Here’s the problem: most people who know a lot about Bitcoin can only speak “tech”.
I was at a conference recently. I was the keynote speaker but had zero talk prepared (as usual). It was a crowdfunding conference so I “crowdsourced” my talk.
I asked the audience: I can talk about entrepreneurship or I can take fifteen minutes to explain Bitcoin without using any technical jargon. Clap for which one you want.
Almost 100% of the people wanted to learn about Bitcoin without the technical jargon.
People are hungry for this. They don’t want to hear about “crypto” or “blockchain”. They just want to know what all this Bitcoin stuff is about.
Back in 2013, I thought Bitcoin was a scam. I was wrong.
First, some credentials.
In early 2013 I had my doubts. I started reading everything I could. Then I got my hands dirty.
I’ve been a coder / programmer since 1985. I decided to code up a Bitcoin only store (maybe the first ever) and sell my book, “Choose Yourself” on it before it was released on Amazon.
It was very hard. I had to develop the store from scratch since there were no easy tools to help me. There still isn’t (hint: business opportunity).
Once I launched it, quite a few people bought my book. I sold a PDF of my book for 0.1 Bitcoin. Bitcoin was then $60 so I sold it for about $6 per PDF. Right now, it’s as if I sold each PDF for $1600. I sold many copies.
I went on CNBC when they heard I was doing this. The anchor asked me, “Did you just do this for publicity?
I said, “Well, I’m on national TV so I guess it worked.”
Another thing worth noting: Most of my customers came from one domain name (they had to submit their email addresses for me to process the sale):. Make of that what you will.
A few months ago I started writing about cryptocurrencies again. I saw so many people getting involved in scams, I wanted to help.
The other day I had an Uber driver who thanked me during the car ride for helping him “get it”.
And last night at a restaurant, the waiter at the end of the meal shook my hand and thanked me for helping him “finally” begin to understand what Bitcoin was about.
In order for crypto currencies to succeed, people need to understand at a basic level what they are. Nobody needs to learn complicated cryptography or blockchain.
Just understand why now. Why this is important for us a society.
TWO CRITICAL REASONS BITCOIN IS HISTORICALLY IMPORTANT AND HERE TO STAY
Just understand these two reasons. Then you will know the potential for Bitcoin. And you will be popular at cocktail parties.
A) THE HISTORY OF MONEY
Every new style of money solves the major problems of the last style of money.
If I have a bag of rice and I need shoes, what if you make shoes but you only need 1/2 bag of rice. Do I get 1/2 a pair of shoes?
Barter has a lot of problems. In the above, coming up with the rice to shoes exchange rate is difficult.
Then coming up with 1000s of exchange rates just to go out and buy groceries is almost impossible.
PLUS, what if you have to move (your kingdom is attacked). How are you going to carry all that rice? All of those shoes?
Money has two purposes:
- as a store of wealth / savings
- to make transactions
There’s a third, which Ray Dalio, the head of the largest hedge fund in the world, Brigewater, told me the other day. But we’ll get to that later.
Barter is horrible as a store of wealth. And for transactions, best case it’s very difficult.
But problems lead to opportunities. Which leads to…
2. PRECIOUS METALS / COINS
Gold and silver are scarce. It’s hard to mine them.
But it’s hard to forge them because you can measure by weight.
So the scarcity combined with the lack of forgery makes them good choices for money. I can convert my rice into gold coins, you can convert your shoes into gold coins, and now we can trade and now we can buy whatever we want.
(Marcus Aurelius on a gold coin)
As a store of wealth, it’s not great but not horrible.
If my kingdom is attacked and I have to move, gold and silver are easily stored and carried as designed jewelry.
BUT, two problems.
One: what if you live in a country that doesn’t have any gold mines. Now you either have to trade for gold or start attacking countries: (this did not work out so well for the Aztecs).
Two: What if you wanted to buy a house right now: are you really going to bring a truck of gold bars to the closing? Or if you have to move to another country and you have a lifetime worth of savings: are you going to ship all of your gold bars to your new home?
People say that gold is “real” as opposed to (later) paper money and cryptocurrencies.
This is not really true. Gold is a rock. But it does have industrial uses (silver is better for this because of price but still…). Gold and silver are great electric conductors, can be used as SILVERware. Can be used as antibiotics (hence great for fillings on teeth).
So we can say that gold money is “backed” by something that has real use with value associated with it.
But we still have to solve the problems above.
3) PAPER MONEY BACKED BY GOLD AND…PAPER MONEY
Countries made paper money that was like a contract with the government that all of that money can be converted into gold.
This was great for transactions (easy to carry paper money).
This was great for store of wealth (put the money in a bank and you can go anywhere). The first banks for paper money backed by gold helped fund every war in Europe in the 1800s. Good job!
When paper money is backed by gold it also puts a clamp on inflation. You only have as much paper money in a country as there is gold in that country.
(yes, there is a 100,000 dollar bill in the US. Woodrow Wilson is on it).
So you can trust the government to not go crazy printing money that is not backed by gold (like German in the 1920s when trillions of Marks were printed and Germany went into an inflationary death spiral that was at least one cause for World War II).
