help me understand crypto

[37andhappy]

I'm not sure understanding the nature of bitcoin is as important as accepting the fact that it has become an investable asset. I see value in it and am happy to add it to my portfolio of individual stocks, funds, bonds, real estate and cash. No precious metals for me. I suppose I'm with the under 30 crowd when thinking about store of value. So far my BTC has multiplied in value by a factor of 5+ and in the process took over about 15% of my net worth. It's the money I can lose. So that's the investor thinking.

As a political animal I love BTC for its anticensorship features, for the fact that (as long as it has value) it's the best bearer asset you can posses, that's it's completely decentralized and that its value - while volatile - it's mathematically, rather than situationally assessed.

Nobody can prevent you from owning BTC and transacting in it. As long as there is another party interested in it, no government, bank, credit card or financial processing company can stop you from trading BTC. A good example of when that became important was when Wikileaks was cut off from the traditional financial system.

While gold and cash are bearer assets, they are hard to store and transport in larger quantities. BTC - regardless of the amount and being just piece of code on the blockchain, can be literally stored on a piece of paper or in your head (if you memorize your private key - basically 24 random words). And given that this key can be instantly transferred across the world, the transportability of BTC beats everything else (I suppose we are all aware that bank deposits and stocks are not bearer assets).

Decentralized nature of BTC prevents it from arbitrary changes to its protocol. In other words there's no one entity that can suddenly decide to add 20 more million of coins to the original pre-set amount. And debase it in the process. There have been so called 51% attacks on BTC in the past (that's when majority of BTC miners and holders try to take over the protocol) but all have failed. Mostly because the minority was able to fend them off. I look at BTC as "money by the people for the people" - as opposed to a method of controlling world's politics.

As to assessing BTC value mathematically and why it's important. During one of the previous crisis in Argentina, people tried to exchange their gold to USDs but the buyers refused to accept any items at their original carat value (citing volatile situation as a reason) and instead decided that all gold would be only accepted at 15 carats. BTC will be subjected to market forces but not to the additional whims of history.

So that's how I look at BTC in 2021. Is it possible that things will be different in the future? Obviously. "Past performance does not guarantee etc." But in the meantime I really enjoy the ride

100% agree!

 

[indiajust]

Blockchain is used everywhere digital truth is relevant. Farm harvesters automatically use them for traceability, Maersk uses for shipping container bills of lading and automated customs, Brazil uses for kosher/halal meat traceability. Use cases are endless.

The invention of money is the biggest boost for freedom, capitalism, trade, industry, health wealth... in the history of humans. Unfortunately, nationstates co-opting and nationalizing currency into fiat is the single easiest way for governments to fund empires and war.

Much of crypto is an effort to decentralize and digitize trust and contracts. Bitcoin started as a currency but hard forks in the code have transformed this particular proof of work blockchain into a reserve asset instead of a fungible currency. The bitcoin blockchain has had numerous forks and spinoffs.

The odds that the (almost) first human attempt at digital value and internet transmissible decentralized value succeeds... very low. BTC has done quite well. Like gold, BTC is no one elses liability.

The rest of the world has little interest in credit based digital value transfer. A sizeable fraction of India and China citizens have no formal identity that can be leveraged to issue credit.

The rest of the world has much more experience with currency default than the us. We have a blind spot for sovereign default and devaluation. A digital non-fiat solution is imperative in Argentina. Not so much US.

 

[Markola]

While gold and cash are bearer assets, they are hard to store and transport in larger quantities. BTC - regardless of the amount and being just piece of code on the blockchain, can be literally stored on a piece of paper or in your head (if you memorize your private key - basically 24 random words

There’s a lot of sad stories out there of people who bought Bitcoin for a few bucks on a whim when it first came out, then got rid of their computer or digital wallet or lost the key. Some are out of luck for what would have become life-changing sums. If I ever buy some Bitcoin, I will write the key on one of these to ensure I keep track of it:

 

[frances]

it's interesting to me to watch all the "green" people who scream about the environment give so much love to bitcoin - I guess they don't realize how much energy it takes to actually maintain the block chain....

 

[tenant13]

it's interesting to me to watch all the "green" people who scream about the environment give so much love to bitcoin - I guess they don't realize how much energy it takes to actually maintain the block chain....

"A 2008 study from the US Energy Department’s Energy Information Administration (EIA) found festive lights accounted for 6.6 billion kilowatt-hours (kWh) of electricity consumption every year in the US.

