Crypto and the Twitter dilemma (or, Bitcoin got it right the first time so relax)

The more I learn about Bitcoin and crypto, the more I think the entire sector suffers from what I call the Twitter dilemma. Bear with me.

When Twitter launched it was such a fantastic, simple, well defined product, and it appealed perfectly to its target market with a clear product/market fit, that it was like winnng the lottery

In the following years, various CEOs and board members believed they saw even greater potential for Twitter, and thought something like “we’re really smart figuring this out so quickly, I’m sure we can make the next big feature pop”.

But the next big feature never popped. It never took off. No one cared. Short, quick bites of info broadcast to the world was what it was on day one, and it’s what defines Twitter today.

Yes, we now have night mode on an iOS app. Yay. And the tweet size doubled after a decade. Woop-de-doo.

But the Twitter founders basically got the product right on their first attempt. They accidentally nailed it. And quick success makes people think they’re smart.

But Twitter had a few dramas. Third party developers who thought they would be able to build all sorts of wonderful products on top of Twitter’s pipes had the rug pulled out from underneath them. They were pissed at Twitter, but powerless to do anything about it.

Some of them had a brilliant idea. They launched , basically Twitter but more characters and the promise that anyone could build on top of it and the founders would never move the goal posts on third party devs. 

It worked as advertised, and 31 people signed up. Ok, a few more. I was one of them tbh. But after a couple of years it was clear that there was no mass migration out of Twitter. All the cool kids who had big audiences on Twitter were never going to leave their audiences behind. Even the ones who carried the loudest about how horrible Twitter was and told all their fans to sign up over at adn (as it became affectionately known) never themselves bothered to drop Twitter and migrate. died a slow death. It went into a holding pattern. It may still exist, idk. But it became a footnote in history. Meanwhile Twitter IPOd, sorted out its identity, and eventually added more characters per tweet.

So Bitcoin. #Bitcoin is birthed in 08/09 and solves all the problems we need a digital currency to solve. It’s peer to peer. Double spending solved. It’s fast enough. It’s decentralised. It works as advertised. The founder is anonymous.

You couldn’t write a better script.

And within a few years, a lot of people who stumble across Bitcoin look at it and think “if it was this easy to make this currency, I could have done it. I’ll make my own but slightly improve feature X”. Clearly my coin is harder/better/faster/stronger... thus I will succeed. 

But here's the thing: You may think your new coin can be as fast as Visa. Good for you. We already have visa. No one in the real world uses their credit card and thinks “I wish I could do this exact same thing but with crypto currency.”

They do, however, send money overseas to their friends and family and think "this sucks, there must be a better way."

You may think your new token is great because it’s got a wonderful community with developers who blah blah blah... you’re living in a bubble. There are a THOUSAND communities thinking their coin is the next big thing because of reason x. They’re all competing over scraps. Most just want a quick $, and the ones that actually want to change the world for the better don't seem to understand that they'd be more effective just working on Bitcoin. 

Bitcoin is scarce. Bitcoin is not controlled by a founder. The Bitcoin network is able to send value across borders with no authority's permission. Bitcoin is able to be held in a manner that makes it un-confiscatable. Bitcoin is secure. Bitcoin works fine. Your new coin is

No one is asking for it.

All these other coins’ founders are living under the delusion that Bitcoin was just the first iteration of something. I’ve heard the IOHK guy talk about 3rd generation cryptos like that’s a thing. Bitcoin is not the first gen currency. There were plenty of predecessors.

Some of those included shells, salt, gold, silver, stones, coins, fiat.

Your new and improved "better than Bitcoin" crypto is like akin to declaring that stainless steel is more precious than gold because it’s stronger.

It demonstrates you have no idea why Gold is valuable.

Now I understand that if you’ve sunk some money into your new coin you’re going to develop cognitive dissonance, and you’re actually not going to be able to see that you should have just stuck with Bitcoin.

But for those who haven’t, you have 2 years before the next halving, and I strongly suggest you stop funding new yachts for shitcoin scammers, and start saving for a future where Bitcoin is the defacto international monetary standard, not a visa replacement or a decentralised "world computer".

