Bitcoin is not a bubble – It’s the pin!

Warning: Bitcoin is an innovative and volatile crypto currency. Any investments you make are your responsibility.

People around the world, especially in developing and corrupt countries, are increasingly losing trust in their banks, governments, and the media.

Before deciding to invest a significant amount of time and money into bitcoin, it’s important to understand it’s history, benefits, risks, and limitations, as well as fiat currencies like the US Dollar.

Fiat Currency 

A fiat currency is a currency that a government has declared to be legal tender (like the USD, Euro, GBP), but is not backed by a physical commodity.

The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made.

In 1971, President Nixon announced that the U.S. dollar would no longer be backed by gold.

So you may be wondering, what is the US dollar backed by then?

It’s backed by nothing tangible.

It’s backed by people’s belief that it has value.

If you want to understand how fiat money and central banking works, start with Rule 11 of the popular board game Monopoly.

The bank never goes bankrupt.

The bank may issue “new” money on slips of ordinary paper.

Imagine that every time you ran out of money or wanted more, you could simply just print more.

This is how central banking works in a nutshell.

Using this system, the US has created a massive national debt of 21 Trillion Dollars.

The total global debt is an astronomical 247 Trillion Dollars.

You can watch the national debt increase in real time here: www.usdebtclock.org

This debt will never be paid back because each dollar that’s printed is issued with interest and backed by nothing.

Voltaire famously said “Paper money eventually returns to it’s intrinsic value: zero”.

The more dollars that get printed, the less each individual dollar is worth.

It is just a matter of time before the US dollar becomes worthless.

It’s unlikely that the US dollar will become worthless in your lifetime.

But it’s an absolute certainty that it will implode at some point in the future.

In the meantime, any fiat currency you hold becomes less valuable each year because there is more of it issued every year.

This means your purchasing power decreases and you’ll be able to buy less with the same amount of money each passing year.

History of Bitcoin

Bitcoin is the world’s first decentralized digital cryptocurrency founded in 2009 by an anonymous person or group called Satoshi Nakamoto after the 2008 financial crisis.

The text embedded in the genesis(first) block mined by Satoshi Nakamoto reads “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

This text refers to a headline in The Times published on 3 January 2009.

It has been interpreted to serve as both a timestamp of the genesis date and to raise awareness of the instability of global financial systems caused by fractional-reserve banking.

You may have heard about bitcoin’s price appreciation (from $0.008 to $20,000), or the boom and bust cycles before and after.

We will discuss bitcoin’s historical price and future price predictions later in the article.

However, there are many significant things you should know about bitcoin besides speculating to make money.

Benefits

The primary reason bitcoin is significant is because it is the first time in human history where the creation and distribution of money is not centrally controlled.

For this first time in history, people have the voluntary option to store and transfer money peer-to-peer without the need of a trusted middle man like a bank.

This is because the bitcoin network operates using a revolutionary invention called a blockchain.

A blockchain is a public electronic ledger where every single transaction made on the network is verified by miners(computers) and is publicly recorded on the blockchain.

Every computer around the world has the same historical electronic record of every transaction ever made and it is publicly accessible to anyone.

Each new block that is mined is added to the previous block to create the blockchain.

The bitcoin network is set up in such a way that it incentivizes miners to maintain the longest blockchain as the true historical record of all network transactions.

The economical cost of attempting to hack the bitcoin blockchain is high (about 3 billion dollars) and it becomes more difficult as each new block is added to the blockchain.

A simple and powerful way to imagine bitcoin is like opening your very own semi-private swiss bank.

Except that anyone can now become their own swiss bank using bitcoin because there is no minimum balance requirement and zero fees for opening an account.

It is more private, secure, faster, and cheaper than a bank account.

This holds immense promise for developing nations as billions of people around the world don’t have access to a bank.

It allows people around the world to enter the global market place and transfer value peer-to-peer using just their cell phones.

Bitcoin is also significant because it is the first time in human history where people have the power to protect their wealth from being confiscated or frozen by governments and banks.

Owning your bitcoin private keys means you actually own your money.

When you store money in a bank account, the bank technically owns your money and can use it on your behalf while it’s sitting in “your” account.

By owning bitcoin you also protect yourself against fiat currency inflation as your total bitcoin % ownership is never diluted and it has historically always risen relative to fiat currencies.

This is because there will only ever be 21 million bitcoins ever created.

You do not need to buy 1 full bitcoin as bitcoin is divisible by up to 8 decimal places. For example, you can own just 0.0001 bitcoin (BTC).

Bitcoin Vs. Fiat

A fiat currency is an inflationary centralized currency (Dollar, Euro, Yen) that banks and governments force their citizens to use.