That may have just been 0.2% of the country’s total electricity usage, but that amount of energy could be enough to run 14 million refrigerators, according to the study.

It would also have been enough to provide electricity for the whole of El Salvador, where the Central American country’s consumption was 5.9 billion kWh in 2016." (Source: https://www.nsenergybusiness.com/features/christmas-lights-energy/)

Should we stop using Xmas lights because they use energy that could power refrigerators?

Bitcoin's energy consumption and its environmental footprint is hardly something that crypto enthusiasts are unaware of but the mainstream media take on it is hardly the only point of view worth paying attention to. Here's another: https://www.coindesk.com/what-bloomberg-gets-wrong-about-bitcoins-climate-footprint

 

[sengsational]

... its value - while volatile - it's mathematically, rather than situationally assessed.

I don't see bitcoin's value as being any different than any other fiat currency; as more people demand it, the price goes up, as fewer people demand it, the price goes down. I don't see anything mathematical about it's value.

Not saying it's likely, but let's say that some crypto genius finds a "hole" in the algorithm, such that they could disrupt the system (aka steal from people). She goes to a big holder of bitcoin (Tesla) and shows a proof of concept, which convinces Tesla the foundation of bitcoin is shaky (or worse), given this new information. Tesla tries to casually "unload" it's position. More supply, same demand, the price begins dropping. Then the news leaks out that the algorithm is compromised. "Everybody" tries to sell in the same week. Very few buyers. Nothing mathematical at all about the value. It's going to be toast.

 

[Running_Man]

Yep, just like green bills ($$), yellow rocks (gold), and 0s and 1s in your bank account.

Gold is not a “yellow rock”, I hear this comment quite a bit, it is a element, a metal and not even the most valuable one. Gold can be used as a catalyst to remove polution from the air, it can have a radioactive isotope added to it as a cancer treatment, unlike land, gold is transportable.

Bitcoin is like any other item that is used as a medium of exchange throughout history, of which gold has likewise held this position. The inability of governments to create massive quantities is what is making rich billionaires invest heavily into the technology. The lack of understanding of this does not in any way help one in the day where bitcoins would be required to purchase an item. Any medium of exchange always holds the risk that belief in the exchange value could collapse. At the end of the day it is real goods that matter, and how we excange for them is the purpose of a medium. Printing 2 trillion dollars from nothing and giving them away seems like a potential issue in the faith of the dollar, especially considering the government was already 2.3 trillion in the hole heading into this. Bitcoin is a reflection of this.

 

[37andhappy]

I don't see bitcoin's value as being any different than any other fiat currency; as more people demand it, the price goes up, as fewer people demand it, the price goes down. I don't see anything mathematical about it's value.

Its absolutely fundamental that you understand that fiat can be produced to infinity. Bitcoin on the other hand is perfectly finite. We know for a fact that fiat currency does and will continue to decline in value due to increase in supply. And we know for sure that Bitcoin is perfectly limited in supply, and available as a store of wealth and medium of exchange globally, So, what we as investors need to make a call on, is whether we think the demand for BTC will increase or decrease over time.

In my view it would take a very brave person to not have any exposure to Bitcoin given all that is happening in the world.

 

[twaddle]

Is there only One True Cryptocurrency? What's the difference between a new alt-coin every week vs The Fed "printing" money?

I'm sticking with NFT's.

 

[37andhappy]

Is there only One True Cryptocurrency? What's the difference between a new alt-coin every week vs The Fed "printing" money?

I'm sticking with NFT's.

The answer is, yes, BTC is the collectively agreed true store of value. But yes, an infinite number of alts an be created, and every cycle manage so suck in naive investors. Stay away from alts and NFTs which are essentially simply a function of too much money chasing BTC, and people who are confused by unit values.

Keep it simple. Buy BTC. HODL.

 

[twaddle]

"Collectively agreed true store of value?" Sounds like a fiat to me.

 

[37andhappy]

"Collectively agreed true store of value?" Sounds like a fiat to me.

Except for one important difference. BTC is finite. Fiat currency in infinite. So BTC is like fiat, in that it is dependent on the willingness of others to accept it, but its different in that it cannot be debased.

 

[a60dan]

I am trying to get a better understanding of the crypto space and what sort of major changes may or may not be occurring due to that. I have a general idea of how it works and have watched quite a few You tube videos from the proponents such as Rao Paul, Michael Saylor etc as well as some from the other perspective saying that BTC is worth $0.