BUT, why benefit the countries where gold is easy to mine and punish the countries where gold is hard to mine.
Also, the world is expanding in every way: more people, more technology, more innovation, more THINGS.
I’m not sure this is a good thing or a bad thing (see: Germany above) but sometimes countries need to balance debt with money printing to manage their fiscal policy.
The US went off of gold in the early 70s in order to fund the financial needs of both the Vietnam War and the social improvement programs of Lyndon Johnson.
This created inflation.
Paper money will often lead to this situation. Someone will say: why do we need the gold part?
Again, might be good or bad. There’s a lot of debate. Did money printing save the US in 2008 and 2009? Maybe. Or will their be future problems caused by this? Maybe.
Nevertheless, there are other problems with paper money that need to be solved:
a. No privacy.
If I’m making a sizable (greater than $1000) transaction I’m usually not using cash but either a credit card or a money wire.
So that means your bank knows. Other banks know (the bank you are sending money to, the Federal Reserve, the local Reserve bank, etc).
Government agencies know (the IRS, the NSA, etc etc).
Potentially sites like Google and Amazon know depending on what payment services you use and what you are buying.
So you have no privacy on your transactions with paper money.
If I send a friend in Korea money, I go through my bank (fee), local reserve bank (fee), Federal Reserve (fee), International wiring system (fee), their central bank (fee), their local reserve bank (fee), their local bank (fee).
That’s a lot of fees. Those fees help create inflation because every transaction needs to have a profit on top of those fees.
c. Forgery. Something like $200 billion in forged money is circulating right now.
d. Human error. This is a CRITICAL problem. There are so many opportunities for human error. When you transfer money, they can send to the wrong account. Or a bank’s software can be hacked and you lose all of your money.
Or, most importantly, the Federal Reserve in the US can decide to print another trillion (Like 2009) and, without your permission, the value of your dollar has gone down.
In the US we’ve been lucky. But all of South America hasn’t been so lucky (all of their currencies crashed in the 80s. Most of Asia wasn’t so lucky in the 90s (their currencies wiped them out). Russia in 1997 was wiped out.
Many countries have relied on humans to print (or not print) money and the slightest human error can wipe out an entire country’s economy.
The United States has been lucky. For now. But this is a HUGE error we risk every day.
These are the basic problems. There are more (theft, for instance).
e. What is backing paper money?
Only our trust. I don’t want to be a conspiracy theorist. But the reality is: a dollar is a piece of paper. Just like gold is just a rock.
How do they make us trust that the money has value?
They put “In God We Trust” on it. They put George Washington. They put the signature of the Secretary of Treasury (pretending it’s a contract.).
And, for the weirdos, they even put a pyramid with an eye on it.
And that’s supposed to be why we trust it. I don’t trust it.
4) BITCOIN (and, btw, Bitcoin is not the end. There will be a “5”).
Bitcoin solves the problems above.
a. Human error: there is no printing of money. There is a fixed supply of 21,000,000 coins.
How do I know this? I’m a skeptic. So I read the software behind Bitcoin. I read it over and over until I could figure it out. In one part of the code they clearly define how many coins can be “mined” / printed (printed is the wrong word but I’m using it here to make the connection with paper money). And there’s another part of the code which “enforces” the first part.
(part of the code that limits the total # of bitcoins to 21,000,000. I found this by reading ALL of the code for bitcoin).
b. Theft. Like with every other form of currency, an exchange (like a bank) that stores your Bitcoin can be hacked and money stolen.
BUT, I only keep a small amount of money in an exchange. You can get a storage drive, store your money, and put it in a safety deposit box. So even if the exchange is attacked, you still have your money.
ALL theft can be prevented this way with Bitcoin. You can’t do this with paper dollars because if you have too many dollars, how will you store it? Ditto for gold.
c. Forgery. The software guarantees that Bitcoins can’t be forged.
d. Privacy. I can send you a Bitcoin and nobody knows who is sending it, who is receiving it, and no government institutions are aware of it.
Some bitcoin transactions have small fees. But it’s nothing like the fees of going through six banks in the transaction described above.
What’s backing it?
There’s about 1000 man-years of science backing Bitcoin.
The underlying technology of Bitcoin which involves heavy amounts of cryptography, financial know-how, and basics of contract law, plus the “blockchain” have 100s of use-cases that we have only just begun to play with.
EVEN IF Bitcoin is never used as a coin (although note: it’s being used every day as money) there are 100s or 1000s of other uses for Bitcoin that have nothing to do with the basic money use.
I won’t get into the weeds here: but suffice to say that ALL of contract law can be (and will be) eventually replaced by Bitcoin.
And ALL of logistics will be replaced by Bitcoin (e.g. UPS is replacing all of their internal logistics (tracking millions of packages every day going from millions of locations to millions of other locations) by Bitcoin technology.
There’s nothing behind paper money or gold like this.
Now…Bitcoin has problems also.
Hence the need for other cryptocurrencies. But that’s ok and not the topic for here. Suffice to say, Bitcoin solves all the basic problems of paper money, which solves the problems of gold, which solves the problems of barter.
HOWEVER, there is another reason why Bitcoin is here to stay and it’s so compelling.