Think Bitcoin™ Issue #9
Bitcoin in our daily lives; Exploring volatility; Review of how BTC works
Hey friends, welcome back to Think Bitcoin™. As always, if you’re brand new or relatively new to Bitcoin and looking for some education on the basics, feel free to scroll down to the “For the new and new-ish” section and work your way up.
In this issue:
Headlines/Insights: Making Bitcoin part of everyday life
Content Round-up: 4 articles, 1 podcast
For the new and new-ish: A concise review of how Bitcoin works, summing up what we’ve covered in the last eight weeks
As always, if you find this newsletter interesting or useful, please share it with others who might find it interesting or useful!
Headlines and Insights
The Everyday-ification of Bitcoin: Unlocking the Next Wave of Adoption
This past week Coinbase announced that it will soon allow direct deposits for its U.S. customers, meaning many people will be able to deposit their paychecks directly into Coinbase. Users can opt to have all or a portion of their direct deposits transferred immediately into cryptocurrency for no fees.
While this initially may seem like a minor story, we should think about it in the context of other recent developments, notably Twitter’s Tip Jar rollout two weeks ago, Substack allowing certain accounts to receive subscription payments in Bitcoin, and a growing number of credit cards offering Bitcoin rewards. These developments are important parts of a trend toward what I want to clunkily refer to as the “everyday-ification” of Bitcoin.
What do I mean by this? Until recently, the interface between Bitcoin and our everyday lives was comparatively difficult. It’s improving, certainly, but it’s not as harmonious as it could be and will be (eventually). The easiest way to buy bitcoin is, of course, on a centralized exchange of some sort, which requires setting up an account much like one would do in order to buy other financial products like stocks or bonds. Unlike most stock-trading platforms, centralized crypto exchanges charge fees per transactions, some of which are somewhat hefty. If you want to buy or sell your bitcoin, you of course have to log into your account to do so. Self-custodying your bitcoin requires a wallet of some kind, whether a software or hardware type, and this process is still a little intimidating for most folks, especially those who are new to the space. In other words, many people interact with Bitcoin the way they interact with stocks, and we know the majority of folks in the U.S. don’t interact with stocks at all.
This framework of interface is a bit limiting, however. It does not yet encourage or galvanize adoption of bitcoin on a broad enough scale. In order for rapid adoption and expansive penetration to occur, the interface between Bitcoin and our everyday lives needs to be subtler, more seamless, and almost axiomatic, just like our interface with fiat currency. To do this, we need to sand down some of the edges that create friction in order to make bitcoin not just easier to acquire, store, and use, but also more ingrained into our daily routines and our default ways of transacting in the world. Bitcoin needs to be woven deeper and deeper into the fabric of our financial behavior.
Sure, it’s thrilling when large financial institutions or corporations buy bitcoin. But for normal, everyday folks, this doesn’t significantly move the needle toward adoption. If interfacing with Bitcoin still seems intimidating or falls too far outside of the general populace’s established financial routines, broad adoption will remain challenging. This is why I think moves like Coinbase allowing for direct deposits into bitcoin, credit cards offering bitcoin rewards, and creators being able to get paid in bitcoin (the latter made easy with the Lightning network) are so important.
Think about it. What are the most frequent, most routinized financial transactions we make or enter into on a regular basis? Well, perhaps most importantly, we get paid by our employers. In many ways, this is the fundamental recurring financial event of our daily lives. We receive money from our employers in exchange for work. We don’t often think about the soundness of this money when compared to something like bitcoin. Moreover, if we want to turn our paychecks, or a portion thereof, into bitcoin we must transfer money to a separate account on some kind of crypto exchange and manually make a purchase. There are several extra steps and new relationships involved in this process, all of which create friction. Being able to have your paycheck, or a portion thereof, directly deposited to Coinbase and converted into bitcoin (if you so desire), for no fees, removes some of this friction. Bitcoin then becomes a part of our everyday lives because it becomes an integral part of getting paid and not merely something in which one can invest one’s paycheck. The difference is not immense, but its import is.