Michael Saylor recommended a book called (don't quote me) something like "The Bitcoin Formula". I just bought it and am starting to read it.



So, my take on BTC is that it will never be good for transactions because the protocol does not scale well. I think that paying for things will be done by things like Square or Apple Pay that are much better at transactions.



If I were to take the view of BTC having value, I guess I would side with those who say it is a "digital gold" and its use case is as a store of value the same way that those who buy into gold claim that it is.



The main case for BTC being made by Saylor and maybe other institutional types is that the USD is being debased big time. The first chapter of the book disussed "hard money" and "soft money". It seems clear to me that the U.S. Government has no choice for paying off the huge debt other than debasing the currency and paying off with cheap USD. I read "This Time It is Different" by Reinhartt and Rogoff. The US seems to have passed the debt to GDP ratio that they say no country has ever recovered from.



So I am interested in discussing some of the following:



Is BTC a store of value?



Is crypto or BTC enough of a disruptive force that it may lead to an different monetary system, either non-USD or completely outside of the current banking system? It seems that large corporations may be looking for some international money. It seems that maybe the central banks may look to some sort of digital currency to break the USD monopoly.



Is there a generational effect in play that we boomers may be overlooking? One video said that everyone under 35 does not view gold as a store of value but instead views crypto for this function.



Does the argument that crypto will "de-monetize" gold, bonds and maybe even stocks have any traction? As I understand this they argue that the value of gold will revert to pure industrial use value and have no monetary component over time.



Well, I guess this is enough to get things started.



Thanks.

Last spring, I innocently quipped to a supplier for my company that because of the trillions of dollars being created out of thin air, I was placing a small (2-3%) amount of our assets in gold.

He responded that for the same reasons, he was using Bitcoin (BTC).

I now refer to him as my BTC mentor, and have learned a lot.

I’m fascinated with the blockchain technology, and acquired a Ledger Nano X “cold=not connected to Internet” wallet.

I acquired $10 worth of BTC and practiced a few more transactions including moving BTC back to the exchange.

Like gold, it’s not an investment for me. I can afford to lose it all.

Some major players in the financial transaction business (PayPal, Square, and others) are facilitating transactions.

The IRS treats BTC not as currency, but property. Watch for the yes/no question on your tax return. They’ll be watching when we sell.

Regarding store of value, and “ones and zeroes”, the last time I was paid in cash was around 1977.

Since then, I’ve trusted that the “ones and zeroes” periodically paid to me are real.

It takes time for me to rollover my “ones and zeroes” between financial institutions that I now trust will fund my retirement.

BTC can take less time, depending on volume.

I have no desire to own physical gold or silver as that would be even more difficult to move around or spend.

For me, BTC is an education opportunity to learn more about cryptography, alternatives to pieces of paper printed by the Federal Reserve Bank, physical gold, etc.

I found “99Bitcoins” to be a helpful resource with a beginner series.

Today my BTC is up well over 300%, but next week it could be way down. It’s highly volatile and not for the faint of heart.

I consider it speculation and a hedge against unbridled creation of US dollars, and an educational opportunity.

Hope this helps.

 

[Markola]

Back page of of the New York Times biz section today. Just an oversight, I’m sure, that the ad doesn’t mention the fund’s 2% expense ratio.

 

[sengsational]

Except for one important difference. BTC is finite. Fiat currency in infinite. So BTC is like fiat, in that it is dependent on the willingness of others to accept it, but its different in that it cannot be debased.

I agree that having one's store of value "watered down" by the issuing entity is "bad" if you are a holder of that store of value. And I agree that part of the genius of bitcoin is the hard upper limit on the total amount possible. But people are fickle. One may wish to ignore it, but the fact that bitcoin doesn't have exclusive access to the solution space is something any bitcoin investor should acknowledge. This aspect has the same potential to water down the store of value when the value leaves for other stores. For instance, what if some other crypto currency was adopted by a lot of businesses, was more convenient, had lower transactional overhead. Now the total trusted crypto currency balance would include the max total of both bitcoin plus this alternative, essentially bypassing the absolute limit on bitcoin.

 

[twaddle]

Bitcoin: the fickle fiat. I like that.

