Bitcoin — The Ultimate Money Heist
“When you grow up you tend to get told the world is the way it is and your life is just to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family life, have fun, save a little money.
That’s a very limited life. Life can be much broader once you discover one simple fact, and that is — everything around you that you call life, was made up by people who were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use.”
— Steve Jobs
This quote from Jobs is more than 25 years old. But this, in my opinion, is the first step to understand the problem at hand and the real need for Bitcoin. Since our childhood, we have been told that money is what it is and our job is to live our life around that money and not to bash into the walls. Try to have a nice family life, have fun, and save a little bit of that money. In 2008, an anonymous person or group, that goes by the name Satoshi Nakamoto, realized that it’s a very limited life and money as we know it was made up by people who were no smarter.
What is money?
What gives a dollar bill its value? What makes gold a store of value? Humans have used all sorts of things ranging from shells to flowers to animals as money in the past. The full list of items that our ancestors have used for trade is mind-boggling. As a separate exercise, it’s worth spending a few days reading about the history of money itself. What makes money, money?
Turns out money is just a medium of exchange that’s accepted by the parties involved in a transaction. A dollar bill is worth a dollar not just because the US government says it’s worth a dollar but because billions of people accept its value to be a dollar. Let’s say tomorrow morning aliens land at Wall Street and you hand over a million dollars in cash to them, do you think they would care about it the same way you might?
“Money is a bubble that never pops. It’s a consensus hallucination.”
Money, as we know it, is just a piece of paper. The US one-dollar bill is nothing but a guarantee given by the Federal Reserve (the central bank of the US) that the piece of paper in your hand is worth 1 USD. Enough people on the planet buy into this narrative and that’s what gives it the value of 1 USD.
Separation of Money and State
America was founded on the principle of separation of church and state. It was so important that it was the very first amendment made to the US constitution.
“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”
In past, humans used to live in societies where religion was managed by a centralized authority like a king, military, or government. The state would dictate what, when, where, why, and how to pray. With time, everyone realized that it likely wasn’t best for the state to have control over something so personal and important at an individual level. This led to what is famously known as the Separation of church and state and the creation of a secular state. The last few hundred years have proved that the countries that managed to have a clear separation between the two have done much better.
Money is as personal and important to an individual as religion — probably even more. It’s ridiculous that we have let the state control money in ways that it has. Once our ancestors moved from shells and beads to precious metals like gold and silver as “money”, they realized that it makes for a crappy medium of exchange. This led to central banks releasing notes that guaranteed a fixed amount of gold that was always sitting in the treasury. After having been on and off the gold standard for several decades, Nixon made the US completely abandon it in 1971. Till then, it used to be a rule that the dollar was backed by gold. $35 was equivalent to 1 ounce of gold, and with one pen stroke that guarantee was gone. Since then, USD has been backed by nothing but thin air. And since all other countries had agreed to peg their local currencies to the USD, all those currencies are also backed by nothing. More than 5,000 years ago primitive commodity money was used in Mesopotamia, and metal coins have been in use for over 3,000 years. For more than 99% of the time that humans have been using money, it actually meant something. Now it means nothing! The next obvious question is what did this lead to? I’ll let you go through some data and charts on this and judge it by yourself:
This change in 1971 gave the US government unrestricted access to print as much money as they deem fit. The moment the Fed thinks that it’s okay to print a few more trillions in the name of “liquidity injections” or “stimulus bill”, it can print it out of thin air and your hard-earned money is devalued. To make things worse, all this new “money” doesn’t come for free. It adds to the ever-increasing national debt (more than $28 trillion as of now) which in turn is the money that our next generation needs to worry about. We have zero say in it! Even during the non-pandemic times, when the budget is allocated for military, science & tech, healthcare, energy innovation, infrastructure, etc. we, the tax-payers, have zero say in deciding how much of our tax dollars are put to work where and when.
