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Someone close to me recently asked me about #bitcoin. He was sincere and interested. We talked about 10 minutes.
Knowing that my writing skills are better than my verbal skills, I decided to document an introductory course for him to save him time.
I’d like to share it with everyone here and ask for feedback (good and bad).
I’m sure there’s room for improvement, so I welcome suggestions.
My goal: provide just the right amount of information to a newbie who is interested in bitcoin. It should be approachable, readable and accurate.
I put this together in an ap called bublup and it’s visually broken up into sections and topics - bite-sized pieces. I’m going to copy/paste those into this note.
Please let me know what you all think! #Grownostr #tsp #bitcoin
#Bitcoin Facts
Bitcoin is the largest cryptocurrency in the market
Bitcoin is decentralized. It is not a company. It has no board of directors or CEO.
Bitcoin is auditable.
The blockchain is auditable.
Bitcoin was not designed to provide anonymity.
Bitcoin is trustless.
Bitcoin is open source.
Bitcoin is scarce. There's not enough for everyone in the US to own even 1 bitcoin. (That's by design. It is infinitely divisible.)
Fundamental Concepts
Bitcoin always remains on the blockchain. It doesn't "move" from or to a wallet. Instead, bitcoin is assigned to a the address of a wallet. Your wallet simply holds a copy of the blockchain ledger assigned to your address.
You can throw your phone in the ocean or run over it with a truck. You still have your bitcoin as long as you know your 12 words. Buy a new phone, install any bitcoin wallet and enter your passwords.
There will only be 21 million bitcoins. This will never change. Bitcoin is both a store of value and a form of currency. It is trustless, secure and deflationary.
In 2010, Bitcoin was invented/developed by a person or group by the name of Satoshi Nakamoto. Because it is based on a proof-of-work model, bitcoin represents energy. Bitcoin is currently "mined" which is just a term for specialized computers doing work. Only certain types of processors can do this work. Anyone can tuning a mining server if they have the hardware and skillset.
What is mining? Some say it is solving extremely complicated math problems. Others say it is simply the process of brute force guessing a string of numbers. Nevertheless, mining will end when the last of 21 million bitcoins are "mined". Mining servers will be repurposed or retired.
The bitcoin mining difficulty adjusts based on the number of miners. It also adjusts every four years to be more difficult. So as time goes on, it will take longer to mine a bitcoin (twice as long - or rather it becomes twice as difficult). This is called, "the halving" because the yield for the work performed is cut in half. Approaching these four-year cycles, the price of bitcoin increases. The next halving is on schedule for the month of May in 2024.
Mining nodes should not be confused with nodes. Nodes are small computers that participate in transaction authorizations. No transaction happens without the consensus of multiple nodes checking the validity of the transaction. After the transaction, updates are sent to every node on the network so that every node has the same copy of the blockchain.
Large financial institutions are investing in bitcoin. Some are trading, but most are buying and holding.
A handful of publicly-traded companies hold bitcoin on their balance sheet. Microstrategy holds the most - over 71,000.
Why is bitcoin important? What problem does it solve?
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
The SWIFT system is also an amalgamation of infrastructure, protocols, processes, procedures and politics. The backbone of the system was developed in the 1970s and has remained unchanged. In short, it is outdated, limited, expensive, corrupted and inefficient.
Swift transfer exchange rates range from 3%-5%.
Geopolitics affect SWIFT bank memberships. A war, or even sanctions can prevent innocent people from being able to send money "back home" to family.
Most important, it is an exclusive society which ensures that certain their interests remain in place.
In an effort to prevent crime, the banking industry REQUIRES transaction of $10,000 or more to be reported to the government.
Any other banking activity that even raises suspicion - even under $10k - is encouraged to be reported to the government.
Anonymous banking was once acceptable, but is now illegal in the US and any SWIFT member bank.
Unsecure - Banks are hacked - money is stolen and it's not terribly uncommon. These incidences are generally not reported for fear of public mistrust. But sometimes the stories are leaked. 81M was stolen from a Bangladesh bank.
Wire transfers are slow - anywhere from 1-4 days (typically 3-4).
Banking is subjective. You can be denied a loan for the color of your skin - yes this still happens today all over the world.
Traditional banks are ALWAYS at risk of a bank run because they are only legally required to hold 10% of deposits.
https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp
https://paymentcloudinc.com/blog/swift-payment-system/
Bitcoin:
Can not be censored and Immune to geopolitics
Minuscule fees
Unhackable
Immune to a bank run. By design, this can't happen.
Follows a single set of protocols and immune to corruption
Doesn't care about class, income, skin color or social credit score
Money transfers happen within 30 minutes (and faster using the lightning protocol).
Decentralized and self governed based on the base code - which cannot be changed.
Why is bitcoin important? - introduction
In order to understand why bitcoin revolutionary, it's important to understand the current money system of the US.
Fractional reserve banking.
Despite the fact that the US constitution grants congress the right to print money, congress was successfully bribed to outsource this function to a private bank, called "The Federal Reserve".
There's no reason for me to attempt to explain fractional reserve banking when this 13 minute YouTube video does a good job.
https://www.youtube.com/watch?v=P-5xDzTvW6E
If this is all new to you, go back and watch (or just listen) a second time or even a third time.
So now that you understand the basics of fractional reserve banking, think about the repercussions.
