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Author’s Note: For maximum benefit, click through and read the linked articles in this post.
When I first heard about bitcoin in January of 2011 is was through an anonymous email. Having been a “gold bug” for many years I quickly discarded the idea when I saw that it “wasn’t backed by anything” (big mistake as bitcoin was trading at about a dollar at that time). I set it aside and didn’t think any more about it.
That was until June 1st – almost six months later – when I read the article from Gawker Magazine titled The Underground Website Where You Can Buy Any Drug Imaginable.
I was blown away.
Here was an online marketplace where the persecuted minority could voluntarily and peacefully trade goods with one another – regardless of whether or not the “mob rule” of the rest of society approved of it. And bitcoin made it possible.
I had to find out more.
This time I dove in and read everything I could find about it. Hours turned into days and days into weeks as I discovered bitcoin’s compelling properties like limited supply, near instant value transfer, psuedo-anonymity and, most importantly, no central organization that could be decapitated.
With just a little thought, I realized my previous error. Bitcoin didn’t have to be “backed” by anything just like gold didn’t have to be backed by anything. Each can be valued for what they are and what they enable you to do. This was basic Austrian Economic Subjective Theory of Value.
As a long-time student of man’s historical struggle for individual liberty I immediately grasped the implications of this new “censorship resistant” money. I knew that money, a form of property, was an extension of man’s life energy. It is a product of his time, energy and talents. I also knew that powerful groups had hijacked our current monetary systems, stealthily siphoning away the literal lifeblood of a man’s production. Yes, I’m talking about the oligarchs behind the Federal Reserve and similar institutions around the world and throughout history who have systematically fed upon the ignorant masses.
I realized that, if there was a tool that individuals could use to protect the product of their life energy, an enormous amount of wealth would flow to it. Since capital always flows to where it is respected and protected, I saw that bitcoin could be the new destination for “flight capital” and, in a sense, become the ultimate offshore bank account. When used properly, bitcoin enables you to prevent others from taking your property without your voluntary consent.
I had to get some.
I found one guy on the internet that accepted bitcoin at his tea company. Maybe he would sell me some? I tracked him down and gave him a call. Bitcoin was now trading at $7. When I finally got him on the phone I discovered that, in his words, he had “sold out at the top” and he no longer had any.
Not to be discouraged I kept trying. I posted on a forum that I would send someone my gold if they would trade me some bitcoin. I found a taker and a deal was struck. I sent a few Gold Eagles to a stranger halfway across the country based on his online reputation and soon received the bitcoins (yes, that’s plural). By this time, the price had risen to $30 a bitcoin and that is what I paid.
Then came the crash.
Just a day or two later Mt.Gox had one of their many catastrophes and the price crashed to the $3 range. It then proceeded to trade between $3 and $8 dollars for the next two and a half years.
Did I sell?
I recognized the fundamental value proposition that bitcoin had to offer for the betterment of mankind. I imagined a world where it was harder to be robbed through taxation and inflation. I imagined a world where wars could no longer be financed through perpetual debt and inflation. I imagined a world where the supply of money couldn’t be influenced by the whims of politicians and central bankers. I imagined a world where people could find refuge from the assaults against their life, liberty and property. I imagined the potential for voluntary society where people could no longer live off of the backs of their neighbor. A world where self-rule and personal responsibility would be valued and expected instead of a world where people believed in the “pagan faith” of external authority. I realized that bitcoin’s creation rivaled that of the printing press and the internet itself. I continue to buy as often as I can, no matter the current price as I feel bitcoin will be the last currency standing as all others self-destruct.
Am I an idealist?
Yes. But I also saw that by simply owning bitcoin, what others thought or did mattered less and less to me as I now had a tool of self-defense.
I found a way to get closer to true freedom and I have never looked back. Thank you Satoshi Nakamoto. Thank you cypherpunks. Thank you for working to make the world a better place. For these reasons I “hodl“.