After getting paid by our employers, our most common interaction with money is our daily consumption of goods and services. The proliferation of credit cards offering bitcoin rewards, as opposed to cash or travel rewards, is a step toward making bitcoin a part of this type of transacting, but it’s obviously not the same as actually transacting in bitcoin. It’s worth noting that we haven’t yet achieved the sort of environment in which transacting directly with bitcoin is as practical or as wise as it one day could and should be. A big part of this is that bitcoin is not yet legally treated as money, which means each time you spend bitcoin it’s viewed as a taxable event. The other consideration is that bitcoin’s price is still appreciating as it eats the market cap of other traditional financial assets, which makes spending it less attractive than saving it in the near-term. However, as I’ve written before, this latter point is situational. For those living with hyperinflationary currencies or under authoritarian regimes, using bitcoin is exceedingly practical, and even essential.
The larger point I’m trying to make here is that as we make the interface between Bitcoin and our daily lives easier, adoption will grow. The more we build an infrastructure that allows for it to be woven into our everyday financial behavior, the more adoption will grow. And this is certainly not to suggest that I think Coinbase, or any other crypto company for that matter, is perfect. Far from it. This isn’t about any one company. It’s about transforming our relationship with Bitcoin.
Do you remember the first time you used the internet? For many of us, this meant going to the room in our house or apartment with the desktop computer, or perhaps going to the library. It required using the dial-up modem, waiting for the connection, and hoping it was successful. Speeds were slow, and there wasn’t a whole lot you could do yet. The whole process was not in any way a natural part of our daily lives. You had to have a reason to get on the computer and connect to the internet, and you could only do so in one location. Now, the internet is inherent to our daily lives and, further, inherent to how commerce itself is organized and operated. We can carry around a supercomputer in our pockets and access the internet anywhere and (almost) everywhere. The internet has evolved from something you had to make a point to use to something you use without thinking about it. Now imagine bitcoin, the soundest money ever invented and the world’s greatest savings technology, on the same trajectory.
SEC hires crypto-skeptic general counsel
Dan Berkovitz, currently a commissioner at the CFTC, is joining the SEC later this month as its general counsel. Berkovitz has expressed disdain for DeFi in the past and, like his new boss, SEC Chair Gary Gensler, seems intent on trying to corral the space into the existing regulatory framework. Whether this move is a harbinger of things to come remains to be seen. It’s certainly worth following, given Gensler’s view of most crypto tokens and what that view might mean for crypto exchanges.
Content Round-Up
1. “Valuing Bitcoin and Diagnosing Its Unprecedented Volatility,” an article by Nik Bhatia. This article addresses something I get questions about all the time: volatility. In this piece, Bhatia runs through the history of attempts to value bitcoin, the metrics and proposed metrics that have been used, and how its value might be measured in the future. He ultimately concludes that Bitcoin’s price is volatile because people don’t know how to value it. People don’t know how to value it because Bitcoin’s value stems from a multitude of different factors, some of which are extraordinarily difficult to measure accurately.
In his words: “an honest study of bitcoin valuation reveals that its growth stems from a multitude of firm roots. Some of the roots are easier to value with on-chain and hash rate analysis, and others are harder to quantify, like the network effects taking place right now as bitcoin fully captures the world’s attention.”
The article ends with Bhatia looking ahead to the world that’s coming:
“The science of bitcoin valuation is young and diverse; on-chain analysis will become its own industry as the logos of cryptocurrency exchanges replace those of banks and insurance giants across uniforms of televised athletes around the world. Given potential competition with over 200 government currencies and 4 billion internet users yet to use it, bitcoin is poised for much more price discovery over the next several years. I imagine that government currencies will cease to exist in countries without globalized economies, as people conduct online commerce in either BTC or USD-linked stablecoins instead of unstable and non-digital government currencies. I also believe that an entire generation, already born, is unlikely to ever have a relationship with a traditional bank and will manage cryptocurrency wallets before ever using a credit card or paper cash. In these scenarios, bitcoin will emerge as a world reserve currency, knocking on the door of the dollar. How would you value that?”
