The Threats Facing Bitcoin – 008
Let’s talk about the threats and slurs people put against Bitcoin and cryptocurrency.
Let’s see if we can understand them a little bit better.
So, the first one that people often talk about is volatility. The price goes up, the price goes down. How can you buy milk or sugar or cars or houses if it’s priced in bitcoin when the price swings around too much? Yes, that this is true. Especially for the first world.
We are used to relatively stable prices- but a couple things to think about here is how in the future, this volatility will go down. And right now, it’s in price discovery mode. A lot of speculators are trying to figure out how much of the world it’s going to take over. What’s the price of bitcoin going to be in 5 years or 10 years’ time?
That that kind of diminishes over time. It’s true of all things- by the way. It’s often shielded from us. Like the price of Facebook, right? What was the price of Facebook in its first five years? Well, that was shielded from us- and really the whole market. Because that is done through seed rounds. It’s done through “series A”, “series B” and they just have these one-time funding things.
But if it was on the stock market at that point- early in its career- it would be wildly swinging up and down. “Oh my god, there’s a lawsuit against Facebook, it’s going to bankrupt. The company- they’re dead Price crashes- up and down and sideways when things are early on.
There is a lot of volatility in there. Usually, it’s shielded from us. But with the world of Bitcoin, we get to see it and it’s kind of fun.
Another thing that I want to point out is that over the short term, yes, Bitcoin is volatile. But over the long term, it is boringly spectacular. Going up 200 percent per year. If you have a time horizon of greater than four years- it performs its function of being a store of value unbelievably well, right?
There is not a single person on the planet who bought Bitcoin and four years later had lost money.
If you held it- you had made money. Bitcoin has never gone down over a four-year period. So, for the longer time horizon it’s perfectly acceptable and it’s just a great place to be, because it’s going up so much.
Like I said…boringly spectacular.
Another note is to say that although I live here in the United States- my privilege of that is that I have this relatively stable currency called the US dollar. Although they’re printing it out like mad and debasing it- but it’s relatively stable. I get that in many parts of the world they do not have that luxury.
I can think of five countries off the top of my head that are going through serious currency crisis & inflation of 50 to 100 percent, right? Remember- there are three over three billion people with who live in an environment of double- or triple-digit inflation.
The value of their currency swings around wildly- and so for them the volatility of bitcoin is not really an issue, overall. And once again- long term it just becomes less and less relevant.
Another one is this- Peter Schiff is famous for this one- that Bitcoin has “no utility”.
What do you do with it? It’s perfectly engineered money. It doesn’t need to do any other things. But-in fact- it does do a lot of things in the fintech world. But I don’t need to understand any of this to know the foolishness of this argument.
There are huge corporations out there, like major Wall Street companies like Fidelity and whatever- they borrow Bitcoin, they pay interest to borrow bitcoin to provide financial services to people, right? So, think about this. They’re not buying Bitcoin to see the price of it- they do that as well, but they also borrow bitcoin.
This means they’re not exposed to the price. You can’t say they’re speculators. You can’t say that they don’t give a damn about the price. They need to borrow bitcoin to provide its utility to its customers and then they charge them fees.
It’s very clear that Bitcoin DOES have utility.
Next up, regulation.
There’s a big one. People are always like “Well the governments can shut it down.” They can be difficult.
And we kind of just went through something very interesting with China. China banned Bitcoin. They banned all Bitcoin mining in China, and it was very interesting. About 40 percent of the entire Bitcoin infrastructure got turned off over the space of a relatively short amount of time- over like a week or two all this equipment was put into shipping containers and sent across the world.
Over the following few months, it’s been turned back on and we’re kind of three-quarters of the way through that process right now.
What is fascinating is that the world has never seen anything like this. Just think if 40 percent of wall street infrastructure just got turned off one day. I mean, the markets would absolutely crash. Things would seize up. The entire financial world would fall apart.
Bitcoin didn’t miss a beat.
Users of the Bitcoin network were not inconvenienced at all. Nothing happened and it really highlighted the resilience.
We knew it would happen. We’ve theorized around it. But it was kind of fun to see it happen and play out exactly as predicted.