40% of the USD in existence has been printed in the last 12 months — let that sink in. Why should you care? Econ 101 and reading up the basic concept of demand-supply would tell you why. That 10 dollar bill in your wallet got devalued and may not be able to buy you a cup of coffee in San Francisco anymore. The potential 20% downpayment that you save for your dream home may not be 20% by the time you find your dream home. The irony is that state, an entity with more than $28 trillion debt, determines your “credit score” to tell if you can or can not get a $25,000 car loan. How does that make any sense?
Well, as per the current rules of the game: The Bank never goes bankrupt.
Many of us have lived in countries with access to fairly good financial systems and somewhat reasonable central banks that have managed to keep inflation just enough in check for society to not fall apart. That is the reason it’s hard for us to truly understand the utility and the value of Bitcoin. It’s probably best to ask Argentinian families who have witnessed their life savings being wiped out thrice in their lifetime or maybe countries like Venezuela or Zimbabwe that are hit with hyperinflation so bad that the best use for cash is to burn it to produce heat. In 2016, things got so bad that Venezuelans gave up on counting piles of cash since it wasn’t practical and started weighing it instead. These are certainly the more extreme cases but what’s stopping us to not be the next Argentina? Argentina began the 20th century as one of the wealthiest countries in the world. In 1913, it was richer than France or Germany, almost twice as prosperous as Spain, and its per capita GDP was almost as high as that of Canada. When the road is super windy and the stakes are extremely high, would you take over the steering wheel to drive manually or will you let a company’s closed source self-driving code drive you?
The Bitcoin Rabbit Hole 🐇
What’s so special about Bitcoin? Why not hedge against the economy using precious metals like gold and silver? Why not real estate? Why Bitcoin? Well, why not Bitcoin is the real question. Your vision would have to be fairly short to not see that Bitcoin is the answer to a lot of these problems. While gold, silver, real estate and other hard assets are any given day better than cash, there are several reasons that they don’t make for the best store of value.
Let’s talk about gold. Theoretically, the gold supply is finite. But it’s highly manipulated by mining corporations to maintain a certain price. If a miner with control over a significant supply of gold urgently needs more cash on hand, they may choose to pump the supply which would lead to an immediate price drop. Secondly, the day humans land on asteroids and start mining, gold is pretty much done. On top of this gold makes for a shitty medium of exchange. A refugee fleeing a failed state may pass through several countries and regions with a high crime rate before reaching a safe place. Running for life with gold bars in the bag is likely not a great idea. The oil supply chain works the same way as the gold supply chain (read about OPEC). Real Estate as an asset class is highly dependent on zoning laws that aren’t in control of the owner. Also, real estate can’t be moved as easily.
Bitcoin fixes this. Its supply is finite and guaranteed by math. There are going to be 21 million BTC in the world — not one less, not one more. Humans may land on Mars or an asteroid may crash and destroy the earth but this one simple truth will stand as is. What percentage of total BTC supply you own can’t be changed by any 3rd party. Your holdings can’t be diluted by banks, government, aliens, or anybody else in the universe. Also, the fact that Bitcoin is digital/virtual and not physical/tangible is an advantage. The most important assets that you own are your knowledge, personality, and skills. All of them are intangible. Nobody can steal these from you. Bitcoin gives you the ability to add your wealth to the same list. You can cross borders, bypass dictators, flee failed societies with all of your life savings in your head in form of an alphanumeric private key to your Bitcoin holdings. Bitcoin is how we take control of our money back.
Bitcoin is people’s money.
Bitcoin rabbit hole is a phrase commonly used by Bitcoiners around the world to describe their journey. A rabbit hole or a burrow is a complex network of underground tunnels that a rabbit digs and makes its own beautiful world away from the chaos above ground. Similarly, all of us Bitcoiners have gone through a phase when we got sick of the traditional finance system above ground and we hopped onto the bitcoin whitepaper. That led us to start digging underground in search of a new system to escape the chaos. Honestly speaking, it’s a never-ending quest. The more you dig, the more the new system fascinates you, the more you get interested, the more you realize there is to learn, the more you dig, and on and on. Without going into the technical aspect of Bitcoin (which has to be a separate discussion), if there’s one thing that you want to take away from this then let it be my request for you to read the Bitcoin whitepaper. One needs to know enough of computer science, cryptography, game theory, networking, and economics to understand it completely. So it’s safe to say that just like 99% of us, most likely you won’t get it completely on the first go. But it will generate enough curiosity for you to brainstorm and research more about it which will eventually lead you to a path to truly understand Bitcoin.