2. “The Best Way to Understand Bitcoin Is to Own It,” an episode of the Coin Stories podcast with guest, Flori Marquez, who is a co-founder of BlockFi. In this episode, Natalie Brunell speaks with Marquez about how she got into Bitcoin, how she built BlockFi, and how to close the gender gap in the crypto industry.
3. “Why Does Academia Have a Bias Against Bitcoin?” If you follow mainstream financial media coverage of Bitcoin, you’ve probably seen academic economists like Nouriel Roubini and Steve Hanke, of New York University and Johns Hopkins University, respectively, polemicizing against Bitcoin’s value (or, as they would argue, its lack thereof), with some frequency. In this article, Hannah Wolfman-Jones explores why academia seems to have a bone to pick with Bitcoin. She delves into the dichotomy between those who believe the economy can and should be centrally planned by a group of unelected academics and those who believe this kind of central planning creates bad incentives and inevitably exacerbates inequality.
Wolfman-Jones also notes the symbiotic relationship between academia and the fiat system, i.e. the revolving door between the academy and global financial organizations like the IMF, the World Bank, and the Fed, as well as the funding relationships that exist between the government and universities. The result is that academics overwhelmingly are the central planners and thus support the perpetuation and proliferation of centrally planned economies.
4. “Against Cryptocurrency: The Ethical Argument For Bitcoin Maximalism,” an article by Pete Rizzo in Forbes. In this piece, Rizzo argues that the crypto world can be divided into three ideologies: Bitcoin Maximalists (“those who believe that Bitcoin alone satisfies the definition of a neutral, non-state monetary system”), Crypto Agnostics (those who don’t believe Bitcoin is necessarily superior), and Bitcoin Deniers (those who reject crypto entirely).
Rizzo seeks to determine what separates the Bitcoin Maximalists from the Crypto Agnostics. He asserts that the difference lies in the financial rights promised to users.
“With Bitcoin,” Rizzo writes, users have the right to not just money and the right to a known money supply, but the right to dissent from the majority of users by rejecting unwanted features.” By contrast, on Ethereum, “changes are almost always enacted by majority rule, and indeed for many staking protocols and decentralized finance applications, changes by majority voting are an explicit feature of the system.”
5. “Missouri Mayor to Give $1,000 in Bitcoin to Every Household,” an article by Alex McShane. Jayson Stewart, Mayor of Cool Valley, Missouri, is giving every resident of his town $1000 of bitcoin. What’s most fascinating about this is why he’s doing it and how he sees Bitcoin shaping the future.
Mayer Stewart told Bitcoin Magazine: “Bitcoin is fundamentally American. It is the most American thing. Our government is built on freedom and personal liberty, and rights and self-sovereignty, and all of the things that Bitcoin really is. I think it's a natural marriage that Bitcoin in America will thrive.”
For the new and new-ish
This is a fantastic video from the amazing folks over at Hello Bitcoin that sums up, in about 13 minutes, almost everything we’ve discussed in this “For the new and new-ish” section over the past 8 weeks. It uses a lot of helpful visual aides, too. If you’ve been reading this newsletter from its inception, this is a great review of what we’ve covered thus far with respect to how Bitcoin works as a technology. If you’re brand new, this is a great overview of the whole process!
Bonus/Miscellaneous
I mentioned the Twitter Tip Jar feature earlier. This feature allows users to support creators with bitcoin tips, in addition to likes and retweets. The icon, which you’ve probably seen but not recognized on many accounts in the Bitcoin community, looks like this:
Expect to see a lot more of these popping up.
Lastly, the great @tip_nz put together another one of her classic videos, this one summing up the recent documentary about Bitcoin’s energy use, This Machine Greens (which I highly recommend).
As always, thanks for reading! If you enjoyed it or found it useful, share this newsletter widely and freely!
“Civilization is in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.” -H.G. Wells
See you next week,
Logan
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DISCLAIMER: I am not investment advisor and this is not investment advice. This is not, nor is it intended to be, a recommendation to buy or sell any security or digital asset. This newsletter exists for educational and informational purposes. Do your own research before making any investment decisions.
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