Bitcoin…
Last week we established that everything we think we own is not fully within our control and is constantly at risk, including the money in our bank accounts, the money under our mattress, our houses, cars, retirement accounts and so on. We don't have full property rights over these things since the central bank can inflate its value away and the government can freeze our ability to use it and could outright take it from us at anytime.
While the dollar represents a value, most of it is going through the central banking system where the banks make a profit from storing, transferring, controlling, and issuing money under the guise that it's safer there, which is not true. The current global central banking system has been the only financial system available to us and it is understandably difficult to wrap our heads around something very different, even if it’s much better.
What makes Bitcoin so special? Bitcoin is the worlds first truly neutral financial network infrastructure.
It’s not an actual coin, metal, paper, commodity, or anything like that. Bitcoin is a technology that represents value but provides a financial network at the same time. A network that can store and transfer value at no cost and without government interference. No central bank, person or corporation is controlling any aspect of any transactions. That network is also available 24/7 every day of the year without any reliance on banking hours. The Bitcoin network has been operating flawlessly since it’s inception in 2009, something that can’t be said about the banking system. Recently 3 US banks collapsed, putting $532 billion in assets at risk. Nothing has changed, all banks are still struggling with their devalued bonds, caused by the pace of interest hikes. Any bank that would have a run at right now would default as well. The government stepping in and guaranteeing all deposits has prevented any more of these events. While the price of Bitcoin has fluctuated greatly, the network has been solid.
The two main ways to buy bitcoin are through centralized exchanges (CEXs) that accept fiat currencies, or using a self-custodial bitcoin wallet app that also accepts fiat currency. The exchanges come with risks. Almost all the scandals surrounding cryptocurrency are caused by the lack of regulation and transparency of these exchanges. The wallet apps are safer but since they are online, they could be hacked. The safest way and the most appropriate way to store larger amounts of Bitcoin or any cryptocurrency is a cold wallet. A cold wallet is something that securely stores your private crypto keys offline, usually on a physical device. It's also known as a hardware wallet, and it protects your digital crypto assets from online hackers by using a flash drive-like device that isn't connected to the internet. Nobody can hack or steal your assets, just don’t lose the wallet.
Whilst doing some Spring cleaning back in 2013, a man threw his old hard drive into the trash, which quickly joined the mountain of rubbish at his local landfill site in Newport, Wales, UK. Little did he know at the time, that same hard drive contained a wallet filled with over 7000 Bitcoins, worth about $500,000 back then. Once he realized that, he began a desperate search for the hard drive and has been searching ever since. Over the past 10 years, James Howells has been crawling through mounds of rubbish to find his hard drive. Current value: $250 Million.
As an asset, Bitcoin has outperformed everything else out there and is up about 150,000% since inception almost 15 years ago. I don’t tell people to buy or sell bitcoin and the violent price fluctuations make it inappropriate for any retirement savings (unless you are in your 20’s). But I think everyone should take note of Bitcoin being in the process of becoming something different than what it was a few years ago. Bankers and Governments will continue to fight Bitcoin for obvious reasons, but more and more people starting to recognize the value. We are living through proof right now that the central banks strategy of just printing more money when problems arise, is very costly to the regular person and is not sustainable.
A significant characteristic of Bitcoin is that there is a maximum supply. The total amount of Bitcoin that can ever exist is 21 million Bitcoin. We are at about 19 million right now and there are 6.25 new Bitcoins entering the network every 10 minutes. In March of 2024, that amount will halve to 3.125. These ‘halving’ events have and will occur every 4 years until we reach 21 million total Bitcoins. While that will not be until 2140, the amounts added going forward will be insignificant. That means that Bitcoin, who runs right now at a 1.8% rate of inflation, will eventually have 0% inflation once the maximum supply is reached. If I lost you at that last part, don’t feel bad. The truth is, Bitcoin is unique and very different from anything we are used to. If you really want to understand Bitcoin, it will take more than reading a blog. There are plenty of sources out there, just stay away from the ‘getting rich quick with Bitcoin’ crowd.
Nobody knows where the price of Bitcoin will be tomorrow, next month or next year. While the scarcity and maximum supply factor are clear indicators to a higher price, there are things that can unravel that. If there is no demand, the price will collapse, no different from everything else. But the biggest risk might come from the parties that have to lose the most, central banks and governments. Central banks would lose their self declared right of existence and governments would lose control.
While the price of Bitcoin is unpredictable, the value isn’t. Bitcoin represents a new innovative asset class that is very distinct from traditional assets. It is uniquely available to everyone, providing greater inclusion in the investment world. It’s a peer-to-peer network that allows transactions to be conducted without the need of intermediaries, like banks, credit card companies, insurance companies or any financial service providers. Bitcoin is a disruptive technology that is transforming the way we think about money, value and financial transactions. It has the potential to democratize access to financial services particularly in countries with weak, untrustworthy and non inclusive finance infrastructures. Geopolitically, Bitcoin is disrupting traditional financial systems and global powers with the potential to undermine traditional notions of national sovereignty and control over financial systems by central banks governments and big businesses. The use of blockchain based systems like Bitcoin, can promote greater economic integration and cooperation between countries, reducing geopolitical conflict and creating greater stability and trust in the global financial economy. Bitcoin is a big deal and deserves a closer look.
Falk Hampel