FUD — Fear, Uncertainty, and Doubt
The traditional financial system wasn’t built in a day. It’s a result of efforts from some very smart people over several decades. And that means that there are a lot of vested interests there. Reinventing the wheel isn’t going to make everyone happy. A lot of folks and institutions stand to lose a lot if a decentralized store of value takes over the world. No government wants to lose control of the knob that dictates the money supply. No bank in the world, retail or investment, would want a monetary system where governments can’t bail them out when they screw up as they did during the financial crisis of 2008. No company (media, search, cloud service providers) would want a system where they have zero control over decentralized customer data or decentralized computing and storage resources. No payments company would want a free and open-source financial infrastructure where transactions worth billions of dollars are happening on daily basis and they can’t charge users exorbitant fees.
As a result, we see a lot of FUD, and because Bitcoin is so new and radical and isn’t fully understood, a lot of that misinformation might make sense at first. This is nothing new. We have seen it in the past. In the early 20th century numerous efforts were made to kill automobiles. In the late 20th century many “experts” believed that the internet was a bubble and was bound to fail. Bitcoin FUD has been in place ever since the existence of the Bitcoin ecosystem. For obvious reasons, it’s highly magnified during the bull runs that happen once every few years. Bitcoin has been declared “dead” more than 400 times already. Some of those predictions come from a time as early as 2010 when Bitcoin was barely a year old and was trading at 1 Bitcoin for less than a penny.
“Nothing is more powerful than an idea whose time has come.”
- Victor Hugo
Let’s talk about some flavors of Bitcoin FUD:
- Intrinsic Value FUD makes an argument that Bitcoin is a purely speculative asset and has no intrinsic value. By that standard, gold is an almost equally horrible store of value since less than 1/5th of its value comes from industrial demand. Most of its value comes from the belief system revolving around it. As far as fiat currencies like Dollars, Euro, Yen, etc. are concerned, the first few lines from the linked Wikipedia page give it away -“Fiat money does not have intrinsic value and does not have use value (inherent utility, such as a cow or beaver pelt might have). It has value only because a government maintains its value, or because parties engaging in exchange agree on its value”. Bitcoin’s intrinsic value comes from it being an open-source, immutable, fully decentralized, permissionless, and purely opt-in monetary system with 100% uptime in 12+ years of its existence.
- Monopoly Money FUD is based on the argument that Bitcoin is play-money, a Ponzi scheme, and just a tool for the rich to become richer. If you think Bitcoin is a Ponzi scheme wait till you find out how Social Security works. Social Security is an insurance program that’s headed for bankruptcy but all of us are forced to participate in any way. On the other hand, although the monopoly money argument makes zero sense — even if true, funnily enough it may still be better than holding fiat currencies like the US dollar.
- Legality FUD is an argument that Bitcoin will never be legitimate and governments will eventually ban it. But does it even make sense? The biggest reason America is a superpower is that it provided a safe environment for tech entrepreneurs and engineers to focus on innovation. There will be countries that will do the same for Bitcoin and crypto innovation. Why? Because no country wants to be left behind in the future of finance. El Salvador recently became the first country to make Bitcoin legal tender. Brazil, Argentina, Paraguay, Panama, and several other countries in Latin America are talking about it too. Many more countries will follow the suit. Will all countries allow Bitcoin? Likely not. Will some countries ban Bitcoin? Sure, some will try and have tried. But the right question to ask is, can they really ban Bitcoin? China has banned Bitcoin a gazillion times. Doesn’t that mean China cannot actually ban Bitcoin? If one of the most powerful governments in the world hasn’t figured it out, probably it’s safe to say that Bitcoin cannot be banned. The only winning move is to play. This has been wonderfully captured by folks at Unchained Capital here.