Bitcoin got it right the first time. Maybe you saw an altcoin pump and got jealous. Now you’re holding those coins wondering what exactly made them better than Bitcoin. Bite the bullet. Switch back to Bitcoin. Sleep easy. And in 30 years you’ll be glad you did.

I never see traders taking this important fact about Bitcoin into account when predicting price

I never see traders taking this important fact about bitcoin into account when making price predictions. 

Every day currently there are 1800 new Bitcoins created. At a price of $8,000 USD that’s $14.4M USD worth of Bitcoin created each day. That’s a lot.

As I hope you know, these go to miners, of which there are more and more each week. As you may also know, a % of these Bitcoins are sold by miners each day in order to pay for costs like electricity, rent, wages, etc. And some are sold just so miners can lock in a profit. They’re often a pragmatic bunch, and they're mining to make a profit, not predict the future price. 

But whether they sell or hold, that’s $14.4 million worth of coin that need to find a new home each day, either through miners hodling, or miners selling on the various exchanges. 

The growing number of miners and the unavoidable increase in difficulty in mining Bitcoin is having the effect that a higher percentage of the bitcoin they mine needs to be sold to cover their costs (source: I mine). 

Now think about this for a second. 

When the price of Bitcoin falls, the effect is that MORE bitcoin has to be sent to market by the miners to cover their expenses, thus putting EVEN MORE downward pressure on prices.

The inverse is also true. When the price of Bitcoin is higher, less of the mining rewards needs to be sent to the exchanges to cover expenses, decreasing the supply of new coin and putting more upward pressure on price. 

I have failed to find any data to demonstrate how much of the daily new 1800 coins are held vs sold, but for the sake of this illustration, and given the cost of an Antminer S9 (a popular Bitcoin miner) and electricity, let’s say we need $14.4M of new money to enter the ecosystem each day to cover the purchase of the new coins. 

Now, a lot of traders, charters, analysts, and Twitter shitposters, seem to approach bitcoin from a share trading background. But I’ve asked many of them what their understanding of mining is, how much of the block rewards they think is being sold each day, and literally no trader has been able to answer this. I don’t think they factor this important aspect of bitcoin in at all. 

So BEFORE bitcoin even starts the day, it has to absorb $14 million of new coin just to maintain a price of $8,000 per coin. That’s a lot of new money needed in the ecosystem each day. (Yes I realise we don’t know how much the miners are selling vs hodling but considering the costs of mining equipment I’ll use this arbitrarily to make the point.)

And my belief is that on many days there simply isn’t that much new money coming in. Some days there’s more. Some days there’s less. 

People telling you based on trend lines, RSI, moving averages... they expect blah blah blah never mention how much new coins are being generated daily. When prices fall they frequently blame weak hands, bears, and other market factors, when the cold hard reality is: electricity is expensive, and miners want a return on their investments and will be dumping a portion of their rewards each day whether Bitcoin is God’s gift to mankind or not. 

I believe that most hodlers of bitcoin have NOT dumped their stash, cashed out, and caused the price fall we’ve seen the last few months.

Sure, of course there’s been a little of that. 

But I believe the price fall can simply be explained by a lack of NEW money coming in as the hype dies down, but miners still needing to sell their coins each day regardless. 

All that said... anyone who knows how Bitcoin works also knows the block subsidy (block reward is combination of subsidy and transaction fees) halves again roughly in June 2020. Then, only 900 new coins will be born each day. And four years after that there’ll only be 450 new coins daily. And it will keep halving every 4 years. 

When I hit retirement age there will only be 7 new coins per day. 


There’s 1800 now. 

By the time my youngest child retires, there will only be 0.01 new coins per day. 

I can’t predict, nor do I trust anyone who thinks they can, what the price of Bitcoin will be in the next 6 years. But my decision to continue investing in Bitcoin is done with eyes wide open to the fact that it’s going to be challenging for the next 6 years to find new money each day to join the network. 