Bitcoin is indestructible. Bitcoin will be around forever- no doubt about it. A lot of people say “yeah, but what about if those layer two solutions we’ve talked about, what if the governments regulate things like Coinbase and Kraken and the exchanges, and the other kind of businesses around that? And there’s a couple of things to think about here.
Number one- it would be extremely unwise for them to do it, because all that innovation and all that, those things would just go offshore, and people would find some other country. There’s some country who is going to be open to it.
We look at that today and I think there are seven countries in the world right now – Portugal is one of them, you know in the EU- zero taxes on cryptocurrency.
You can go and just make a fortune in cryptocurrency, as people do, and you can cash that out you pay zero taxes on your cryptocurrency gains in Portugal.
So, there are all these countries are vying, so you know it’s very clear already that the world’s richest people are going to be the people who are involved in Bitcoin.
There are people with hundreds of millions of dollars and that’s because they got involved in Bitcoin early. I am expecting it to go up significantly more over the next few years. So, you want to attract that wealth to your country? That’s called game theory.
So, there will be some people whose countries suppress it- there’ll be some countries who go “We want these people. We want these people bringing this wealth because they buy real estate. They spend money. They employ people. They launch new businesses and so game theory plays out.
And it’s just the people and the countries who kind of get intimidated by Bitcoin and try to shut it down making a huge mistake and they basically reverse it a little while later- and we’ve seen that many times. Where countries come in, they’re heavy-handed with Bitcoin- they think they can shut it down.
Idiot politicians make rules about it a year or two later, they lift it up so long term these regulations are not really a big issue.
A second issue to consider is that we are in the process, the early innings of this concept, of decentralization. Everyone understands that, to escape tyranny.
You might be living in a country where you don’t really see that happening to you right now. I can’t imagine what country that is but let’s say there is one.
There are many people all over the world where the tyranny is just creeping up. It’s just boiling up and going to drown them one day. There are hundreds of millions of entrepreneurs building tools to help people keep their freedom.
Bitcoin is step one of that cryptocurrency. It is step one of that. So now we’ve got decentralized currency- but soon we’ll be having decentralized exchanges. In fact, Jack Dorsey (the CEO of Twitter) he’s announced that maybe he’s going to turn twitter into a decentralized exchange, so people can trade peer-to-peer.
If you go peer-to-peer- then there are no big third parties. There’s no big “Coinbase” and “Krakens” suddenly.
Nothing against those companies by the way- I don’t have a bad word to say about them. They’re providing services. But when the men with guns, the armies and the police come in and say “Okay, confiscate everyone’s Bitcoin”- they’re going to confiscate everyone’s Bitcoin.
It’s a weak point.
I always teach people to go on Kraken, go on Coinbase, use those facilities to buy your Bitcoin. Then, get those coins off. Have them in your possession. Eliminate that third party risk.
That’s very important, and we are just going to have decentralized exchanges, where it is network effects, right?
It’s Metcalfe’s law.
If you’re the only person with a fax machine- a fax machine is useless.
So right now, maybe, you know someone you can buy crypto off. Maybe you do, maybe you don’t, right?
By 2027, there is going to be three billion bitcoin users.
Almost every second person on the planet, you’re going to know someone you can buy and sell bitcoin off, right?
That is just a few years away and so this decentralization just expands and just engulfs everything so there’s nothing that they can do to shut down Bitcoin.
Here is one of the interesting ones. Everything I have said so far, this is true for both Bitcoin and Cryptocurrency and all the other altcoins, Ethereum everything else.
I just in my mind, there’s just no serious threat to the cryptocurrency world. It will take over the world, okay?
First of all, I’d say the only thing that I can see that will knock bitcoin off its perch as the dominant currency layer is if something better comes along. Now, some people might say something better already has come along. “It’s called Cardano, it’s called Ethereum, it’s called Polkadot, It’s called Tron, it’s called Binance coin- whatever, right?
Some people would say it’s already come along, right? So now we’re going to just discuss this. This is the only legitimate threat to Bitcoin. Something to consider, I think. Bitcoin is going to be very strong- but it’s something to consider.
Now let’s have a look at the landscape, here. There are thousands of cryptocurrencies out there right now.
