Should I Buy Bitcoin?
Understanding the role bitcoin will play in our monetary system.
You might’ve heard the term bitcoin floating around for a while now. Maybe you’re wondering if it’s an investment opportunity that will make you rich.
Bitcoin recently hit $35,800 USD. That’s right — one bitcoin can be worth over 35,000 dollars. And the insane thing about bitcoin? It started off as being worth nothing. Zero dollars.
How is it possible that something worth nothing in 2009, can now be worth over 35,000 dollars…? What IS bitcoin? How can you buy it?
Bitcoin is code that is now recognized as a social construct. Money is also a social construct. Money has value because we have all collectively agreed as human beings that we would trade our time for it. If a large enough percentage of people disagreed and decided that money is now worth nothing, the monetary system would fall apart. The same goes for bitcoin. Enough people have decided that bitcoin is worth something, so it is. If enough people suddenly decide that bitcoin is worth nothing, its value will go down. So who are these people? Who gets to decide? Well…everyone. The more people who know about it, care about it, and give it value, the more valuable it becomes. People literally decide that bitcoin is worth something. If enough people decide they care, then bitcoin becomes more important.
We live in an interesting time.
Here’s something that will happen: everything that can go digital will go digital. And I mean EVERYTHING.
Retail has turned into e-commerce.
Paper books have turned into pdfs.
Dating in person has turned into Tinder swipes.
People have turned into social media personalities.
Paper money has already turned into digital currency.
And in the coming years, less paper money will be printed while more money will just enter the economy through digital means like direct deposit. Why? Because it’s cheaper and faster. In other words, transferring money will go from giving each other physical cash, to seeing the numbers in our bank accounts go up and down without having to physically give anything to another person. Take a look around you. This is the reality we already live in.
What does this have anything to do with bitcoin?
The amount of money in circulation is controlled by the government. What does this mean? The government can literally just create money. Yup. You work hours for the money you have in your bank account and the government can just create it out of thin air. When money is being created, money that already exists becomes less valuable. Every time the government decides to create money, the money in your bank account becomes less valuable. The amount of money you have remains the same….but it is worth less.
Bitcoin gained popularity because there can only be so many bitcoins. After the maximum amount of bitcoins are reached, no more can be created. Ever. If bitcoins are lost, they are lost forever. In a digital world where everything is abundant and things can be created out of thin air, a limited amount of something can be extremely valuable.
Bitcoin is valuable because there is a limited amount of them.
So…should you buy bitcoin?
Not unless you understand how the system works. Here’s why: it’s extremely volatile.
Remember money and bitcoin get their value from the fact that people have decided it’s valuable. When enough people are not sure if bitcoin will remain valuable, its value will drop. When people give it attention and more people start to want bitcoin, its value will go up. Because of this, the value of one bitcoin is very unstable — it can go up or down thousands of dollars in one day. For some people, that’s not a very big deal. For others, that’s a significant amount of money.
If you want to invest in bitcoin, you should probably do some research first. This is a no brainer. But what type of research?
I would do the following 2 few steps first:
(1) Learn about the “gold standard” and how the concept of money started. The representation of money went from gold coins to paper bills to numbers on a screen in our bank accounts. Understanding how the representation of money can change is crucial for learning what role bitcoin can play in our money system.
Here is a 90 second video on explaining the gold standard: https://www.youtube.com/watch?v=d3PCjk7YAo0&ab_channel=OneMinuteEconomics
Here is a more in depth 10 minute video explaining the gold standard: https://www.youtube.com/watch?v=GNo7MDN5-0g&ab_channel=ExtraCredits
(2) Learn the difference between a digital wallet and a hardware or cold wallet (one that is not connected to the internet). When you buy bitcoin, you have keys that allow you to buy and sell your bitcoin. These keys are a sequence of letters and numbers that you store in something called a wallet. Put simply, if your keys that hold access to your bitcoin are kept in a digital wallet that is on a platform connected to the internet, the platform can potentially gain access to your keys and your bitcoin. Anyone who manages to hack the platform could also have access to your keys and your bitcoin. When your keys are stored in a hardware or a cold wallet that is not connected to the internet, nobody has access to them but you.
The value of bitcoin has only gone up since its creation in 2009. Its value fluctuates so much because its worth is dependent on whether or not people think it’s going to be valuable. In other words, the more people that understand and become comfortable with numbers on a screen as a form of money, the more likely bitcoin will be recognized as money and accepted as money. Because there can only be a limited supply of bitcoin, it has the potential to become very valuable.