But every four years it gets twice as easy to find new homes for the new Bitcoin, and I’m of the strong opinion that there will be A LOT less sellers in a decade, as there simply won’t be much new coin available. It seems logical to me that a massively decreased supply will have an unavoidable affect of causing upward pressure on price.

Because of the conclusion I’ve come to regarding Bitcoin's increasing scarcity, I have decided to invest in Bitcoin with a 30 year time horizon. If the price falls in the mean time, I’m grateful I’m able to buy more at a cheaper price. 

I realise when we look back on the historical price of bitcoin it feels like it’s expensive now... It used to be $20, now it’s $8,000. The thoughts come in “maybe this is the top?! Maybe I should get out.”

Spend a few minutes and look at the price in the months leading up to the last halvening. 

Every day the price remains above $8k I’m blown away that there’s been enough new money to absorb all the new Bitcoin that has been minted, and if demand for new coin can even remain stable, in June 2020 there’s going to be a lot less new coin to go around, and that will certainly be an interesting time. 

Because I'm not 85 years old and needing to cash out right now, I am approaching Bitcoin with a long time horizon, and making it my goal to collect as much BTC as possible before June 2020.

You might argue that 1800 coins or $14M per day is nothing compared to the daily trade volume on the exchanges, thus this phenomenon is having no effect on price. 

But remember that coin price is a function of demand at a specific point in time. Most of the traders that buy and sell Bitcoin regularly are playing musical chairs with the coin. But when the chips are down, no-one NEEDS to buy Bitcoin. But the miners NEED to sell it. So there will be a constant flow of new coins onto the market, but there may or may not be a constant flow of new money to soak up the new coins created. 

I'm not predicting Bitcoin's price will fall below $8k or skyrocket above it in the short to medium term. The purpose of pointing out the above phenomena is simply to remind purchasers of how much new money needs to flow into the Bitcoin ecosystem each day for an $8,000 per coin price to be sustained. If you plan on investing for the short to medium term, I suggest you weigh up whether or not you think that is likely. Otherwise adjust your expectations about how long you plan on holding your Bitcoin, and enjoy collecting even more when the price drops. 

The implication of cryptocurrencies on small business and how they may change how business is done

Anyone who has paid for Facebook or Google ads or has monetised their websites via the same companies has probably noticed something interesting in the invoices and statements from said companies. Many times the actual company you’re receiving money from or sending money to is not the parent company located in the USA. I’ve paid money to Google in Singapore and Facebook in Ireland, and plenty other odd locations for large tech companies. 

As a small business owner I groan at the hypocrisy of these massive tech giants with pockets deeper than the Grand Canyon who are able to effortlessly structure their corporations such that they avoid paying large amounts of tax to the governments that ostensibly govern their actions. 

But ultimately, who’s to say what country the entity exists in that is responsible for making pixels on a screen appear one way or another? When every citizen in every country on earth can interact with the same digital services as each other, the entire notion of a nation state governing such actions begins to become quite absurd.

Politicians who can barely tell the difference between a VPN and a VPC are supposed to be responsible for legislating a sector developed and run by people with IQs a full 30% higher than the average member of parliament. Most developed nations are a full decade behind in terms of politicians understanding what their digitally savvy citizens are actually doing.

So what’s stopping me, a small business owner, from offshoring my company and enjoying 2% tax rates instead of 28%?

The hassle, quite frankly. 

The time I would have to invest in figuring out how to set up overseas bank accounts so I can still get money, jump through that country’s hurdles, and then try and figure out how to get that money back to myself so I can spend it... just isn’t worth the amount I would save. Or at least I’m not willing to role the dice and find out. 

But consider cryptocurrency for a moment.  

This week Coinbase rolled out a super simple product that allows anyone with an iota of tech understanding to embed a snippet of code on their website that will allow them to accept Bitcoin, Litecoin, Ethereum and Bitcoin Cash, easily and conveniently.   

Coinbase aren‘t custodians of the crypto, you handle your own private keys and manage the crypto yourself. So there’s no need for ID to be provided to Coinbase. 

This means I can set up a website, theoretically based anywhere in the world, sell whatever service or product I choose for crypto, and begin being paid immediately.

