Bitcoin is not Cryptocurrency

in #blog4 years ago

"4 Strategies for Investing in Bitcoin"

  1. Don't
With the recent rise in Bitcoin prices, everyone has taken notice. Even this guy:

Because of this, I'm getting a lot of questions about Bitcoin, but almost none about cryptocurrency. People are having a hard enough time wrapping their heads around the technology of Bitcoin that they're not even bothering to ask about the larger cryptocurrency ecosystem. They're also equating Bitcoin to cryptocurrency. Bitcoin is a cryptocurrency, yes, but Bitcoin is not the cryptocurrency. This may seem obvious, and indeed it is. However, people are conflating the price and notoriety of Bitcoin with the tech of Bitcoin, thinking, "since Bitcoin has the highest market cap, surely it must have the best technology, and the most utility, therefore, whatever Jackson says about Bitcoin must hold at least somewhat for the entirety of the cryptocurrency market", which is patently false.

An example. Someone recently told me they asked their financial advisor about buying Bitcoin, and he told them it was a ponzi scheme and to steer clear. I think this financial advisor came to the right conclusion, but probably for the wrong reasons. If you'd have asked him what he thinks about cryptocurrency in general he probably would've said the same thing, but that's because his only frame of reference for cryptocurrency is Bitcoin. Bitcoin may very will be a "ponzi scheme" (I don't know if it is or isn't, so don't ask me) but that doesn't say anything about cryptocurrency generally.

But, I've also had numerous discussions with engineers who view it the same way. Many call Bitcoin digital gold, which is one step removed from real gold, of which the famous Warren Buffet has this to say:

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.

As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

I can't blame Mr. Buffet for not investing in Bitcoin. However, he's recently said he was wrong about Google and Amazon. Buffet isn't a technologist, he's a financier. He also claims he only invests in things he understands. I don't blame him, or many other people for not understanding this tech and it's nuance.

However, I tend to agree with Mr. Buffet, and the financial advisor with regard to Bitcoin. Bitcoin may very well be a ponzi scheme in as much as gold is. Bitcoin core is positioning itself as a digital gold, as such, if you don't think gold is a solid investment, you probably shouldn't invest in Bitcoin, using the logic given above by Buffet. But this does not mean that all cryptocurrencies are positioning themselves as digital gold and that you shouldn't invest in any cryptocurrencies.*

Also, while I'm at it, too many people who haven't investigated the cryptocurrency ecosystem are substituting arguments against Bitcoin with arguments against cryptocurrency in general. What may hold true for Bitcoin in an argument does not necessarily hold true for all cryptocurrencies.

Building Blocks


Speaking as a software engineer, we're trained to crystallize logical concepts, and then use these crystallized logical structures to build more logical structures on top of the existing ones, and with the block chain, we're doing just that. Block chain engineers are extrapolating from Bitcoin's block chain structure, building new things with it everyday. One of the breakthroughs for me when learning about cryptocurrency was when I investigated Ethereum and saw the inferences made from Bitcoin's original block chain. Once this connection was made I started to realize the possibilities were vast, not just internal to the Ethereum block chain as many before me have already stated, but with the block chain concept as a whole. We're still trying to figure out which building blocks fit where, which are useless, and which will form the backbone of this new landscape. But that's technology. There will be many more innovations to come, as this technology is very much still in it's infancy.

Yes, we're in a bubble


Yes, we're in a cryptocurrency bubble, and everyone is trying to cash in on the craze. But this doesn't mean there isn't still true innovation and disruption happening in computation in this space. But also, what's wrong with a bubble? Look at the beautiful infrastructure and technology the last tech bubble gave us. The cryptocurrency bubble is turning heads, just as the dot-com bubble did before it, and luring brilliant engineers into it's fold due to these absurd valuations. Yes, a lot of people are going to lose a lot of money, but a lot of people have, and will continue to, make a lot of money, just as they did during the dot-com bubble, and I don't think there is anything wrong with that.

*note: this also doesn't mean that Bitcoin's only use is as a digital store of value, but for the sake of keeping this digestible for beginners, I won't go there. In fact, the only reason I bring this up is because I know advanced readers from the Bitcoin community are going to pitch a fit about this. Yes, most of us understand you're purchasing access to the btc network, but with all the price speculation it remains to be seen if access to this network is priced according to it's value.

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bit is here to stay

you might be right, but as I said in an above comment

that doesn't mean it isn't old, inefficient, and over priced.

I was starting mining Bitcoin 2010, lost faith in it 2014. I had my comeback in crypto since understanding the Ethereum platform. That is like Buffett said it something with value behind. I only hope that the 2018 BTC Crash will not affect too much the Ethereum Idea and the DAPPs behind, and if it would be only for some month or 1-2 yrs.