Bitcoin is a voluntary currency. Most people who hold bitcoin value ownership, privacy, security, speed, and freedom.

You can travel the world and access your wallet from anywhere as bitcoin is a borderless, digital, and global currency that operates 24/7, 365.

Bitcoin is also censorship resistant so governments or banks can’t block you from receiving and sending money.

The network has been running successfully since 2009 with virtually no down time.

Many governments and hackers have tried tirelessly to kill bitcoin since it’s inception.

Bitcoin wallets or centralized exchanges themselves can be hacked if they do not take the right security measures.

However, the bitcoin network itself has never been hacked.

In fact, bitcoin is the most secure network on the planet.

Bitcoin vs. World’s Total Money Supply

As per the image below, bitcoin is a like a drop in the ocean compared to the total money supply.

The total cryptocurrency market cap is around 100-200 billion.

It is estimated that by 2022, the market cap will be closer to 10 trillion.

That means there is at least 10-100X in growth potential in terms of market cap.

It is also likely that tokenized securities will revolutionize the traditional finance world.

Tokenized securities will enable companies to raise money and issue stock on the blockchain.

It is anticipated that this will add trillions of dollars into the blockchain space.

Limitations and Risks

There are a few limitations and security risks you should be aware of before adopting bitcoin.

The first risk of cryptocurrencies is that they are still in the early stages of development.

Imagine how advanced computers where in the first 10 years of their existence. Computers were the size of rooms and had less computational power than a smart phone.

Bitcoin is currently limited to 4-7 transactions/second. This limitation is due to the fact that blocks are limited in size(1 MB) and mining frequency(every 10 min).

For comparison, Visa can do about 25,000 transactions/second.

There are various solutions bitcoin developers are working on such as the bitcoin lightning network that aims to build a second layer solution that will make bitcoin virtually instant and free, surpassing Visa’s capabilities with time.

There are other blockchain which already surpass the Visa’s transaction speeds, such as Ripple (XRP), which does over 50,000 transactions/second, but become much more centralized as a result.

With any blockchain there are 4 main parameters you must evaluate:

1) Security

2) Scalability

3) Privacy

4) Adoption

There are thousands of other cryptocurrencies, utility tokens, and security tokens. They are referred to as altcoins and you can find a list on www.coinmarketcap.com

Many altcoins make the promise of being better or faster than bitcoin.

In fact, some new blockchains claim to do 1 million+ transactions per second.

However, in order to achieve faster transactions these projects sacrifice on security or decentralization.

This makes their network more centralized, less secure, and much easier to hack.

In addition, many of these projects have little adoption today and are mostly a concept/speculation.

As centralization increases, the security of the network decreases.

This is why bitcoin remains the most decentralized and secure blockchain to date.

Bitcoin is the most likely blockchain to survive in the long term.

The risk with bitcoin and other coins is that there is a small chance that the whole blockchain space fails and your holdings would depreciate in value dramatically.

However, fiat currencies are more likely to fail than cryptocurrencies long term.

Every centralized fiat currency in human history has gone to zero.

Bitcoin may be the first currency in history to not go to zero.

History Of Bitcoin Price

The media has covered bitcoin’s parabolic price appreciation especially in December of 2017 when it reached an all time high of 1 BTC = $20,000 USD

Jan 1, 2009… N/A

Jan 1, 2010… $0.09 USD

Jan 1, 2011… $0.30 USD

Jan 1, 2012… $5.27 USD

Jan 1, 2013… $13 USD

Jan 1, 2014… $770 USD

Jan 1, 2015… $313 USD

Jan 1, 2016… $434 USD

Jan 1, 2017… $997 USD

Jan 1, 2018… $13,412 USD

Jan 1, 2019… $3,869 USD

Bitcoin has been the best performing asset in the last decade, despite it’s boom and bust cycles.

The following graph shows the price of bitcoin and the cycles it follows historically.

There is no guarantee that bitcoin will succeed long term or that this pattern will continue.

But some people are willing to take a risk and bet that it will.

I suggest putting 1-10% of your net worth into bitcoin as a hedge against global fiat currency inflation and as a way to be in actual control and ownership of a portion of your money.

Some people in my network have over 95% of their net worth in bitcoin. This is a highly risky play and not advisable for the average person.

The Mayer Multiple

Trace Mayer, a bitcoin entrepreneur and investor, developed a method intended to help people understand their emotions and corresponding probabilities of various price multiples (from a historical context).

The Mayer Multiple is calculated by taking the current price of bitcoin, and dividing it by the 200 SMA(Simple Moving Average).

If you’re not familiar with the 200 SMA, it is considered a key indicator by traders and market analysts for determining the overall long-term trend of an asset.