In a past life I ran a lawn care business. Loved it. And lots of people paid in cash. 

I chose to declare my income and pay my tax. But I know for a fact most of my peers did not. They pocketed the bulk of their income at a tax rate of zero.  

Now the digital world could be about to experience the same phenomenon.  

When governments cannot monitor or see who is paying who for what, they’re going to have a hard time convincing small business owners to voluntarily notify them how much Monero, Zencash, or Bitcoin, they received last financial year. 

I predict one of two things happening.  

1.  Governments start competing with each other to incentivise digital services to set up shop in their particular jurisdiction and pay them some tax.

2. Governments put their hands up, decide it’s too hard to tax business income, and decide to tax internet traffic, turning ISPs essentially into contracted tax collectors.  

Governments around the world have already demonstrated they like the idea of outsourcing tax collection to business in the form of sales taxes. So making ISPs pay a “per byte” fee is only a small leap.

However, I also see a response to such measures to be a flight to satellite internet. If Elon Musk can give me a $100/month unlimited connection, I don’t need to worry about that piece of fibre running to my home any more.  

The ultimate hope of the libertarian minded Bitcoin user, is that as we grow with a global currency that is actually scarce and an economy that is more peer to peer each day, governments resume their roll as public servants who do what we ask them to do, rather than paternal figures who think they know what’s best for us. Their ability to fundraise for their war machines will dry up, the entire notion of the nation state will grow a little more absurd each year, and each individual’s business success will perhaps no longer be solely determined by whether or not they won the birth lottery, being born into the right country.

But one thing is clear to me. I cannot see the point in jumping through the myriad of hurdles to set up business and banking services for a simple website idea, if I can begin accepting crypto and be up and running in 15 minutes.  

Understanding why Bitcoin is valuable

Why is Bitcoin worth anything?

A wonderful question. The right question. The first question anyone should ask when they first hear of this digital currency that was invented out of thin air by Satoshi Nakamoto, a pseudonymous character with biblical levels of foresight. 

And the answer to the question is, as it turns out, another question. 

Why is the money in your wallet worth anything?

Why is gold worth anything?

I can't eat gold. If I find myself in the middle of a societal meltdown with nuclear weapons being fired, anarchy in the streets, and governments around the world completely collapse, the only thing that will have any value will be bomb shelters, weapons, food and clean water. I can't eat gold or defend myself with it, so it's "intrinsic" value could disappear pretty quickly. 

But moving on from total anarchy, humans don't worry too much about weapons, bomb shelters, and having more than a week's worth of food in the fridge. We want to hold something of value that will allow us to acquire a variety of things with as much convenience as possible. What we call money has existed in one form or another for longer than recorded history. I think of money more as a language rather than a human construct. It seems money evolves in every human society, and was not "invented" as such. Money is simply a tool to communicate value. For more on the history of money please read Nick Szabo's article here. 

Money has evolved from shells, pearls and gold to abstracts of those in the form of written promises of the delivery of a precious metal like gold. Only in very recent history have we witnessed this being even further abstracted to become simply the written items themselves, backed by nothing more than the hope that others within one's own country continue to value this currency. 

Your Australian Dollar, as stable as it is, is almost guaranteed to depreciate to the tune of 2% or more every single year... even more if you factor in the fact that the biggest cost of living is usually acquiring a home, and property is left out of the consumer price index (CPI) changes. 

So your precious Australian (or US or whatever) dollars are depreciating second by second as long as you leave them in your pocket. This leaves the average citizen with little to no incentive to save or accumulate their money. 

Why does our money depreciate each year?

This is because of the current system of banking we live under, where banks can issue loans without having the same amount of cash on hand. Here's a great explanation for Australians. 

Not all countries are as fortunate as Australia to have their money depreciate at only 2% per year. Venezuela has become a meme with the levels of inflation they're currently experiencing. And throughout history, when the money supply has been overwhelmed by enthusiastic governments and central bankers, there have been many occasions of hyperinflation, rendering everyone's savings worthless. 

Enter Bitcoin.

Why Bitcoin still has value 9 years after its birth.