#bitcoin painfully exposes the inferiority of every other type of traditional payment and you will likely pay dearly if…
2/ ..you accept traditional forms of payment in exchange for it. Examples…
3/ ..trade your bitcoin for a credit card payment? Even if u know the customer you can still get scammed with a chargeback…
4/ ..accept a check or bank wire? Watch out for the “man in the middle” (MITM) attack. Better know/verify your customer which is hard to do
5/ ..accept gold or silver? Watch out for fakes! Accept cash? Watch out for counterfeits! As a hodler of
#bitcoin, the hardest currency,…
6/ ..be careful what you trade it for. Everyone is a potential scammer and you have the hardest currency/most desireable asset…
7 ..only buy goods and services from reputable vendors who have “skin in the game” and too much to lose by cheating you…
8/ ..the pendulum will swing back to “buyer beware” as more vendors demand “finality of payment” before relinquishing their wares or…
9/ ..or they will charge you more to take your inferior payment type in order to cover risk of loss. Inversely…
10/ ..inversely, savvy vendors will offer discounts for bitcoin (which is, for the most part, better than cash)…
11/ ..friction from transaction fee pressure will subside as layer 2 payments systems emerge (lightning network, et al)…
12/ ..Layer 2 payment systems will offer low latency finality of payment, i.e., daily settlement on Layer 1 (bitcoin blockchain) but, …
13/ ..for all intents and purposes these Layer 2 systems can provide the irreversibility needed for most transactions…
14/ …higher value transactions can be settled directly on chain (Layer 1) as the higher transaction (miner) fee will be worth paying…
15/ ..or the parties to the transaction can agree to wait for settlement to the main chain (Layer 1) before finalizing the transaction…
16/ ..in conclusion, he who “has the gold” makes the rules. Bitcoin is the new gold. Trade carefully and don’t give it away foolishly.
Here is a great presentation by Trace Mayer from my first Bitcoin Investor Conference in 2015:
In your bitcoin journey you may have heard or read the term “HODL” and wondered what it means. I’ve created this post as a quick explainer.
In the 4th quarter of 2013 the price of bitcoin made a breathtaking run from around $100 in October to a high of $1,164 (give or take) in late November. This created a tremendous amount of media attention which brought a whole new wave of investors and speculators. The price then proceeded to pull back to the $400 – $600 range in mid-December. This was quite a ride for long-term holders and quite a blood-bath for those who joined the rally late, right before the correction.
Here is the chart for that period:
On a popular online bitcoin forum, one investor publicly declared that he was “holding” his bitcoins and not selling despite the ongoing blood-bath. The funny thing is that he made his post after having a few drinks, presumably to help cope with the pain. Inebriated, he misspelled “holding” as “HODLING”. Here is his post:
Other sympathetic members jumped on the typo and an internet meme was born. A multi-page thread ensued and the meme flood began:
So, the next time you see bitcoin “crashing”, remember to stand tall and HODL!
Today I received a phone call from a friend thanking me for helping her get into bitcoin and here’s her story:
I met Nicole through a mutual friend about 2 1/2 years ago in December of 2014. She had contacted me because she had heard about bitcoin and asked for my help. At the time, bitcoin was trading for about $375 and I helped her get about $13,000 worth.
These bitcoins are now worth over $90,000. That is a 633% return in two and a half years!
Fast-forward to this week when she called asking to help find her a private buyer as she wanted to sell a little and put a brand new deck in her back yard. She was excited that she could now build the deck that she always wanted but was never able to.
I helped her out and, best of all, she didn’t have to sell very many coins. She still has a tidy sum which she is saving for retirement. I can only imagine what that next phone call will be like in a few more years.
Do you have a bitcoin success story? I’d love to write about it. Please send it to me (with your name changed of course) and I will share it on my site.
Start with a national debt that is unsustainable:
This will eventually force the debtor (U.S. Gov) to either default (making the money worthless) or devalue (also making the money worth less due to increasing the supply):
The end result when your savings are in dollars:
Bitcoin’s high utility and limited supply make it an attractive alternative:
What’s in your wallet?