There's so much not to like about bitcoin, IMO. For example, everybody touts anonymous transactions, but there are known problems with using a public ledger for transactions.

https://dl.acm.org/doi/abs/10.1145/3321408.3321607

 

[tenant13]

I agree that having one's store of value "watered down" by the issuing entity is "bad" if you are a holder of that store of value. And I agree that part of the genius of bitcoin is the hard upper limit on the total amount possible. But people are fickle. One may wish to ignore it, but the fact that bitcoin doesn't have exclusive access to the solution space is something any bitcoin investor should acknowledge. This aspect has the same potential to water down the store of value when the value leaves for other stores. For instance, what if some other crypto currency was adopted by a lot of businesses, was more convenient, had lower transactional overhead. Now the total trusted crypto currency balance would include the max total of both bitcoin plus this alternative, essentially bypassing the absolute limit on bitcoin.

Without getting into this particular scenario - or any other BTC FUD (Fear, Uncertainty, Doubt) - the question remains: is bitcoin right now worth attention and possibly a small exposure? I don't think there's one universal answer that would fit every individual. Just as there's no one portfolio that fits everyone's needs and risk tolerance. I always enjoyed adventure and investing in individual stocks so researching and buying BTC was a natural extension of that approach. If you are a dedicated Bogglehead, bitcoin will likely have no appeal to you. Except that with the recent institutional influx of money into BTC, even the Boggleheads might get their indirect exposure to cryptos. So while all that is happening - with your direct participation or not - it would be prudent to learn about cryptos and develop an informed point of view on them. Reading a random sensational Bloomberg or CNBC article is simply not enough. The future of money is digital and as soon as central banks start switching to programmable currencies (aka Central Bank Digital Currencies - already available in Bahamas and Cambodia and about to launch in China) we will all live in the world of crypto.

 

[twaddle]

is bitcoin right now worth attention and possibly a small exposure?

If you strip it naked, it's basically a pyramid scheme with those who got in early reaping the vast majority of benefit. Those getting in now may still profit on paper as long as the pyramid grows.

When it stops, nobody knows. But old guys like me who say "no way" indicate that it won't grow forever. Be careful when it stops growing.

 

[sengsational]

So how does one contrast "FUD" from "learn(ing) about cryptos and develop(ing) an informed point of view on them"? I always imagined learning about something was best done by examining a subject from all sides.

 

[tenant13]

If you strip it naked, it's basically a pyramid scheme with those who got in early reaping the vast majority of benefit. Those getting in now may still profit on paper as long as the pyramid grows.

When it stops, nobody knows. But old guys like me who say "no way" indicate that it won't grow forever. Be careful when it stops growing.

Bitcoin does not meet the definition of a Ponzi scheme as understood by US Securities and Exchange Commission.

Which is not the same as saying there are no risks involved in investing in it. As I mentioned in my other post, BTC is not for everyone and you are welcome to stay away from it but I don't think it's helpful to call it a fraud.

 

[twaddle]

Bitcoin does not meet the definition of a Ponzi scheme as understood by US Securities and Exchange Commission.

Which is not the same as saying there are no risks involved in investing in it. As I mentioned in my other post, BTC is not for everyone and you are welcome to stay away from it but I don't think it's helpful to call it a fraud.

That article basically focuses on intent. Things like "promised high returns."

While there are certainly people making those kinds of promises to lure in new "investors," I view it more as an emergent property of something with artificial scarcity and a lot of hype.

If it looks like a duck....

 

[tenant13]

So how does one contrast "FUD" from "learn(ing) about cryptos and develop(ing) an informed point of view on them"? I always imagined learning about something was best done by examining a subject from all sides.

Absolutely. And this is what we're doing in this thread I believe. Here's an interesting podcast about all the BTC FUDs - perhaps you'll find it entertaining: https://www.coindesk.com/podcasts/the-breakdown-with-nlw/breakdown-bitcoin-fud-dan-held

 

[sengsational]

Bitcoin shares a few attributes with pyramid schemes, but not enough to completely fit. New contributions are not funneled to earlier adopters as explicitly, for instance. It does share the attribute that early adopters are disproportionately rewarded. I wish I could find the thumb drive with the $5 worth I had back when that bitcoin dripper site was offering free bitcoin. It would be worth quite a bit. But I'm afraid, like a whole lot of bitcoin, it's lost forever.

 

[twaddle]

But I'm afraid, like a whole lot of bitcoin, it's lost forever.

Just don't throw out the drive (if you find it). People seem to waiting for cheap quantum computers to solve that problem.

 

[sengsational]

Absolutely.

Good. I misunderstood. Usually when the term "FUD" is used the intent is to discredit discussions about pitfalls, whereas learning gives equal weight based on merit.