Overcoming Misconceptions and Embracing Opportunities
Despite the potential of Bitcoin, it remains a concept that many find difficult to grasp. This is partly because Bitcoin is often misunderstood as a currency, which leads to further confusion. Unlike traditional currencies, Bitcoin operates on a fundamentally different principle, making it essential to approach it as an asset rather than merely a form of money.
My motivation for writing this article stems from my own journey of learning, exploring, and understanding new ways of value transfer, investments, and similar areas. Through various conversations, personal experiences, online research, and some negative experiences, I have gathered insights that challenge traditional financial paradigms. In this article, I address a few reflections, aiming to provide deeper insight and offer some clarity on the complex nature of digital assets and the implications for financial sovereignty. I want to remain open and curious and explore different options. Please note, this is not a thorough or deep dive but rather addresses a few crucial questions that you may encounter along your journey.
View Bitcoin as an asset, for instance, like digital property
Prominent thinkers like Michael Saylor, Lyn Alden, and Jeff Booth are advocating to view Bitcoin as an asset, rather than a currency. Similar to gold or property. Saylor suggests imagining Bitcoin as a vast cyber-city; he compares Bitcoin to owning real estate in Manhattan. If you imagine Bitcoin, like Manhattan, as a large cyber-city that consists roughly of 276 blocks times 276, times 276 (21 million blocks), you can see the scarcity built into the system. In this cyber-city, you can own partial blocks, single blocks, or multiple blocks. This visualisation helps convey the idea that Bitcoin, much like prime real estate, has intrinsic value and scarcity.
The Soundness of Bitcoin
Bitcoin is the first engineered monetary system created without the flaws that our current currencies have, so Saylor. Its soundness lies in its foundational principles and mechanisms. Unlike traditional financial systems, which are subject to central control and manipulation through dilution, Bitcoin is decentralised and operates on a proof-of-work mechanism. This ensures that transactions are verified and added to the blockchain through a consensus among a multitude of miners, all of whom need to consent to transactions, making the system secure and resilient against fraud.
Proof of Work and the cost of Power
The proof-of-work mechanism requires miners to agree and work in collaboration to write transactions in a common ledger (otherwise known as Blocks, hence the timechain or blockchain), enabling transactions between users. Miners use modern cryptography algorithms to secure these transactions, thereby securing Bitcoin with the highest standard of security currently available. The same cryptography algorithms are used for digital or online banking. This effort demands computational power and energy. This linkage to power consumption, and specifically the costs of the power used is a critical aspect of Bitcoin’s value proposition.
The energy costs create a tangible, real-world dependency that underpins the value of Bitcoin. In other words, the power bill that miners must cover to sustain the network adds a physical layer of value and security to the digital asset. This energy consumption is often criticised, but it is essential to understand that it is this very mechanism that ensures the integrity and security of the Bitcoin network. Just as physical gold mining incurs costs and effort, so does the mining of Bitcoin, making it comparable in terms of the resources required to bring it into existence.
The Open Ledger: Transparency and Security
Bitcoin operates on a public ledger known as the timechain or blockchain. Every transaction is recorded and can be viewed by anyone, ensuring complete transparency. This open ledger system prevents double-spending and fraud, as every transaction is verified and cannot be altered once added to the blockchain.
The Challenge of Change
Our current financial systems, while familiar, are not without their drawbacks. For instance, depositing cash in banks can lead to losses in the long run due to inflation and other economic factors. However, because this is what we know, it is challenging to transition to a new system. Habit often triumphs over the unknown, making change difficult. How can we overcome this resistance and open ourselves to new opportunities?
Are our underlying principles and our assumptions sound?
While Keynesian principles and the concept of animal spirits have provided a framework for managing economic cycles, they are not without criticism, and his work lacks modern scientific standards. As Saifedean highlights in The Bitcoin Standard, “the rapid recovery from the 1920 depression — achieved with minimal government intervention — contrasts sharply with the slower recoveries observed when Keynesian and Monetarist strategies of liquidity injection and increased government spending are employed.” This raises important questions about the effectiveness and sustainability of our current monetary policies. It prompts us to reconsider whether the foundational principles laid out by Keynesian economics can effectively address the complexities of modern economies without leading to unintended consequences.
Questioning Traditional Economic Theories
For me personally, and from what I have learned so far, it is hard to move away from principles that where once established and that we have grown used to over decades or centuries. That said, alternatives that pose solutions to problems, or change per se, are hard to realise. We are simply fighting change and new solutions and are sceptical. At the core, we ultimately discuss the monetary system, our life savings, and thus may put our future at risk. This is not an easy topic, and that is why we have to look at the whole picture and discuss the topics at hand to understand the intricacies.
Alternative currencies
Alternative currencies like Palmera in Brazil, BerkShares in Massachusetts, and the Bristol Pound in England enhance local economic resilience, promote sustainable practices, and foster community cohesion. These currencies are a testament to the effectiveness of such systems and showcase the potential of complementary currencies to supplement traditional monetary systems effectively. While local alternative currencies are great for regional benefits, a global alternative currency like Bitcoin allows much more freedom for its users, offering similar benefits on a larger scale without replacing local currencies, but rather adding to and benefiting all of us.
The question of ownership
Does traditional banking offer real ownership of money? The question of ownership is crucial when comparing traditional banking and Bitcoin. Traditional banking systems, while convenient, expose individuals to risks of asset seizure and access restrictions during political or economic crises, as seen in the Cyprus financial crisis, India’s demonetisation, and the asset freezes during the Russia-Ukraine conflict, to name a few recent examples. In contrast, Bitcoin’s self-custody model empowers individuals with greater control over their assets, providing enhanced financial sovereignty and privacy, though it requires the secure management of private keys. In turn, more empowerment comes with more responsibility and this has to be taken into account when considering Bitcoin. By understanding these differences, individuals can make informed decisions about how they choose to manage and secure their wealth. Lyn Alden, in Broken Money, highlights how Bitcoin’s self-custody offers greater financial sovereignty compared to traditional banking. This shift enables direct ownership and control of assets but requires individuals to securely manage their private keys.
Are you willing to invest 100 hours to learn about Bitcoin?
If we assume that Bitcoin does represent a significant opportunity as a sound monetary system, what would be the best way to start this journey?Maybe we would need to question our existing financial paradigms and investing time in understanding Bitcoin. This would enable us to uncover its potential benefits or drawbacks. What if you had the chance to be part of something transformative, to learn about it, and to test the ground slowly and carefully? Engaging in conversations, asking questions, and maintaining curiosity and an open mind may be very crucial first steps in this journey. This approach offers an opportunity for change and self-management.
What questions do you have about Bitcoin, and how can we explore them together?
Disclaimer
This information is provided for educational purposes only and does not constitute financial advice. I highly advice to read books, like the ones mentioned in this article above, this will increase your understanding and indicate the risks. The content shared here is intended to help you understand the differences between traditional banking and Bitcoin self-custody and provide insights that I have gained. However, financial decisions should be made based on your personal circumstances and after consulting with qualified financial experts. Investing in cryptocurrencies and other financial assets involves risk, and you should be aware of these risks before making any investment decisions. Seek professional advice to make informed decisions that best suit your financial goals and risk tolerance.
Stay Informed, Stay Empowered!
As always, yours truly,
Uwe
Check out my links: https://linktr.ee/uweallg