A classic article from 2012 on the origins of money from Economics and Liberty:
Money is primarily a medium of exchange or means of exchange. It is a way for a person to trade what he has for what he wants. Ideal money has three critical characteristics: it acts as a medium of exchange; it is an economic good; and it is a means of economic calculation.
Medium of Exchange
To properly understand money as a medium of exchange one must first go back to the first methods of trade. Before money was invented one would have to engage in direct barter. A farmer who produced grain – but wanted shoes for his family – would have to find someone who, a) had shoes and, b) wanted grain. You can imagine the difficulty involved in finding that perfect someone who had what the farmer wanted and wanted what the farmer had.
Out of necessity, this gave rise to indirect barter. Continuing with our example above, let’s assume that the farmer found a shoemaker but discovered that the shoemaker did not want grain – he wanted candlesticks. While having a drink at the local pub he overheard the gentleman next to him lamenting that he needed grain in exchange for his candlesticks. Naturally, the farmer traded his grain for the candlesticks and went back to the shoemaker and traded the candlesticks for shoes. In this example, the farmer performed indirect barter when he used the candlesticks as a medium of exchange.
Over time, different commodities served as medium of exchange but the problem of marketability and durability came into play. A necessary and highly exchangeable commodity was food. The problem is that it was perishable. One had to either use it or trade it before it went bad. Over time, the most marketable and durable commodities came to be used as medium of exchange – commodities such as gold and silver. Since gold and silver did not rust nor rot they were ideal economic goods. Over time they became the preferred medium of exchange.
Money is an expression of exchange value (the exchange values placed on goods by traders in the marketplace). In our examples above, it was extremely inefficient to express the exchange value of goods in units of sacks of grain, shoes, or candlesticks. Out of necessity the market gravitated toward the use of the exchange value of fixed weights of gold and silver. As an example, the original U.S. Silver Dollar was modeled after the Spanish Dollar which had a specific weight of silver (371 4/16th grains of pure silver or 416 grains of standard silver). A simple method of economic calculation consisting of weights and measures greatly improves trade and fosters economic growth.
What is the best form of money?
In actuality, the best approach is to let the people (the free market) decide what they want to use as money. There is no need for a central bank, government control, or legal tender laws. History has shown that, when left up to the people, silver and gold tend to gravitate to the role of money for the following reasons:
1. scarcity – supply cannot be manipulated like fiat money which causes the boom and bust cycles in the economy
2. durability – gold and silver will not rot which makes them a great store of value
3. fungible and divisible – they can be divided into small, interchangeable amounts which make them ideal for trade.
4. portable – Their high concentration of value allows you
to carry and store substantial value
5. proven – gold and silver have been used as money for over 6000 years of recorded history.
6. use value – both gold and silver have tremendous use value in industry. The highest use value though is in their role as money
A new currency named “bitcoin” is generating much interest due to its similar characteristics (see Bitcoin: A New Commodity Created To Serve Market Demand and Further Observations On Bitcoin, Digital Currencies, Privacy and Liberty)
Purchasing Power Can Rise Over Time with Honest Money
Honest Money (defined as a medium of exchange consisting of real goods that are in limited supply) can actually increase in value over time. Let me explain. When the production of other economic goods grows at a faster rate than the supply of money (mined gold for example) the money can buy (be traded for) more of these other goods (money supply divided by the total number of goods). This means that it could actually pay to save your money because it can increase in exchange value over time. This also means that nominal wages could decrease over time while real wages increase (your paycheck “amount” drops but your purchasing power increases).
Why and how did Government Money supplant Gold and Silver?
Laziness and deceit. The first bankers were the goldsmiths. Miners would bring the gold to the goldsmiths for minting. The goldsmith would give the miner a receipt that he could redeem when the minting was completed. The miner soon found that he could immediately trade his receipt (his claim on the gold) for tools and supplies and return to the mines without having to wait for his gold.