In my mind, Bitcoin and Ethereum solve different problems. Bitcoin is designed to be digital gold, so it should be a store of value. I'm not saying it is, just saying that is the problem it is trying to solve. It's obviously painfully slow for daily transactions, so it doesn't really work as an every day cryptocurrency - just like gold doesn't really work for buying groceries.

Ethereum's inherent value isn't its scarcity, it's use-value as smart contracts. While Bitcoin and Ethereum have been tracking each other, at least on our local exchanges here, I don't think this will be the case forever. Cryptokitties is the start of what Ethereum has to offer and it's a very modest start, but a very simple one people can wrap their heads around.

While Bitcoin and Ethereum have been tracking each other, at least on our local exchanges here, I don't think this will be the case forever

Definitely agree with you here.

Actually the design of BTC was for daily transactions, can still remember the time as it worked very well on TOR Marketplaces like BMR (no I was not selling drugs or weapons there :) .. only testing the platform) all the stories about designed as to be gold are not true, not to say bulls***. What bitcoin is and will remain for the near future in my opinion, a promoter for the new area of the internet. We need to change, we need to take back the internet. It is not acceptable anymore that a company like amazon, ebay or paypal can freeze your account because you do not recognise their new terms every second day. People like me and like many other who lost a fortune only because when they succeeded on a platform, some guy came the next second and closes their accounts without a reason, will be the new pioneers on DAPPS cloning amazon, ebay and paypal. Long live Ethereum ... !!!

You're right in the sense that Bitcoin was designed to be a cryptocurrency. My comment wasn't explicitly clear on this. I meant Bitcoin is impractical for daily transactions, just like gold is impractical for daily transactions. Bitcoin can't handle the volume. It might change with more innovations, but there are alt coins which have solved this in a different way.

I'm also big on Ethereum because it's a different approach.

I completely agree with you about everything you just said.

well, we have advantage with crypto currencies ...

crypto currencies are definitely in a tulip^tulip bubble - the valuations of ripple seems to be more than Uber and Netflix put together! But as you said, the blockchain is here to stay and the technology is impressive.

Steady..friend..vote mrazi okay

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Great post! Just to clarify, though, a Ponzi scheme is something quite specific, and Bitcoin ain't one, period.

According to Wikipedia, a Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. Think Bernie Madoff.

With Bitcoin, there is no 'operator'. Cheers!

With Bitcoin, there is no 'operator'.

Good point on this.

rather than from legitimate business activities or profit of financial trading.

I think the financial analyst/Buffer considered this part though. I suppose it's a Ponzi scheme with no operator? At any rate, I don't believe it's a Ponzi scheme, as I say in the footnote, I'm well aware that with BTC you're getting access to a global immutable ledger, however I'm not convinced access to a global immutable ledger should cost what it currently does.

This post has received a 62.50% upvote from @lovejuice thanks to @five34a4b. They love you, so does Aggroed. Please be sure to vote for Witnesses at https://steemit.com/~witnesses.

I️ would say yes bitcoins tech isn’t the best and there are many other cryptos out there that have much better tech , but what are the others cryptos value based on? BITCOIN!! So my 2 cents is Bitcoin is here to stay for a while. Great post! Keep them coming your making steem it a great community😉

Thanks for reading!

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crypto "currencies" do not satisfy the regression theorem of Austrian Economics that explains before the first use of anything as money, it is being valued only by its non-monetary uses. bitcoin and altcoin didn't have any non-monetary uses before they were pushed onto stage as "currencies". anybody can issue an alt coin now at essentially no cost, no different from fiat money. many altcoins are even pre-mined. "mining" and "coin" are nice clothes these pure digits are wearing in order to fool the naive and innocent. gold/silver is money --decentralized, anonymous, physical(off the grid), accepted in any culture/race as store of value, medium of exchange. bankters keep denying gold/silver monetary statuses and you know why. libertarians who champion cryptos are weaklings who are easily fooled and played with.

Have you claimed any of your steem since joining steemit? Then you're using a cryptocurrency now, as it fills all but one of your criteria, and I'd argue the one it doesn't fill isn't necessary.

decentralized, anonymous, physical(off the grid), accepted in any culture/race as store of value, medium of exchange

It's decentralized, it's anonymous, it isn't physical, it's accepted by any culture/race as a store of value, and it's a medium of exchange.

