Fake money? Digital gold? In this episode we cover the godfather of cryptocurrency, BTC.
I’ve been hearing about bitcoin for years now, and for years, it sounded so confusing to me because everyone was saying different things or comparing it to gold and I didn’t understand how this fake invisible money (which is what I was calling it) related to my favorite gold earrings that I wear every day.
BUT when I kept hearing that bitcoin was "going to the moon" because of billionaires like Mark Cuban, Paul Tudor Jones, Elon Musk, and Marc Andreessen buying into it and companies like Tesla, Microstrategy, Square, and PayPal buying into it and countries like El Salvador buying into it, I decided to learn more about it and I realized that Bitcoin actually is not rocket science. 🚀
No pun intended...
Just kidding, pun totally intended on that one.
“Anyway, put simply, Bitcoin (BTC) is just digital money and a digital way of storing your money so it doesn’t lose its value over time. It’s not fake and it’s just as invisible as “real” money, FIAT money."
What's the advantage of digital money?
Think of how the internet has changed the world today. Almost everything is digital; our communication is digital, our shopping is digital, our clocks are digital, our photos are digital, our books are digital, our doctor appointments are digital, our banking is digital, even our transactions.
When we look at all the things that have become digitized today because of the internet, and I’m not saying this doesn’t have its consequences. Look, the world is not perfect and the internet is no exception to that. But, you wouldn’t argue that it hasn’t already made work and everyday tasks more efficient–right? So, isn’t it just a matter of time until our finances are digitized and made more efficient by technology, as well?
Sure our banks have apps and we can transfer money and cash checks or direct deposit them and we rarely touch and transact with actual cash anymore, but this digital finance system is still centralized–your bank and the bankers in it control your money. Plus, it’s still working with government controlled money (known as FIAT money). FIAT money just means government controlled money like the US Dollar, The Chinese Yen, The Peso and so on.
Why do I need to store my FIAT money?
Well, we know that FIAT money including the US Dollar depreciates in value over time because of inflation. Which is the reason you used to be able to pay a nickel for a soda in the 20s, but today, you won’t even bother picking up a nickel off the street, right? Because governments have the ability to “print” money, so they do that during recessions and especially during the pandemic.
In the twelve months following the pandemic, the US government essentially “printed” 40% of the US dollars that exist right now. I’m saying “printed” with air quotations because the government doesn’t actually have a physical money printer that money flows out of and they just make it rain on people in the streets. Which does sound cool, but no, they use a process called “quantitative easing” which is just a big term to describe how they pump money into the economy without literally printing it so that people think the economy is fine and they don’t make any changes to their spending habits.
You should look into that process because it is definitely interesting. Maybe we’ll cover it in a future episode, but you don’t have to understand every tactical step in the process right now in order to understand how it affects you.
So, how does "Quantitative Easing" affect you?
"Well, because that means that if your salary didn’t go up by 40% last year that you are not even breaking even; you’re not keeping pace with the rate at which the government is printing money and to put it blatantly–you’re getting poorer.
I feel so uncomfortable saying that, but when I realized that, I also realized I can’t NOT tell you that... because it’s the truth."
How does gold make its way into the conversation?
We all know the concept of inflation is not new, so people from the beginning of time have bought gold with their money in order to store the value of it; in order to protect it from inflation. So, me thinking my favorite gold earrings had anything to do with this was just rookie thinking because actually, over 50% of the world’s gold is not in jewelry, over 50% of the worlds gold is in gold bars.
Because gold is a natural resource, so gold bars can’t be controlled by banks unless you choose to store them in a safe in the bank or something but, gold is scarce. So as we print US Dollars making the US dollar less scarce, you can rely on the value of gold to stay the same or increase because you can’t print more gold–right?
The only problem with this system is that we don’t actually know how scarce gold is. People are mining more gold every day. Matter of fact, almost 70% percent of all gold that we know in existence today was mined just in the past 70 years (after the year 1950) and about 1.5% of gold is still being mined every year. To put this system of buying gold to store your FIAT money’s value, into perspective... If we were looking at this system as a bathtub for example, this means that there is a hole in the bathtub that is constantly leaking water. That's not very sound...
So, as gold is becoming less scarce, the price of gold is changing. It’s going down. Today, in October 2021, the price of gold is down almost 14% from where it was in August 2020. During a pretty critical time, about one year following the pandemic. This is exactly when people need gold to protect their money from inflation because this is during a time of record high money printing and currency devaluation. But right now, it's not doing that very efficiently.
How is Bitcoin performing, then?
Bitcoin is up about 500% in the exact same time period. Why? How is this freaking possible? Especially when Bitcoin technically has miners, too. Tt has digital miners and people are mining more every single day.
Here is the difference–Bitcoin is perfectly scarce. There will only ever be 21 Million coins that can be mined; Not a single coin more will ever come into existence and bitcoin can’t be created. It was a one-time thing. It can’t be changed or modified in anyway. This means no bank or government can control its supply.
Which, as you can imagine, makes any government reluctant to accept it, especially authoritarian governments like China. You may have heard about China’s ban on bitcoin recently. Well, Authoritarian governments want to have complete control over their citizens’ finances. Bitcoin puts complete power of transactions into the hands of the citizens – not governments, not bankers, not politicians. So it feels threatening to governments, but that empowers people. I mean China banning bitcoin is an example of exactly why bitcoin exists. Almost every time a centralized organization threatens bitcoin, it gets stronger.
Now, that’s not to say the price of bitcoin isn’t volatile. The price is constantly and drastically moving up and down. But, even when bitcoin’s price dips, let’s look at the past 3 months for instance, when the price dipped at its lowest, 85% of bitcoin holders didn’t sell. They refuse to because they believe in the technology that it’s backed by. They believe in the blockchain. This is why overall, over each year, bitcoin goes up–as we’re seeing right now.
Think of Apple and Amazon for a second. Apple and Amazon’s returns over the last decade were about 1,000% and everyone thought that was crazy. Well, since bitcoin was invented in 2009–over the last decade–returns are nearly 1,000,000% and it’s still early.
So, is it too late for me?
Now the question is can the price really keep going up? And how does it work? Well, stay tuned because we dive into this in the next article & episode all about the blockchain–the technology that cryptocurrency including bitcoin is built upon.
See you soon!
The Make Shyft Happen podcast is hosted by Leslie Wheeler and produced by Yaristotle. If you enjoyed this, please don't forget to subscribe! Tweet us any questions you might have @makeshyfthappen