Bitcoin was not the first digital currency invented. Others that went before were able to create a way of sending and receiving digital tokens between individuals, in the hope of creating currencies for the internet. It turns out governments don't particularly like others inventing their own money, and these efforts were quickly shut down. 

The challenge was to invent a system where there was no central authority or computer recording who owned what. A distributed system was the dream of those who hoped for such a currency. But having a distributed system meant there was the risk of people "double spending" their coins. (Double spending, as the term implies, is when I spend the same coin more than once.)  A way was needed to keep a record of all transactions in a distributed manner that ALSO prevented double spending. 

Satoshi Nakamoto's great leap forward was solving this problem by cryptographically linking (chain) groups (blocks) of transactions to previous blocks of transactions, making it more and more difficult to change the record the further it went. 

Satoshi dropped off the planet a few years into the project. Plenty of people have their theories as to who the person is/was, but regardless, Satoshi is not relevant to the continuation of Bitcoin.

Early on in Bitcoin's life, Bitcoin certainly wasn't seen as much more than a fantastic experiment by a handful of people in the cryptography community who understood what had just happened. But day by day, more and more people learned how clever this "blockchain" idea was, and seeing some people were happy to accept Bitcoin in exchange for Pizza, perhaps they too would like to own a little of this currency. 

The way new Bitcoin comes into existence is through a process we call mining. Miners attempt to find an answer to a complicated mathematical equation, and the first one to succeed wins the privilege of processing the next "block" of transactions, and is rewarded with some new Bitcoin as well as all the fees paid by the transactions they process. 

At launch, 50 new Bitcoin were created approximately every 10 minutes. But every 4 years that number halves. As I write this, only 12.5 new Bitcoin come into existence every 10 minutes. By the time I hit retirement age, it will be 0.048 Bitcoins per 10 minutes. 

Eventually there will be no new Bitcoins, and miners will only receive the transaction fees each time they create a new block. 

The final number of Bitcoins in existence will be a hair under 21 million. Bitcoin can be divided into very small fractions, up to 8 decimal places, making very tiny transactions possible (Yes, you can own a little bit of a Bitcoin.)

It doesn't matter how many more miners start mining Bitcoin. The mining difficulty changes to match the amount of computing power thrown at Bitcoin, keeping the new blocks around 10 minutes apart. Thus everyone knows up front exactly how many Bitcoin exist today, how many will exist tomorrow, and how many will exist in 200 years. (Note, the number is actually less due to accidental loss and deliberate destruction of some Bitcoins.)

No-one is in control of Bitcoin. There is no organisation or company who has a say on how the code should be updated or what will happen with Bitcoin. There's no-one a government can shut down or kill to end the Bitcoin project. The people who own "" or "" or "@bitcoin" on Twitter or "/r/bitcoin" on Reddit do not speak for Bitcoin. They are just part of the vast Bitcoin network that has no central governing authority. 

And we know Bitcoin has a capped quantity. Compared to everyday currencies like the dollar, no central authority can issue more Bitcoin into circulation, effectively devaluing everyone's money. And compared to commodities like gold, it matters not if the price goes up or down. When the gold price goes up, more gold is mined, creating a downward pressure on the price. This cannot happen with Bitcoin. 

Anyone with an internet connection can send Bitcoin to anyone else with a Bitcoin wallet address. It's not faster than Visa or Mastercard for buying your groceries. But for sending money to your relatives in the Philippines, it's WAY faster, and cheaper, than using international bank transfers, PayPal or any other current system. And I can send it to whomever I choose. I don't need permission from government regulated companies like banks. 

So lets reassess the key points about Bitcoin. 

  1. No-one is in control of it.  
  2. It has a fixed supply.
  3. I can send it to whomever I choose. 

These are the key reasons humans have chosen to assign value to Bitcoin. And these are the reasons, in my opinion, Bitcoin has such a promising future. 

No currency in existence has these features. The closest thing humans have ever come to having something like Bitcoin was perhaps gold. Gold is valuable regardless of what your particular government decides to say or do. But Gold does not afford me the ability to transmit it easily or to divide it into very small amounts.