$401,511,524,000 dollars (over 401 billion) were sent to the public in the first round of three stimulus payments during COVID. Remember, as those checks were deposited, the banks were able to loan out 90% of that, and then again, 90% of that as the money was spent or loaned. It didn't take long for inflation to follow.
Take a look at this inflation rate table. Inflation had hovered around 2% for many years and in 2021 spiked to over 7%. https://www.usinflationcalculator.com/inflation/current-inflation-rates/
As long as the world uses fractional reserve banking, inflation will always be a problem. Many countries have collapsed under hyper inflation and many more have experienced mass poverty, population exodus and civil war.
Bitcoin was designed to be inflation proof. In fact, since it is not fully mined and not fully adopted, it is expected to become more valuable over time. And conveniently, is infinitely divisible (you can always move the decimal to spend smaller and smaller amounts).
How do I get started?
Download a bitcoin wallet on your phone. I use Exodus.
Write down the 12 word passphrase. Store it in a safe place.
Write down your passphrase again, store it in another safe place.
Open an account with Strike. Put $50 in that account.
Now send $5.00 to your Exodus wallet.
Now send another $5.00 to your Exodus wallet.
Do that until you are comfortable.
Consider setting up direct deposit with Strike to DCA over time.
When you get a serious amount of money in that wallet, then look at taking that wallet off the network. There are many easy ways of doing that without third-party software or hardware.
Bitcoin arguments
"Cash is king! Give me greenbacks or give me nothing! Nothing beats the good ol' US dollar." This is a common argument against bitcoin.
The US dollar is the world reserve currency. After all, oil, the world's largest commodity is traded in US dollars.
This has been true for many years, however, some countries have recently begun trading oil in the Chinese Yuan..
Through fractional reserve banking, the money supply of the US dollar is expanding, causing the value to decrease. Every notice how prices increase about two years after stimulus money was handed out?
Bitcoin is finite. Only 21 million bitcoins will be mined over time. Some portion of that bitcoin was lost in early mining years before it had any significant value.
Bitcoin is too volatile!
The price of bitcoin has certain been volatile in the past. When it gained notoriety, it reached an all-time high around $60k. Many people leveraged assets (mortgaged homes) out of irrational exuberance and FOMO (Fear of missing out) they were over-extended. At the same time, institutions began buying large amounts of bitcoin increasing both the velocity and the demand, thereby driving up the price.
Bitcoin isn't a currency!
El Salvador has officially adopted bitcoin as an official currency. Other countries are looking to follow suit. Some US municipalities have even set up infrastructure to receive taxes and utility payments in bitcoin. Every day, more and more merchants are accepting bitcoin. Visa and Mastercard both adopted bitcoin and have "rewards" cards that offer kickbacks in bitcoin.
I don't have faith in a made-up electronic system!
Fiat money is 93% electronic and the federal reserve bank "makes up" money whenever it wants. The federal reserve also refuses requests to be audited.
Bitcoin uses too much electricity and contributes to global warming
The truth is that bitcoin mining does use electricity. Large mining operations are using resources to minimize the cost. Some have server farms in large, industrial caves to take advance of geothermal cooling. Some mining servers use natural gasburnoffs to run generators. This is a great way of using an energy source that was being wasted.
Methods to obtain bitcoin
Non-KYC
Sell a product or service and accept bitcoin.
Get a visa rewards card that gives bitcoin as “cash back”
Get the visa “Fold” prepaid debit card.
Listen to your podcasts using the Fountain app. It earns a small amount of bitcoin
Buy bitcoin at a non KYC exchange
KYC
Buy bitcoin at a KYC exchange
Buy bitcoin for IRA. ( you can even own Bitcoin in a ROTH IRA)
Be certain to track your KYC purchases for the tax consequences.
The finance industry
BlackRock has announced that it has filed for a publicly-traded bitcoin trust that essentially will give investors exposure to a spot bitcoin ETF that they have long been hoping for.
Grayscale already has a fund called Grayscale Bitcoin Trust trading over the counter.
There are already over 60 publicly-traded companies that own bitcoin.
There are 5 countries that publicly admit that those governments hold bitcoin.
There are 18 ETFs that own bitcoin.
Visit this website for details:
https://buybitcoinworldwide.com/treasuries/
Here's another good source:
https://bitcointreasuries.net/
Darin’s opinion
Bitcoin will probably still be below $30,000 by the end of the year unless the SEC fast tracks BlackRock's filing for a spot bitcoin trust. (But these things usually take months.). It is expected to be approved.
Even if the SEC denies BlackRock, I believe bitcoin's value will begin to climb in Jan 2024 and will likely be over $40,000 by Dec 2024 and this can be attributed to the "halving" in May of next year. Many others are more optimistic and make more audacious predictions.
I don't intend to sell bitcoin. I'm not "all in", but it is a portion of my retirement account. Like anything, I remain diversified in other traditional markets.
Blockchain technology is quickly being adopted for other purposes.
Favorite bitcoin Podcasts
Bitcoin Breakout - Jack Spark #[5]
Bitcoin And...... - David Bennet #[6]
The POMP Podcast - Anthony Pompliano
Markets Daily Crypto Roundup - Adam B. Levine @ Coindesk
Bitcoin Audible - Guy Swan #[7]
The "What is Money?" Show - Robert Breedlove
I also provided a link to Satoshi’s bitcoin white paper.
Discussion
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