In this week’s “Penning Down The Thoughts” series, Jimmie is taking the Pen team (and the readers), through what bitcoin is and why it came to the world, and how the established society and system reacted towards it. Also, the readers will get a glimpse of where it's headed, and whether will it keep going over "the heads" of the masses, or will they join? That and much more, in this week's "Penning Down The Thoughts" series.
THE MEANING OF BITCOIN
Let's go back to where Bitcoins are stored, which is in transparent digital deposit boxes, protected by strong cryptography. They can never be copied or left in the vault because any transaction of any Bitcoin, down to a 100 millionth fraction (called 1 satoshi) is recorded in the blockchain for eternity.
This synchronized global ledger is shared among thousands of computers worldwide. That's why it can't be compromised or altered. We can make an infinite number of perfect digital copies of a movie, a song, or any file, but for the first time in history, this distributed record-keeping allows us to have a truly unique and fungible and non-fungible digital object that is also scarce, just like NFT, which I will get back to later.
If you could count all of these virtual coins and assets, you'd find about 18 million of them (Bitcoins) today. The mining reward is the only way new coins are created. In the first years of Bitcoin, miners competed for 50 Bitcoins every 10 minutes. Then their reward for processing transactions dropped to 25 Bitcoins, then 12.5, and then half, again and again, every four years or 250.000 blocks give or take. It's good old-fashioned supply and demand. If investors or users of Bitcoin create a higher demand than this decreasing supply, the price will go up. When the cap of 21 million is reached, the protocol stops the network from creating anymore. It's the opposite of our traditional fiat money supply, which keeps growing and growing, and an unlimited amount of dollars versus a very limited supply of Bitcoins, you do the math!
If you use euros or dollars, you might not care about a little inflation per year. But if your currency isn't stable, you might be a trillionaire on paper, but "dead" broke in reality.
One of the thousands of stories goes “I grow up in Patagonia in the southern part of Argentina. My parents are sheep ranchers there, and I remember growing up in my childhood, I saw my parents lose everything three times, first because of a huge devaluation, then because of hyperinflation, and the last time because the Government confiscated all our bank deposits. I think that today, there are billions of people, at least four billion people who would be a lot better off by having access to a form of money that is non-political and more democratic.”
We think of finance. We think of banking. We think of money. In terms of the experience and perspective of Western European or developed nation person, that is just 1,5 billion people who have a very privileged financial life. What about the other six billion? About 2 billion don´t have access to banking, just because they don’t have an ID.
Every free single country has essentially a legal status for cryptocurrencies that is very open and permissive. And every single country that is unfree has restrictive or banned cryptocurrency status.
The very first open crypto-war is playing out in Venezuela where the local currency loses value every hour due to hyperinflation. A lot of people in Venezuela are trying to mine cryptocurrencies. And the government views this as a threat obviously because they're trying to keep the Bolivar propped up. The government provided electricity to a lot of people, and if they perceive that your electricity usage has gone up, they will come and check if you have mining equipment in your house, and they will confiscate it if they find it.
GOVERNMENTS & BANKS VS BITCOIN
So the title is "Jamie Dimon, from Laura Shin."Here's why you're wrong about Bitcoin".
“Dimon runs JP Morgan Chase, one of the largest banks in the world that moves $6 trillion every single day. Oh, you said of Bitcoin eventually, it will be closed. And then I said to anyone who knows anything about the technology, this is an incredibly absurd statement. I even said it was a little bit hilarious because I find it kind of funny the idea that you thought you could close Bitcoin. But you'd have to shut down the Internet, which also doesn't make sense. I could understand if you wanted Bitcoin shut down, or hoped it was a fraud. I mean if I were you, and if I understood the disruption that crypto assets could bring to financial services, I'd be very scared. And I think whatever Jamie Dimon says or thinks about Bitcoin is as relevant as whatever the Postmaster General thought or said about email: Who cares?
- Sincerely, Laura Shin.”
But some politicians still think they can stop open-source software.
The government doesn´t believe in fundamental freedoms and Human Rights because if they don't trust their citizens to have control over their own money, that says a lot about the government and says very little about cryptocurrency. The reason why some Governments and most banks are threatened by this technology is simple, your private key and your wallet can replace your bank account. The network is run by software and its currency is made and maintained by computing power and electricity. It can't be manipulated by central bankers, Wall Street lobbyists, or politicians. But with new freedom comes new responsibility. The simple rule is if you control the keys, it's your Bitcoin. If you don't control the keys, it's not your Bitcoin. Your keys, your Bitcoin. Not your keys, not your Bitcoin.