Over time, the goldsmith found that the receipts he issued stayed in circulation and were being used as medium of exchange. Only a small percentage of the people ever came in to redeem the receipts. To increase his purchasing power he simply began to issue his own fraudulent receipts (that had no gold backing) and used them to acquire goods and services. This increase in the number of outstanding receipts created inflation and lessened the value of all of the other outstanding receipts.
In later days, central banks did the same thing. They issued more receipts (paper currency) than they had the gold and silver to back it. The U.S. paper currency was originally a receipt for gold or silver. Take a look at the five dollar silver certificate below. Notice the words “This certifies that there is on deposit in the treasury of the United States of America five dollars in silver payable to the bearer on demand.”
In March 1964, Secretary of the Treasury C. Douglas Dillon halted redemption of Silver Certificates for Silver Dollars effectively breaking the contractual terms of the Silver Certificates.
Here is an image of a Gold Certificate:
The gold certificate was used from 1882 to 1933 in the United States as a form of paper currency. Each certificate gave its holder title to its corresponding amount of gold coin. Therefore, this type of paper currency was intended to represent actual gold coinage. In 1933 the practice of redeeming these notes for gold coins was ended by the U.S. government and until 1964 it was actually illegal to possess these notes (in 1964 these restrictions were lifted, primarily to allow collectors to own examples legally, however the issue technically converted to standard ‘legal tender’ with no connection to gold). When U.S. paper money was modernized (made smaller, with fewer variations or “types”, as with current paper money) in 1928, gold certificates ceased to be issued.
In essence, the goldsmiths (central bankers) reneged on their promise to honor their warehouse receipts and effectively stole the gold and silver that was owed to the populace. It was laziness on the part of the populace to blindly trust the central bankers with their money and deceit on the part of the central bankers when they reneged on their promises. The central bankers were now able to expand and contract the supply of money (nonredeemable certificates) to exert their power and influence over the populace.
Criticisms of Gold and Silver as Money
A common and misguided criticism of the use of gold and silver as money is that “there isn’t enough to go around”. Let’s answer that here:
Gold and Silver are easily divisible in their physical form and, when combined with technology, infinitely divisible. Services like GoldMoney.com and BullionVault.com store the gold and issue digital warehouse receipts. These receipts are a claim on the gold held in storage. These digital receipts can be mathematically and infinitely subdivided and then traded. Like all services that offer to store your gold you must do your due diligence as to the integrity of the service provider and recognize that fraud can still occur. Spread your stored holdings among competing service providers so that your risk is reduced and, by all means, keep a substantial portion in physical form within your possession. Also, note that both GoldMoney and BullionVault are subject to attack due to their centralized nature. A new, non-gold currency with gold-like attributes is emerging and showing much promise (see Bitcoin: A New Commodity Created To Serve Market Demand)
Another common criticism is “those with the gold will not want to part with it”. Here is the answer:
You can’t eat gold. Those with the gold need other goods and services. In order to obtain these other goods and services they have to trade their gold. That is the beauty of the free market. People are free to trade what they have for what they want.
The market always decides what is the best form of money. In fact, it is deciding right now – despite government intervention. One need only look at the exchange value of gold and the emergence of free-market currencies as evidence.
When people say “the price of gold is going up” they have it all wrong. It is the value of paper money that is going down.
One only needs to judge a paper currency like they would a stock. When you look at a stock you look to the balance sheet and the management of the company in order to decide what value you would place on that stock.
The same goes for a national currency. Look at the balance sheet and the management of the country and that will determine the value of the currency. The dollar is the common stock of the United States. When they issue additional stock (print money via the Federal Reserve) they dilute the value of all the other outstanding stock (inflation).
On a Friday night about 4 years ago our family had my brother-in-law and his family over for pizza. He picked it up and paid for it on his way over. As I’ve mentioned in previous posts, I tend to share bitcoin with everyone I meet – often giving small amounts away. When he arrived I naturally offered him bitcoin instead of dollars.
