So you’re thinking about investing in Bitcoin? Think.
TL;DR Do investigate the potential of the blockchain space, do not follow the hype of specific coins.
Someone asked me what I thought about the recent Guardian piece and I spent my train ride cobbling this together on my iPhone. My response to that person is re-published here below.
It’s an opinion piece that’s designed to get clicks. Really the headline should be something like “Invest in the blockchain beyond bitcoin.” If he (Peter Adeney) was calling attention to the space as a whole then it would be admirable; however, he is obviously at odds with the ideas. Therefore, this is simply Peter’s biased opinion (look no further than his careless reference to his fingernail clippings (not fungible) his weak analogy only serves to place in your mind a negative reaction to Bitcoin) which is a shame really since there are aspects of the blockchain that should be eagerly investigated by anyone reading the economics section of the guardian.
There are many ideological assertions that Peter makes that I don’t have the time to comment on as I’m on a commuter train headed to work (writing this on my phone), but I would like to call attention to a few things.
Peter’s outline for what makes a “real currency” is suspect, oversimplified and singleminded.
“Easy and frictionless trading between people.” By design, a decentralized currency with no single entity in control, that’s built on the internet, is inherently easy and frictionless. Never mind that we trade in cash (digital cash, really, that’s backed not by gold but by the stamp of our government) and cash in itself does not meet his stipulation of easy and frictionless (which is why most of us use debit and credit cards to manage our money.)
“To be widely accepted…” Peter is essentially making the point here that, to US citizens, a Euro is not “real currency”. More clearly he seems to think that on his terms, for a currency to be real, the currency itself has to able to immediately present itself for payment and not go through an exchange process (like the Euro would in the US, or like BTC does currently)
I think we can all agree that Euros are currency.
A simpler way to talk about this is “medium of exchange”, and one google search will point out the ‘folly’ of scores of people who’ve used BTC and (and other cryptocurrencies) as a medium of exchange and “missed” making hundreds/thousands. It simply cannot be both.
“A stable value that does not fluctuate (otherwise it’s impossible to set prices)” his wording here is laborious as he seems to indicate that currencies (such as the USD, and his own Canadian dollar) do not fluctuate. This is incorrect and it’s dangerous to make that assertion to a wide audience; the USD does fluctuate.
What Peter is driving at, however, is the volatility of Bitcoin (BTC) (and indeed other cryptocurrencies, which he so gleefully points out.) Yes. BTC is volatile.
However, one could argue that the volatility is due to its youth, since it’s less than 10 years old, and then the conversation should consider the recent rise in publicity and hype cycles.
“Government-issued currencies have value because they represent human trust and cooperation.” Government-issued currencies have value because we don’t trust and therefore have chosen to have a third party assign, print and control our fiat and let us agree to how much it’s worth.
Government-issued currencies have value because we’ve agreed to give control of our money to a single entity in exchange for security.
Store of value: which Peter introduced with his now-infamous reference to his fingernail clippings (inherently not great stores of value since they will continuously be created, if they could be clipped, long after he died)
Gold is valuable because our ancestors didn’t know how to create it and because it’s scarce (probably also because it’s shiny.) BTC specifically, and many other cryptocurrencies are good stores of value because they have limited supply, due to be doled out over long periods of time through various methods (typically through cryptographic algorithms) which is essentially a scarcity mechanism. Bitcoin is inherently (that is, by design) and not artificially (that is, unnecessarily, or accidentally) scarce (sparse, to use his word). (His figure of 21 million assumes that these are indivisible, which is grossly negligent for the reader )
Store of value is an important feature and needs to be understood when evaluating a currency, for use or for direct investment.
Regulation and government intervention such as taxes and anonymity(particularly by governments who deem crypto a threat to their control over a populace) should be considered by anyone in the space. Peter is well off-topic at his point since he’s presenting a snippet (undoubtedly due to editorial control) that is tangential at best.
Lastly, Peter unceremoniously raises Venezuela and as quickly dismisses it. This is an error on his part to not consider a population that he (nor I) can relate to, but we must undertake the exploration of their situation and give it considerable thought. The use of cryptocurrencies in Venezuela to stem the control of the government is at the least a proof of concept and at best an indication that this idea is beyond viable. That it can actually intervene in dire situations and present an opportunity to rise above oppression. Consider the unbanked, 2 billion people in the world are without a bank; what if they could rely on decentralized mediums of exchange instead of a single entity to come in and save the day.
This opinion piece in the guardian, and my response are both fundamentally a question of belief. Peter does not believe in BTC, or the blockchain space (a shame, since he made lots of his money in software engineering) and I do believe in the blockchain space. Don’t listen to one voice. Not mine, not Peter’s do a breadth of research, I’d suggest starting with Naval Ravikant (@Naval). He’s an unbelievable thinker and an elegant communicator.
This is, at it’s core, a conversation of techno-optimism or techno-pessimism. I am very happily a techno-optimist. Optimism lets you weather many storms. Remember what Shakespeare said in The Tempest: “What is past is prologue.”