’t face.
One common fear that I hear is that a Bitcoin is already expensive, being greater than $5,000 already. The best time to buy Bitcoin is right now. Of course you could have had a 50,000+% profit if you purchased it in 2009, but you didn’t and you will never have that ability so the next best time is the present. People said that it was too expensive at $10, $100, $500, $1000, $2500, and so on. Some people will say that Bitcoin is overpriced no matter what the price is. There’s no need to buy a whole Bitcoin; I believe there’s a mental block on spending thousands of dollars on a unit of something intangible. It’s easier to buy small portions. E.g. 0.01 BTC over a period of time, dollar cost averaging.
John Mcafee claims it will hit $500,000 in three years, he’ll eat his dick otherwise. To those who believe in hyperbitcoinization, $500,000 is short balling it. I think that it’s a great publicity stunt that’ll bring more attention to Bitcoin and aid in his goal, but not realistic within three years. I do think there’s more validity in a claim such as $25,000 within a couple years made by Wall Street strategist Tom Lee.
I am by no means suggesting that anyone put their life savings into Bitcoin, although some people have already done things of a similar nature. This man acquired an equity loan of $325,239 on his house in order to purchase 191 Bitcoins. It ended up working out extremely well being that is now worth ~$1.1m, but investing more than you’re willing to lose (without understanding it) is a stupid idea and I do not recommend it. To summarize, I personally believe it’s a medium risk, very high reward venture which requires little effort to participate in.
I’d equate buying Bitcoin to buying shares in the internet itself. It’s important to remember that world changing technologies have always been greeted with criticism.
Notable People Supporting Bitcoin
Steve Wozniak (Apple co-founder)
Peter Thiel (entrepreneur/VC)
Tyler and Cameron Winklevoss (sued Mark Zuckerburg for stealing Facebook idea)
Bill Gates (Microsoft co-founder)
John Mcafee (Founder of Mcafee Software)
Julian Assange (Founder of WikiLeaks)
Tim Draper (VC)
Scott Disick (Kourtney Kardashian related(?))
You can buy some Bitcoin through this link:
Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency.www.coinbase.com