Bitcoin was the first. Bitcoin is still the biggest.
There is a lot out there, right? And they’re all trying to be the best.
They’re all trying to gain market share, number one. This is extremely healthy. It would make the system less robust if the whole universe, the entire financial world had to operate on one single chain.
It would make the world risky. It would make it dangerous. It means we would not have redundant systems.
So, this is a good thing. It is good for the world. It is good for everything, to have lots and lots of cryptocurrencies out there, all trying to be the best.
Competition breeds excellence and all of these things trying to be the best, trying to gain market share, trying to get their coin to go up in price is a good thing.
So, now we have to understand that as investors we have decided, hopefully it’s pretty clear to you that you want to be involved in cryptocurrency in some way.
The question is Bitcoin, Ethereum and others.
Here’s what I can tell you.
I’m going to give you the lay of the land, right? And we will go deeper into this, perhaps later. For right now, Bitcoin wants to be very simple layer one money. It wants to be very simple, all right? Then we can build all the exciting fun things, like decentralized finance on layer two.
For most other coins- they want to be everything on the main chain.
Meaning they want to be layers one and layers two on the main chain and there are pros and cons to this. That kind of concept is far riskier and a lot less secure, right?
We can’t ever say with perfection that Bitcoin has no vulnerabilities in the code, right?
It’s been around for 11 years- no one’s managed to exploit it for one penny yet, 11 years later.
There have been millions of pairs of eyeballs on it. We can be damn confident there’s no vulnerability in the code that somebody could find one day, but do we know for certain?
Can we say with absolute specificity and certainty that that’s going to be true and will be true forever? No one can say that about anything, ever. It’s all right. So, you can’t make that claim.
So given that there are these small, tiny fractions of risks in something, we have to compare that fraction of risk versus the other fraction of risk over here in the world of Ethereum and the other coins.
The “altcoins”, I’ll just call them from now on. In those two worlds, these alt coins do more things. They have a greater feature set; they’re feature rich on that first layer. It’s like use of the Ethereum token and you can do more stuff with it- however without any shadow of a doubt you must acknowledge that there is more risk there.
So now you get this, you got this thing there in the world of Bitcoin which is safer and more secure and then it will do more.
We can do more fun stuff on layer two. We can build decentralized applications to go on top of it, that use Bitcoin, that is a safer system.
Then if one of them breaks, no worries. It can be fixed. But the layer one money is still safe and pristine and secure.
Okay, you jump over here to Ethereum and all the rest of the alt coins. Basically, they’ve got a different model trying to compete with Bitcoin, they must sacrifice to some degree security.
But they say “Hey, we bring more features to the network, arguably than Bitcoin. But Bitcoin will be able to do those features as well eventually, on layer 2. But these are the things that we have to kind of wait out.
So, in my opinion, the only threat to Bitcoin is something might come along better than it.
From what I see in the world right now- there is nothing that beats Bitcoin.
So, as I said- I’ve got to be fair and balanced here. Some people say there is something better than Bitcoin already.
“It’s called Ethereum. It’s called Cardano. It’s called whatever your flavor of chain is- that’s some of the altcoins- and so this is a very interesting debate.
And again, it applies to you, once you’re inside the crypto world. Now you’ve got some choices to make.
Hopefully, I’ve kind of helped you understand some of the threats to the cryptocurrency world. They are kind of moot- they’re not very significant threats in my opinion.
Cryptocurrency will take over, but once we get in the cryptocurrency world now, we’ve got to see which will work.
I will say this- there’s not going to be, it’s not going to be like Bitcoin goes to zero and all the coin goes zero and Ethereum goes up or bitcoin goes to infinity and Ethereum goes to zero.
That’s not going to happen. Forget about that, that’s not going to happen. There’s not going to be just one thing that wins it all.
There’s going to be a lot of things. There will be a very long tail. There will be tens of thousands, millions of projects and all of them added up won’t equal like a Bitcoin or Ethereum or whatever.
Whatever the winner ends up being- there’ll be a very long tail.
Even at the top, even at the head there will still be several chains doing several things with different use cases and that’s a good thing and it makes the entire community more robust.