It is calculated by taking the average price of an asset over the last 200 days, and dividing it by 200.

Let’s say that the current price of bitcoin is $6,487 USD, and that the average price of bitcoin over the last 200 days is $8,026 USD.

The Mayer Multiple is $6,487/$8,026 = 0.81

Historically, the Mayer Multiple has been higher 83% of the time.

This is not an indicator to buy, but it give you historical perspective and an additional data point.

To find out what the Mayer Multiple is today, go here.

Security

When you become your own bank, you become your own security.

This mean you must take security very seriously, because if somebody get access to your private keys they can take your bitcoin.

There are 3 common ways to store your bitcoin, ranging from least secure to most secure.

1. Centralized Exchange Wallet – You hold you bitcoin on an exchange. An exchange is a centralized third party, so if they get hacked, your bitcoin can be hacked because somebody else is holding them for you.

When you hear of bitcoin hacks, it’s usually related to exchanges getting hacked.

In February 2014, Mt. Gox got hacked and announced that 850,000 BTC belonging to customers and the company was stolen.

They were worth $450 Million at the time.

Action: Don’t store your bitcoins on exchanges, especially long term. 

2.  Desktop or Mobile Wallet – You can install a crypto-currency wallet like Exodus for your desktop/laptop, or Coinomi on a mobile device.

You should only store small amounts of bitcoin for daily use.

Imagine this like the cash in your wallet.

Is it a step up from exchanges because you control your private keys, however if you desktop computer or mobile device get’s compromised, a hacker can empty your wallet.

Action: Don’t store any significant amount of bitcoin on your desktop/mobile wallets. 

3. Cold Storage – This is by far the most secure way to store your bitcoin. This is because your bitcoin private keys are offline. They cannot be compromised by a hacker.

One of the most popular cold storage devices is the Ledger Nano S. You can also generate a bitcoin wallet offline here and store your private keys in a secure place like a vault.

Make sure you never reveal your bitcoin private keys to anybody, unless you absolutely trust them with your life and need them to access your bitcoins in case you die.

Go to Bulletproof Bitcoin for a complete guide on the most secure ways to put your keys in cold storage.

Action: Store your bitcoins in cold storage and ensure you take the highest precautions possible to keep your private keys safe. 

A critical thing to realize is that your bitcoins are not actually stored on an exchange, mobile wallet, or cold wallet.

These are all methods of accessing unspent transactions on a distributed electronic ledger (the bitcoin blockchain) using your private key.

Your private key is a set of 12-24 words that proves you are the owner of the balances on the wallet addresses associated with that back up phrase.

In short, imagine bitcoin as scarce digital gold that exists only in the cloud, and in order to make transactions, you need to have your private keys to prove your ownership of balances on the ledger.

Another way to imagine it is like a unique digital signature, that can only be authorized by the holder of the private keys.

If you don’t hold the private keys, the bitcoins are not yours.

Volatility

Below would be your returns if you invested $100 USD in each of the top 20 crypto-currencies on January 1, 2017, and held until January 1, 2018.

$2,000 USD invested would have turned into $524,215 USD

Not only are cryptocurrencies revolutionary, they might be the average person’s best bet to 100-1000X their net worth.

The other 2 ways to exponentially grow your net worth is to start a business or marry someone wealthy.

It is not unusual to see 100%-10,000%+ returns in cryptocurrency.

It is not unusual to lose 90%+ of your investment with cryptocurrencies.

The market is very volatile, so proceed at your own risk.

My recommendation is do not invest more than you are willing to lose.

The market is unregulated, poorly understood by average investors, and you are likely to run into scams like Bitconnect.

Bitconnect was a multi billion dollar Ponzi scheme, which famously crashed in 2018 from $422 USD to less than $1 USD.

If you want to invest, do your own research.

Reddit, Twitter, and YouTube are great places to learn.

If this is too technical, but you still want to invest, contact a friend who you trust, has a proven track record, and knows what they are talking about.

The SEC is working on introducing a Bitcoin ETF to make it easier for average investors to get access to the crypto-market.

However, once everyone is at the party, your potential returns may be much lower.

At the very minimum, I suggest you buy and hold of at least 1 bitcoin (or as much as you can afford), and put it in cold storage.

If the historical price pattern repeats into the future, bitcoin will be worth $100,000 USD – $500,000 USD in 5-10 years.

Recommended Readings and Resources

1. Bitcoin Whitepaper

2. Mastering Bitcoin – Andreas Antonopoulos

3. Buy Bitcoin Worldwide – Cryptocurrency Guides and Articles

4. Coin Market Cap – A list of all cryptocurrencies

5. Investor’s Podcast – Mayer Multiple

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