If you lose your key, you will never be able to access your coins again. And if someone hacks your computer or phone where you store those passwords, your coins will be stolen in a second. And that´s another big task to work on. I don´t believe we will get mass adoption if every single individual on the planet has to be their bank and cyber security expert. Or have to make choices about what crypto assets they are going with. Companies like our partner, ARYZE are building solutions with stablecoins or digital money one-to-one as we know our fiat currencies today. Our own company Penning is building an investment infrastructure so that our clients easily and securely can invest in DeFi without having years of experience. All these services and solutions developed in thousands of companies around the world need a simple and friendly regulatory ground to build on. Hence, we have the necessary security for KYC, AML, etc, but still can’t ´make services that are fit for the average joe to use.
If you don't think Bitcoin is already changing the world's concept of money, you haven't been paying attention. Mervyn used to be a senior executive at Deutsche Bank, his colleagues once said Bitcoin was for lawbreakers and troublemakers. He now runs a $100 million crypto fund out of Malta. Their research shows that the crypto markets are gonna probably be worth about $8.7 trillion in 2027.
Most financial analysts say you better stick to your shares, bonds, and dollars. Bitcoin is dangerous nonsense, far too risky as an investment. To others, Bitcoin is an escape hack that will take them away from risk, insurance against financial doomsday, a way out of the debt crisis, negative interest rates, trade wars, and economic downturn. They say it's an anti-fragile asset uncorrelated to financial markets. So who's right here?
Well, every time I turn on the television, it gets even more confusing. Bitcoin is worth about a bit under $361 billion today, all the gold in the world is worth eight trillion, and it could become the next gold.
Warren Buffett is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world with a net worth of over $97 billion as of September 2022, making him the world's seventh-wealthiest person, he said.
“..in terms of cryptocurrencies, generally, I can say almost with certainty that they will come to a bad ending. But if Bitcoin is out there, and gold is out there, it can be a participant in bringing down the dollar. I say it's the mother of all bubbles, and it's also the biggest bubble in human history..."
I would say the biggest financial mistake you can make right now is to own an amount of Bitcoin that you cannot afford to lose because it's super risky and you may lose it.
The second biggest financial mistake you can make is not owning any.
As long as Bitcoin keeps doing sudden increases in prices, that's gonna stop retail use in its tracks. With Bitcoin, you can send $1 or $1 million worth of value anywhere in the world.
Cheap, easy, fast, global, unstoppable, that was the deal, and back in 2009-2015, this was possible. Every block contains about one megabyte of data, much smaller than a photo you post on Instagram, which means only a limited number of transactions can fit into each block. If you want your payment to jump the line, you can choose to pay a premium fee or sit and wait. At one point, the blocks became so full that the transaction time went to several hundred hours, instead of the normal 10 minutes. And it was more expensive than international wire services. It got so bad that a Bitcoin conference wouldn't take payment in Bitcoins!
WHAT WENT WRONG?
I don’t know, but Roger Keith Ver has an idea about why.
“That's a direct intentional result of Bitcoin Core's policies of intentionally making it slow, expensive and unreliable. And Roger Keith Ver blames Adam Back as a British cryptographer and cypherpunk. He is the CEO of Blockstream for Bitcoin not becoming a mainstream global currency. There is no shortage of conspiracy theories. Blockstream was founded in 2014. The original co-founders are a lot of core developers. Those are the software coders who continue building Bitcoin after Satoshi vanished. Roger Keith Ver thinks those guys sabotaged the scaling of the network so Blockstream could promote its software solutions.
Sampson from Blockstream said “the blockchain is already 200 Gigabytes large and growing, every transaction made has to go out to the whole network, and every block that contains that transaction that is mined has also to go out to the whole network. And it has to be stored for eternity.
The argument, more independent miners will continue running Bitcoin and ensure decentralization if the blockchain is kept small. In his view, this decentralization is what makes Bitcoin valuable, a store of value!”
“Penning down the thoughts” is a series compiled by the CEO and Co-Founder of Penning, Jimmie Hansen Steinbeck. A compilation of his vast experience, knowledge, failures, successes, know-how & ideas. Jimmie has spent the last decade (almost since the birth of bitcoin), working in the crypto, blockchain (also known as Web3) space, as an investor, entrepreneur, and expert advisor to numerous crypto companies.