investment merit of bitcoin

Patrick Finn asked 4 months ago

Dear Sirs;
Am I correct to think of Bitcoin in terms of currencies? If I bought a bitcoin last week, I would have spent roughly $20,000 USD. Let’s say that I would then just hold the coin in a secure wallet and monitor the price. Then after some time, I would hope to sell when the exchange rate was greater than $20,000. USD, let’s say, $30,000. and make a profit of $10,000 USD.
A short time ago, about 1 year, I could have bought that bitcoin for $800. USD. Is it true that if instead of buying last week, I sold or exchanged my 1 bitcoin for about $20,000. USD. Would Bitcoin deposit the $20,000 in an old fashioned regular bank, say like Bank of America? Would I be able to come to a Bitcoin dealer or place of business and pick up USD cash? Would Bitcoin write me a check?
Once into Bitcoin, is there a way out without any problems, like for instance, “We don’t have $20,000 USD to exchange for 1 bitcoin, but you can spend $20,000 worth of USD at these retailers.”
Once I get into Bitcoins, is it true that I will be able to immediately exchange them for USD or indeed for any other country’s’ currency traded daily by the billions in all the world’s exchanges?
I see the price of a Bitcoin going up dramatically and feel that I have been lazy keeping up with innovations and thus left behind. So I scold myself about being so unaware of how to invest when I am an experienced if not a totally successful investor.
It seems that creative and math savvy investors think of ways that outwardly have a verifiably equal footing for anyone to participate. It is a happy coincidence that the investment rewards the creators for their brilliance while providing opportunity for everyone. The creators of Bitcoin et al make sure their ideas work well, the codings are verifiable, the algorithms are peer reviewed and correct. Everything adds up.
The intentions of the creators of such ideas are stellar. They want the world to prosper and I for one believe that. Yet rewards appear to go to a few movers and shakers who create the currency or other idea, to other brilliant people who pay close attention to the creative makers, computer coders and algorithm creators.
Yet everyone in the world is outwardly able to benefit. The poor whose governments have not set up their institutions so as to allow a degree of opportunity for their citizens to actually experience success and financial security is a big problem that the creators of Bitcoin have addressed. Yet who cannot see that buying a Bitcoin when the price was low was the opportunity and the intent to help anyone not already in Bitcoin at a low price is not a genuine opportunity even though the intent was?
I wish I actually had the prosperity intended by the creators of Bitcoin and many other Internet start ups of the last 25 years to present to the world, so there is a degree of sour grapes in my observations and questions. Yet still I have a hard time holding back my feelings that all the promise and progress of Bitcoin et al is really more of more for those who have the most and not much for everyone else.

1 Answers
Steven Hay answered 4 months ago

Hi Patrick,
 
Well, Bitcoin is money, certainly. Sometimes it’s classified as a commodity… but it was designed to be – and objectively *it is* a technologically-superior form of money.
 
“Would Bitcoin deposit the $20,000 in an old fashioned regular bank, say like Bank of America? Would I be able to come to a Bitcoin dealer or place of business and pick up USD cash? Would Bitcoin write me a check?”
 
OK, so there is no Bitcoin company or individual who pays you. When you trade BTC, you do so with individuals – either directly or through a 3rd party service, like an exchange. When you own BTC, your ability to sell it for whichever currency and through whichever method depends on a matching demand from someone using that same currency and method. It’s really easy to trade BTC for EUR or USD through a variety of payment methods, but trading Namibian Dollars for Bitcoin will likely prove to be a challenge.
 
As for Bitcoin’s potential to create a better world, well… Bitcoin is a solution to the downsides of fiat currency but not to poverty or inequity. However, better currency is likely to lead to a better economic system. The major problems with fiat currency result in a lot of real world problems. For example:

  1. That fiat is debt-based means that all debt can never be repaid without extinguishing the money supply. As interest is payable on every fiat unit created, endless growth is required to maintain financial stability – although long term, it is mathematically impossible to do so. This leads to all sorts of social problems, such as rampant consumerism, endless resource exploitation, and so on.
  2. Fiat is centrally managed by politically-aligned entities. This gives them tremendous power over the economy – and by extension, everything and everyone else. According to Austrian Economics, the central bank’s ability to control the interest rate leads to boom & bust economic cycles and all the waste these entail.
  3. There is no limit to the issuance of fiat. This creates inflation, which forces people to either spend rather save or to chase yield in ever more risky investments. Massive misallocation of resources, in other words.

These are only some of the problems which Bitcoin addresses. That doesn’t mean Bitcoin is perfect or won’t lead to other problems in future, if it becomes the dominant form of money.

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