Ultimately, whether Bitcoin will continue to have any value will depend on how many people around the world would like to acquire Bitcoin themselves, either through the exchange of goods or services they offer, or through purchasing it directly, or mining it. And it doesn't take much looking around to see that the number of people who are quite comfortable accepting Bitcoin, or desire to acquire Bitcoin, is only growing. 

Even if the demand for this currency were to plateau, supply of new Bitcoin will be decreasing every four years until around 2140.

As I type this I can sell a Bitcoin for around $13,000 AUD or $10,000 USD in a matter of moments. People are lining up to swap ten thousand of their United States of America Dollars for 1 Bitcoin. So the question as to whether Bitcoin has any actual value is well and truly settled.

The only argument regarding Bitcoin now is whether or not Bitcoin will continue to have value in the future.

What I have found among those who claim Bitcoin's value will eventually fall to zero, is a lack of knowledge as to the money supply features of Bitcoin. Perhaps this is the fault of us, the Bitcoin community, in explaining Bitcoin. When we boast about how easy it is to pay for things, one need only look at the convenience of Apple Pay and credit cards to conclude Bitcoin is an inferior technology solving a problem that doesn't exist. 

But if you zoom out and look at what makes a particular form of money useful, you can see that it is quite a challenge to find an asset that is quickly liquidated, has a fixed supply, can't be shut down or seized by any authority, and can be transferred with ease. Real Estate is perhaps the best asset if you want something with a fixed supply, but it is painful to liquidate. Gold is great inasmuch as no government can declare it worthless. But try sending your gold overseas. Cash (dollars) is great for quickly swapping for other things, but holding it long term is a guaranteed terrible investment, and you're at the mercy of local governments who want to know what you're doing with their money. 

What about all the other cryptocurrencies? Aren't they harder/better/faster/stronger?

There are many other cryptocurrencies in existence today. Some of them have made certain individuals very wealthy, and this hope of instant riches is enticing more and more people into the cryptocurrency space each day. Barely a day goes by without a new digital token or currency being issued. 

While many of these coins are currently experiencing price movements that you may be able to profit from, I haven't found a single coin that offers the features that make Bitcoin wonderful. 

Let me repeat why I value Bitcoin:

  1. No-one is in control of it.  
  2. It has a fixed supply.
  3. I can send it to whomever I choose.

I have not found another cryptocurrency that satisfies the above conditions. In fact, one of the most popular alt coins doesn't even meet number 3. The founders of the coin are on the record as having frozen certain individual's holdings of coins, and have agreed with the US government to freeze any coins requested. Another of the most popular coins has made no formal decision regarding how many of its coins will exist in the future. People have no idea how common or scarce the coin they're buying will eventually be. 

Every cryptocurrency other than Bitcoin currently has a founder or a founding organisation that has an oversized influence on any decision regarding the coin in question.

If you want to look further than Bitcoin and purchase alternative cryptocurrencies, I implore you to find out if it meets the above criteria.

The purpose of this essay wasn't to shit on alt coins. I am not threatened by anyone's love for their particular favourite coin, I enjoy learning about how particular coins work, I own a few myself, and I wish you well with your alt coin investment. However, I just wanted to point out that the characteristics that make Bitcoin valuable to me, simply don't exist in any other digital currencies. I see them the same way as you might see the latest social network that claims to be "facebook but a little better". Yeah that's great, but it's missing the one thing that makes Facebook valuable... your friends are there. 

In the same way, the 3 things that makes Bitcoin valuable need to exist in a cryptocurrency for me to hold it in the same regard as Bitcoin. 

Does this mean Bitcoin will go up in value this year?

I make no predictions as to the price of Bitcoin in the next 10 years. There are too many variables and potential black swan events that make predicting the exchange rate of Bitcoin a fool's game. 

However, consider these words from Nassim Taleb

... Bitcoin will go through hick-ups (hiccups). It may fail; but then it will be easily reinvented as we now know how it works. In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated expresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency, for now. But it is the first organic currency.
But its mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future.