Why does a currency need to be physical?

it depends on the grid. it is not accepted by all races/cultures. it is unlimited....

as to the physical aspect, i think you are smart enough to figure it out yourself. do you know the what the original USD dollar says ? silver certificate, redeemable into silver bullion? why is it so important? try to figure it out yourself.

steem is not anonymous at all. i can see anybody's wallet! and you call it anoymous? do you know how much silver i hold? but you know how little steem i have in my wallet.

it is not accepted by all races/cultures

There are people from all over the planet on this platform who would gladly take steem if I offered to send it to them.

do you know the what the original USD dollar says?

I don't care what the USD says, it was created before computers even existed. Outdated.

i can see anybody's wallet!

I know how much steem you have, but I have no idea who you are.

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Like you said, Mr. Buffett is not a technical minded individual. I am in agreement with you on whether Bitcoin is a ponzi scheme. Interesting post. Thanks for putting the research together. Upvoted, resteemed, very grateful for your attention again.
Brent

Thanks for reading Brent!

Thanks for doing what you do.
Brent

I think a lot of altcoins are a bubble but Bitcoin is not.

Why is that? what utility does BTC have in the world right now other than price speculation? Steam recently stopped accepting it, so did Microsoft.

BTC is the original, most accepted and most popular. BTC started all of this so why anyone dislikes BTC is a mystery to me.

I absolutely love it.

Block chain engineers are extrapolating from Bitcoin's block chain structure, building new things with it everyday.

But that doesn't mean it isn't old, inefficient, and over priced.

So many people want to destroy BTC like alcoin developers, mainstream, banks and the government. It just keep on getting more valuable though. Is it overpriced? Maybe to some but not to all of the investors. It's the safest cryptocurrency investment and I think it will stay that way.

So many people want to destroy BTC like alcoin developers, mainstream, banks and the government.

I'm an altcoin dev, and I have no interest in "destroying BTC". Agree to disagree I suppose.

I don't literally mean every altcoin developer. I think in general, developers want their coin to be bigger than BTC which is understandable but, they never will be.

I guess we'll see. You're definitely right that BTC has the first to market advantage, and everyone knows about BTC and what it is (at least somewhat)

IMHO bitcoin today has no pratical use as a cryptocurrency because of the high fees and the scalability problem. There are many other cryptos out there that is best suited for that purpose, like Raiblocks.

Just bought Raiblocks a few weeks ago.

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great post and very educating. keep steeming! :)

thanks for stopping by!

Tnx for great advice

Bitcoin is here to stay despite predicted bubble.

crypto is, not sure about bitcoin though

Because of the rise in bitcoin transaction costs, I am shifting to ripple, litecoin and ethereum. These altcoins have shorter confirmation times, cheaper network fees, and lesser network congestion than bitcoin (though ethereum do sometimes clog up due to the prevalence of ICOs).

if you're looking at the tech for transaction speed and low (or no) fees check out raiblocks (XRB) and iota

I had a blog for many years. Once you develop your readership on your blog, and you can put something out there or direct traffic or get attention - it's like a super power.

The blockchain is the financial challenge of our time. It is going to change the way that our financial world operates.

While technology is important, it's what we do with it that truly matters.

Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth - the soil and the labourer.

I am very excited about the prospect of using cryptocurrency, not just as a money equivalent, but using it as a way to earn something as a result of doing some type of work.

In our early experiences with bitcoin, we found how few people were building bitcoin exchanges the right way. They really weren't taking the regulation seriously; they were taking it too much like how you would approach something when you're 18, full of the excitement of youth and throwing caution to the wind.

Any sufficiently advanced technology is indistinguishable from magic.

There is something so hopeful about a diary, a journal, a new notebook, which Joan Didion and Virginia Woolf both wrote about. A blog. Perhaps we all are waiting for someone to discover us.

All of your work -- especially the photos it nice idea. Really enjoyed reading your post, this made me pleased, I will never forget :D Excellent work.

All of your work especially the photos it nice idea. Really enjoyed reading your post, this made me pleased, I will never forget :D Excellent work.

Thanks for raising this topic, I was comment and answering couple of questions which writer posted on his blog on similar topic. If the fundamentals of the cause is not clear, it is very easy to get disturbed by the price fluctuation. We should remember, this whole revolution is beyond just currency.

Are you heavily invested in cryptocurrencies?
Moderately in terms of money , heavily in terms of intellectual capacity.

What are you major concerns as a user/investor?
Adoption and scaling before it goes out of control.

Are you worried of hacks, exchanges disappearing overnight, ban on bitcoin or cryptocurrency trading or any other?
None of these worries me, biggest worry is if adversaries can somehow destroy confidence in the whole idea. Compromising on the decentralization because of too many alternative ideas.

How many more times will you be posting this silly meme, @whiteexpert ?
Is one dozen times yet not enough?
Will you PLEASE stop SPAM""ing ?

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