This is when bitcoin was trading at about $10 each. I had previously purchased several of the Casascius physical bitcoins (no longer sold) that were loaded with one bitcoin and I had a few of them on me (we now offer our own version of unloaded, collectible “coins” at BitcoinMint.com).
He shrugged and said “Sure, why not?”
So I gave him a 1 bitcoin Casascius coin which is now worth over $2,400.
He’s kept it in his wallet and hasn’t really thought about since. Every once-in-a-while I’ll call him up and say, “Hey, guess how much that bitcoin is worth!” and we both have a good laugh.
This last time he finally said, “I guess I better put it in a safer place now!”
The amazing thing to me is that – with a total supply of only 21,000,000 – the majority of the people on this planet will never own a full bitcoin. If it continues to go up (as I think it will) it may someday be worth enough to retire on – or you maybe you’d just be able to buy a whole bunch of pizzas.
The funny thing is most people believe the price is too high and they neglect to take a position for another 4 years.
Here’s what I think…if you want really low risk, consider taking just 1% of your savings (or net worth) and buy bitcoin. In the worst case scenario it becomes worthless and very little harm is done. But what if it goes up another 100x like many of us think it will?
You will have doubled your portfolio while risking only 1% of your assets. Not a bad trade.
Okay, since everyone is making predictions here’s mine:
In this back-of-the-envelope calculation I will look at the offshore banking industry and how bitcoin, by proving a better solution, can hit $142,000.
Offshore banks currently hold about 30 trillion dollars and people have historically moved money offshore for the following reasons (taken from an earlier post):
First, we have to ask – why do people go offshore in the first place? Here are what I believe to be the top reasons people choose to move their money offshore:
- Financial Privacy
- Protection from Theft
- Protection from Litigation
- Currency Diversification
- Jurisdictional Diversification
- Global Access to Funds
Here is how bitcoin satisfies each of these goals:
Out of the box bitcoin is pseudonymous and very private. Bitcoin is essentially digital cash. When you download the application you can physically store* the funds on your computer, a flash drive, or even upload them to the cloud. Current projects under development hold the promise of making bitcoin totally anonymous .
Protection from Theft
Bitcoin is protected by the peer-to-peer network with no central authority. Combining this network with high-grade encryption makes it virtually impossible for any person, or group of persons, to take your money without your permission.
Protection from Litigation
This falls under the rule of “what they can’t find they can’t get”. By moving your money into bitcoin and obfuscating its whereabouts you become virtually “judgement proof”.
Every national currency is manipulated by central banks and governments. Bitcoin is limited in supply and cannot be inflated like national currencies can. This gives it potential to be an excellent store of value.
Bitcoin can be hidden behind encryption and stored in cyberspace – making it everywhere and nowhere at the same time. What existing power structures cannot find they cannot steal.
Global Access to Funds
Bitcoin can be accessed anywhere in the world. Not even an internet connection is necessary.
No Counterparty Risk
When you store assets in any bank or gold-storage facility, those funds are an asset on your financial statement but they are also a liability on the financial statement of the other party. This exposes you to the risk of default, bankruptcy or fraud by the other party. When you retain physical possession of your assets through bitcoin – you eliminate this counterparty risk. Like physical possession of gold and silver, bitcoin is an asset with no corresponding liability.
Ease of Use
While there is a slight learning curve required to use bitcoin, you don’t have to fly to another country to open an account – nor do you have to provide any type of identification or tax number to own bitcoin. You do not need anyone’s permission to use bitcoin. It is truly “the people’s money”.
You can cross borders with no physical currency on your person yet you can literally have access to a fortune via a flash drive or a simple internet connection.
How we get to $142,000
There is currently over $30,000,000,000,000 parked in offshore banks. If only 10% of those holders decide that bitcoin offers a better value proposition that would mean $3 trillion dollars chasing 21 million bitcoins (total supply) giving you an approximate value of $142,857 per bitcoin.
I actually believe the value of one bitcoin will go much higher but I’ll save that for a future post.
My wife and I were out for lunch at a local restaurant when we ran into an old neighbor. After the usual “catching up” I could tell he was anxious to tell me something when he finally couldn’t resist it any more.