- Energy Consumption FUD is the most stupid kind of FUD claiming that Bitcoin’s Proof of Work approach leads to energy wastage and is adding up to the issue of climate change. It might make sense at first but it only takes a little bit of research to understand that Bitcoin energy consumption is a feature, not a bug. Everything in this world is energy stored in one form or another. Gold, USD, and other supposed stores of value are much worse when it comes to energy consumption. Bitcoin’s energy consumption issue is highly exaggerated because it’s something that is relatively much easier to determine.
- Quantum Computing FUD talks about the scenario when quantum computers go mainstream and can be used to 51% attack the Bitcoin network that is based on the SHA-256 hashing algorithm. Firstly, if quantum computers become powerful enough to break popular encryption pretty much the whole world will be on fire: compromised global banking, nuclear codes, national intelligence, defense systems, and whatnot. Bitcoin would be the least of your worries. Secondly, there’s been tons of research and smart folks are working to build quantum-resistant cryptography techniques. Read Post-Quantum Cryptography.
- Stability FUD says that Bitcoin is too volatile to be a reliable store of value. Whilst this is true right now, it may not be so in the future. Any new asset goes through a price discovery phase till its deserved value is realized and matures into a reliable asset that grows at a steady pace. Bitcoin is currently in its price discovery phase. Once it becomes a mature asset it will be much more stable than other stores of value because there is no 3rd factor other than demand and supply to manipulate it. That’s when Bitcoin can be used for day-to-day transactions. And for that, we need to bring the cost of each transaction down which is already being worked on using a second layer solution like Lightning Network. Can Bitcoin go to a million dollars? Sure. Can Bitcoin go to zero? Sure. It’s a free market. It will find its mature valuation with time. That said, network-effect is a highly underrated thing. At this point, it’s much more likely to go to a million rather than zero. So, stability is just a matter of time — that doesn’t make an asset class not worth looking at.
There are many more FUDs. There will always be people, companies, governments, and influential leaders who will underestimate the power of Bitcoin. But a key thing to understand is Bitcoin doesn’t need anyone to succeed and once it does, willingly or unwillingly everyone will turn around.
“What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.”
― Mark Twain
Don’t you want to escape?
In the end, it’s not about Bitcoin being at $10k or $50k or $100k or a million dollars. That’s just a relative price and valuation in terms of USD. Earlier this year, Bitcoin surpassed the 1 trillion dollar milestone in market cap. Since most of us have been tied into the fiat system for so long and measure everything relative to fiat, at first it’s surreal. But it doesn’t really matter much. It’s not what’s important. It’s not why Satoshi created Bitcoin. It’s not why any single line of the Bitcoin code was written. It’s not why most long-term believers bought into this idea.
So what is it about? It’s about taking your birthright back. Birthright to be able to conserve the true value of the hard work you do throughout your life, be able to enjoy it at any time or location you want, and to have an ability to be able to pass that preserved value to your next generation.
I’ll leave you with a scene from one of my favorite TV series, Money Heist, with a powerful message that’s relevant to this conversation.
So, don’t you want to escape?
Resources (to learn more about Bitcoin)
It’s one thing to invest in Bitcoin and it’s a completely different thing to understand Bitcoin. Putting together a list of resources for beginners to take the first step to truly understand Bitcoin.
- https://bitcoin.org/ and the Bitcoin whitepaper.
2. A short video giving an overview of how Bitcoin works at a higher level.
3. The Quiet Master of Cryptocurrency podcast episode is a great thought-provoking discussion between Tim Ferriss, Naval Ravikant, and Nick Szabo.
4. The Bitcoin Standard
5. Jameson Lopp’s Bitcoin resources:
