As we continue our cryptocurrency education series. We will be answering an important and pertinent question, what is an investment in Bitcoin? Or what is a Bitcoin investment? A Bitcoin investment is simply the art of buying holding (hodling as it is called in the crypto space) of Bitcoin in the hope of price appreciation. With its very high volatility, it is important to understand its fundamentals so that holding (hodling) for the long term becomes easy.
What does an investment in Bitcoin actually mean?
You should invest in Bitcoin for the following reasons
- It is an investment in the money protocol of the internet
- It is an investment in sound money
- It is an investment into the new economy
- Bitcoin is the internet’s money protocol: let me state it clearly. Bitcoin is an internet protocol. It is the MONEY PROTOCOL of the INTERNET. Let’s break this into simple terms. First and foremost we define what an internet protocol is. An internet protocol is a set of rules that govern the format of data sent over the internet or any other computer network. So, there are different protocols that govern the various activities that occur across the internet. They are as follows
- The electronic mail protocol. This governs the sending and receiving of emails.
- File Transfer Protocol (FTP). Governs the transfer of files namely pictures, texts, music etc across the internet
- HTTP: the world wide web protocol. Governs how website data are moved from server to server and onward to the requesting IP address
- Usenet (news)
The email you use every day is an internet protocol as are others stated above. The only type of protocol missing in the types of protocol listed above is a MONEY PROTOCOL. A protocol to move value across the internet. Well, someone might ask “ don’t we already send and receive money through our various banks and financial layers on the internet already?” well, the answer is a capital NO. I’ll explain. Yes, you receive and send “money” across the internet through various financial institutions but what you are actually sending across the internet is DATA NOT VALUE. Because up until the advent of Bitcoin, it was impossible to send value across the internet. Why? Because of the problem of double spend. All internet protocols until the coming of Bitcoin are data protocols. Think about it. I take a picture of myself (I generated a data). I can send this same picture to a million people across the world and still retain ownership of the picture. There was no protocol I could use to send this piece of data (the picture) to just one person and for it to cease to be my own. That is why, when you transfer the data representing money, a third party, your bank or some other financial institution must sit in between the transaction. This is so as to verify if the value about to be transferred do actually exist and to balance the books after the transfer is made.
With the advent of Bitcoin, that has changed. The Bitcoin protocol, the technology on which it operates- the decentralized blockchain technology is the value layer of the internet. It is a value/money protocol and this is a very big deal! We are all witness to how one of the internet protocol- the electronic mail protocol rendered the postal service obsolete. We all saw how companies that controlled data on the internet have grown (facebook, twitter, Instagram, google etc) the same is already happening to the money protocol of the Internet-Bitcoin. It has moved from a value of a mere $0.001 in 2010 to $3,400 in Feb 2019 and it is just beginning. I see a $500,000 Bitcoin in no distant future. It is my projection, as well of that of many others that like the email protocol and various communication app on the internet sent the postal service out of business (they still exist but they do very little volume now) the same will happen to banks and other financial institutions. They will be disintermediated and rendered obsolete. Bitcoin is not a company. It is not owned by any single individual, group of individuals or government. It is decentralized. Its governance and security are spread across nodes around the world. It is hard/sound money. It’s a great store of value. We have not begun to scratch the surface of the gains that will be made by investing in this value layer of the internet.
- Bitcoin is sound money: the concept of a difference between money and currency may sound strange to a lot of people in our day. The average person does not know that there is a world of difference between currency and money. We live in the age of fiat currencies. In fact, there is presently no nation on earth today that runs on sound money. ALL COUNTRIES RUN THEIR ECONOMIES ON FIAT CURRENCIES. The danger of fiat currency is that it can be manipulated and printed at will. This debases such currencies and presents the risk of hyperinflation. (Zimbabwe and Venezuela are recent examples). Governments love fiat currencies, it helps fuel their penchant for excesses (the desire to fund wars etc). The danger of these excesses is the debasement and impoverishment of the masses of the people. Please refer to my article on the major difference between currency and money here.
The opposite of fiat currency is money- hard/sound money. These are a store of value backed money. The world operated on gold-backed money up until 1971 when President Nixon, in order to free the dollar from the constraints and discipline a gold backed money provide took the United States Dollar off the gold standard. You see, back then, the united states was at war with communism in Vietnam and money was needed to fund the war. A gold-backed dollar constrained him from printing off more currency to fund his government’s excess in form of the war in Vietnam. So, he freed the dollar from gold and so the dollar became a free-floating fiat currency backed by nothing
Hard money (e.g gold and Bitcoin) is limited in supply and more cannot be produced at will. It normally has a limited annual flow that dilutes existing stock, making it appreciate in value over time. Hard money is deflationary as against fiat currency that is inflationary (loses its purchasing power over time). Hard money is what Bitcoin is
- It has a limited supply. Only 21 million will ever be produced.
- It has the highest stock to flow ratio of all store of value asset
- It is completely decentralized. It has no single point of failure and it is not controlled by any person, group of persons, government etc.
- It is censorship resistant: Bitcoin beats all store of value assets in this regard. It cannot be censored. No government can confiscate Bitcoin and they can’t stop anyone from using it either. As good as gold is as a store of value asset, it has a history of being censored. In 1933, during the great depression, President Roosevelt signed executive order 6102 into law. Making it legal for the US government to forcefully confiscate the gold holdings of private citizens.
- Lastly and most importantly. Bitcoin is a store of value over time: Bitcoin, hands down is the best performing asset of the last decade. Moving from a mere $0.001 for 1 Bitcoin in 2010 to 1 Bitcoin for $3,200 as of Feb 2019. A 32,868,300% return on investment. It has minted more millionaires in the past decade and this trend is just beginning. There is still so much room for bitcoin/cryptocurrency to grow.it is providing the opportunity to bank the unbanked in developing economies with censorship-resistant new money. It is giving them the opportunity to invest their mostly debauched currencies and capture very huge gains over time.
- Investing in Bitcoin is investing in the new economy: take it from me. A shift is already occurring. A shift from the old economic order into the new one. You may not understand why this is crucial but, I will explain. You see, the current world economic order is unsustainable- it is premised on debt. Over the past 10 years, that debt has been ratcheted up a ton. The world is awash in debt. The Federal Reserve Bank (United States central bank) had a balance sheet with a debt figure of $800billion dollars as of 2009. That was all the money it owed since its inception in 1913. Today, it holds a debt of $4.3 trillion. the United States government owes $21 trillion in debt. The debt of unfunded liabilities of the entitlement programs i.e MEDICARE and MEDICAID is $120 trillion. corporate and government debt worldwide is $220 trillion. The derivative markets. A market where assets are hypothecated and rehypothecated. A market in which an underlying asset with value is rehypothecated and sold to 300-500 people (i.e 300-500 people laying claim to the same asset) is a $1,200 trillion market. The music of this current order can’t continue playing for long. The signs of the crack in our financial order that showed up in 2008/2009 are still here with us. The United States’ economy cant withstand a current 2% rate hike (the Fed backed out of its rate normalizing police in January, what a shame!) the world economy is built on debt, on free money. From Zero Interest Rate Policy (ZIRP) and in some cases Negative Interest Rate Policy (NIRP) and Quantitative Easing (Q.E)- another name for currency printing. All these because the US dollar (and by default the world’s economy) was moved off the gold standard (sound money).
An investment into Bitcoin is an investment into a new decentralized and deflationary economy. An economy in which fiscal discipline is paramount and the masses of the people are not robbed of their wealth by global banksters and global elites via inflation. An investment into Bitcoin today is an investment into your future as this new decentralized and deflationary economy ultimately cannibalizes the old. Early investors in this new iteration of money (Bitcoin and other cryptocurrencies) will become the new rich.
If you would like to know how to begin to get involved and invest in decentralized blockchain startups, bitcoin and other cryptocurrencies click here
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