“Do remember that bitcoin you gave me a few years ago?”
“I don’t remember.” I replied as I racked my brain.
“Yeah, you remember, it was four years ago when Sharon and I came over for dinner and you were telling us all about bitcoin,” he continued excitedly, “you even gave me some, it was a dollar’s worth.”
I vaguely remembered the evening they came over.
“Look” he said as he pulled out his phone, “look how much it’s worth now…”
To my amazement, that single dollar’s worth of bitcoin was showing a current value of $143!
Ever since I first heard about bitcoin in 2011, I was giving away small amounts to anyone who would listen. Like today, I saw it as a way for people to break free from a rigged financial system which stole their money through inflation and perpetual debt. Most people just looked at me like I was crazy and I suspect that most of them lost or forgot about the bitcoins soon after. I can only imagine how much bitcoin has been lost in this manner – which will never be recovered.
With my friend, I was shocked that he had still kept it over the past four years – even after changing phones. Back then, for simplicity, I was using the EasyWallet.org web wallet (no longer supported) because it was easy to get the other person to load and bookmark the page and I could send them bitcoin instantly. We didn’t have apps back then.
When he opened the EasyWallet bookmark I quickly showed him how to move the bitcoins to a safer wallet.
As we wrapped up our chat he finished with, “I hope you sold yours and cashed out because bitcoin is risky”.
Some people will never get it.
I “cashed out” a long time ago when I moved my money out of dollars and into bitcoin.
What will you be holding four years from now?
Token mania is in full force and many are being lured into the “blockchain” frenzy and throwing their money at the “latest and greatest” coin offering.
First, what is a token? Tokens fall into two primary categories: community currencies and glorified pre-paid gift cards.
Community Currencies have been around forever beginning with the most commonly valued commodities that became a medium of exchange within those communities. Gold being durable, divisible, and scarce became one of the most popular. It is the most useful commodity that gains market share over time and eventually becomes the primary medium of exchange.
Nevertheless, there always exists certain sub-communities and affinity groups that, for whatever reason, choose certain commodities as their own preferred medium of exchange. The ultimate value of these currencies rests upon what someone is willing to trade for it. The most commonly accepted are the most liquid and, those holding the minority currency, face ongoing liquidity challenges. Without strong enough support by the communities these currencies can wither and die.
There are many community currencies in the crypto space with bitcoin being the largest and most liquid. In fact, due to its size and acceptance, it has become the primary (and often only) gateway to all other currencies/tokens.
Glorified Gift Cards
The next type of token is nothing more than a digital credit certificate (gift card) that can be redeemed for the products and services of the issuer (sometimes not even that!). It is an I.O.U. and a promise to pay you the products and services of the issuer at some future date.
The problem with most of these Initial Coin Offerings (ICO’s) is that they are issuing digital gift cards for products and services that don’t even exist yet. The more successful that the ICO is, the less incentive there is for the issuers to deliver the goods and services unless they “lock up” certain coins that can be claimed after accomplishing certain benchmarks in development. But, for the most part, they have essentially pre-sold their products and services. You are essentially investing in a high-risk start up when you buy these coins. Similar to what has traditionally been referred to as “penny stocks”.
Many people in the bitcoin space worry that these ICO’s distract and attract capital away from bitcoin but this is incorrect. Capital always flows to where it is respected and protected. I suspect that most of these ICO issuers convert their proceeds right back into bitcoin as the primary store of their wealth. Hence, they are indirectly attracting capital to bitcoin.
Think clearly before smokin’ that token and use the above metrics to help you determine the ultimate value of the token being pitched to you.
Even after a modest correction this past week bitcoin is still up over 100% year to date. While many people would argue that short-term speculation is driving the market, long-term holders (or “hodlers” in bitcoin parlance) believe that the world is waking up to the fact that the dollar has lost over 98% of it’s value due to it’s inflationary nature and they are looking for a “safe haven” for their money: