I’ve now been in the ‘crypto space’ for a couple of years actively (and a couple of years prior to that poking it with a stick) and someone asked me the other day if my views on Bitcoin in particular had changed in that time. That got me thinking. Have they?
Well, yes. And, no. That’s the short answer, but I suspect they wanted a more detailed answer, so I shall attempt to appease them.
It’s interesting, as an aside, that people who have come across Bitcoin and don’t really understand it think that people who use it are either real geniuses or are complete idiots – there doesn’t seem to be much in between. I certainly would not put myself in the first category, partly because the clever thinking has been done by everyone else except me and partly because this morning I tried to get out of my car with the seat belt still on. Arguably that puts me in the second category, but, in reality, I’m just a normal guy who happens to think Bitcoin is an idea whose time has come, and the fact that I can use Bitcoin but not undo a seat belt at the right time should give everyone some cause for hope?
But I digress …
We all know that Satoshi Nakamto’s original vision was for Bitcoin to be used as a day to day payment system, free of banks and free of any central control. It’s in the white paper and it’s a genius bit of writing if you’ve never read it. (and you should)
But here’s the bit I’m referring to, right there in the opening lines:
How does this vision match up with what we now have? Well, to be honest, it’s not quite there.
You see, Bitcoin is slow, arguably too slow for those day to day transactions to be possible. To use the oft quoted example, if you used it to buy coffee, it would be cold by the time you could leave the shop and it would be, in relative terms, expensive to do so. That’s surely not quite what the white paper was saying.
The guys with the big foreheads are working on solutions such as the Lightning Network built on top of the main infrastructure to solve that problem, but the forecast for the success of this is mixed at best. It’s highly technical, creates a new set of issues and definitely wouldn’t work without a very slick and very easy user interface for the average user. There’s also now a whole bunch of other cryptocurrencies, forged from the fire that created Bitcoin, which many people believe will do the job better. Litecoin, Monero, Ripple (XRP technically) are contenders, though many would add a whole list of others including Bitcoin Cash, but I have problems with the latter as is well documented elsewhere in my blogs. The point is, it’s entirely possible now that Bitcoin won’t be used for day to day transactions as originally planned.
But as fast as this part of the remit may be slipping away, Bitcoin has been doing very nicely as a store of value, thank you very much. This, many people think (including myself) is the edge that will ensure its future survival for many years yet.
You see, in bad times, and even in good, traders and investors move their money into traditional safe havens like bonds and gold. It’s been done for years and years and the argument is solid – these assets are generally considered ‘safe’ through stock market crashes or economic troubles and whilst returns might be lower, investor’s money can be protected to some degree without being taken off the trading table completely.
This is all very well if you’re trader, but for everyday folk like you and me, these sort of instruments are not that easy to buy and hold. If you’ve ever tried – like I have – you’ll find there’s all sorts of complications and costs. You need, really, to be a decent sized player and know the right people to make it happen. In short, it’s a faff. Even using a nice simple trading interface like Etoro to buy gold is not without issue. Look at this screenshot I just took:
Well, first there is a fee for holding gold, so a long term investment will cost a small fortune. The second issue is that this is a CFD agreement – ie Contract for Difference. You’re not actually holding ANY gold, you’re betting on the price of it. That’s not quite the same thing.
Buying bonds? Well, you’d better know what you’re doing, that’s all I’ll say on THAT point.
Buying Bitcoin? Well, have you got a smartphone or internet connection? You do? Well you could get it right now. Buy a tenner’s or a million pounds’ worth (and anything in between) with a few clicks. If you’re a total beginner, you can click here to learn how to set up a basic wallet and get in the game. (Even better, get my book and claim your free Bitcoin to get you started) Remember, with Bitcoin there’s no holding costs and no-one can take it away from you. Ever.
This means for the first time in human history, any person can buy and trade it anywhere at anytime, rich, poor, booming economy or crashing disaster, it makes no difference. And no government, bank or political regime can stop you either, although a few are trying to make it difficult. We’ll see how successful that is as it would be like one country trying to shut down the entire internet. Good luck with that one.
Once people wake up to this on a large scale – and this may take a while as Bitcoin is NOT an easy concept to get your head round at first – demand will grow. But there’s a problem. There really are very few Bitcoins and only ever will be. We know, with mathematical certainty, that there will be just under 21 million, but it will take another 111 YEARS for them all to be minted for reasons I won’t go into here. Also, about 4 million are lost forever for various reasons to do with mainly early adopters being careless with their initially worthless batches of coins. That leaves 17 million for everyone on the planet and, again for reasons beyond the scope of this article, in reality it’s most likely even less. That’s not even enough for everyone in a large city, let alone the entire planet. Demand WILL outstrip supply at some point, ‘wholecoiners’ will be very rich people, or more likely, owned by institutions who will be the only ones who can afford one. The rest of us will be dealing in ‘Satoshi’, ie tiny fractions of Bitcoin.
Think about this: in terms of pure maths and economics, the path is extraordinarily clear with an inevitable outcome. We just don’t know the timescale. I can’t think of anything else – ever – that could ever made that claim at any point in it’s development.
Of course, nothing is ever that simple, and we don’t know what challenges this whole new asset class will take that could even – in theory – derail the whole thing. As I always make a point to say when people ask me about investing in Bitcoin:
“Investing in Bitcoin is very risky.
NOT investing in Bitcoin is even riskier.”
Borrowing from ‘The Matrix’, once you have taken the ‘red pill’, you’re faced with that dilemma. Oh, the serenity of ignorance.
Of course, this is a highly simplified article designed to answer the simple question posed and I have not even mentioned the fact that Bitcoin is the reserve currency of the entire cryptospace or that it is an extraordinarily easy way to send funds to anyone anywhere in the world not only with a 100% success rate (SWIFT only has a 94% success rate according to some sources and is even slower and more expensive) but also WITHOUT bank or any other intermediate being involved. That’s never been possible before now. That’s quite a thing.
Perhaps the question they should be asking me is ‘How do YOU spend your Bitcoin now vs a few years ago?’ and that may be more pertinent because my behavior has changed.
I used to spend my Bitcoin at stores and shops, or directly online and my twitter feed is littered with photos of me buying all sorts of mundane stuff with Satoshi’s creation, but I hardly ever do that now. Bitcoin is my savings account. It’s where I squirrel away as many Satoshi as possible for the future or a rainy day, because maths and logic say that is a sensible thing to do. The risks, for me, are outweighed by the rewards and the sheer level of control I have over my own finances.
So, whilst I think it very unlikely I’ll be buying coffees with it in the future, Bitcoin is perfect for saving up and buying those big ticket items, such as cars, furniture or even houses. Hell, it might even be my pension. It’s a whole new asset class, potentially (in the long run) a safe haven available to all competing with gold and other scare materials. For the moment at least, it seems many are thinking along the same lines.
But one thing’s for sure – with a whole new concept developing at a faster pace than anything we’ve ever seen in history before – we all need to keep our minds open and our beliefs fluid as new uses, issues and applications evolve.
And remember to undo the seat belt BEFORE you exit the vehicle.