What’s the Buzz About Bitcoin?
You may have heard the news lately: Bitcoin is at an all-time high. Like REALLY all-time high. Previously, it peaked just under $20,000 USD toward the end of 2017. As I type this, it’s broken $40,000 USD. That means a single Bitcoin is worth more than most cars. So why is this, what is Bitcoin, and why do I still not talk about it much on my website?
What is Bitcoin?
Bitcoin is a decentralized digital currency. It’s not super complicated, but it’s complicated enough that I’m not going to dive into the details of how it works. The short version is that there is no country or bank responsible for issuing it. The value is entirely dependent on supply and demand, and it is entirely maintained by the users. Consider the following: You have a wallet in which you place cash. You can then freely trade that cash with other people for any number of reasons: you can donate it to a cause, you can buy a soda with it, or you can hold onto it. Now replace “cash” with “Bitcoin.” Congratulations, that’s exactly how Bitcoin works. A Bitcoin wallet can be an app, an online service, or a hardware USB-like device. Each has their advantages and disadvantages, and I’m not going to go into that here.
Why is Bitcoin Suddenly so Popular?
I’m not going to pretend to know. I’m sure there is answer, but I don’t know it. I tried to do some research for this blog, but frankly nobody seems to have a good answer. One common answer is “it’s becoming more widely accepted” but nobody seems to explain why that is. Another answer is that “it’s fraud resistant.” I guess that makes sense, but so is a good old-fashioned bank transfer. Short version: I don’t know. And quite frankly, I’ve heard a lot of personal finances educators claim that nobody REALLY understands the market. Some people can make some educated guesses based on current events, previous trends, or whatever, but in the end it’s all just speculation. The market does what the market does, and I guess the market is favoring Bitcoin right now.
Is Bitcoin Really Private?
Short answer: no. Bitcoin is, by design, more private than almost any other form of electronic payment. However, as with anything electronic, there are other considerations for true “privacy.” For example, the most common way to get started with Bitcoin is to go sign up for an exchange, like Coinbase or Ledger. But these are US-based companies, which means that they are required to verify your real identity in order to prevent fraud. So while the person you’re trading with may not know you, your real-world identity is very much linked to your wallet. That’s not very private. Even if you self-host a wallet, it’s important to note that using the same address creates a web of activity and relationships. Think of it like a regular bank account: if I’m constantly getting gas at the same gas station once per week, you can safely assume that I live or work near that gas station. If I’m constantly sending Bitcoin to the same address – an address that belongs to the EFF, for example – you can safely assume that I’m interested in digital rights advocacy. That by itself won’t tell you much, but it is a piece of a puzzle, and combined with other pieces the picture begins to emerge. There are other steps you can take. I know some cryptocurrencies – I believe Bitcoin is one of them – allow you to create multiple wallet addresses with the intention of being able to break up this profile, but it requires a lot of work and it’s not included by default in most services like Coinbase.
So Why Don’t You Talk About Bitcoin on Your Site?
A lot of people who are interested in Bitcoin attempt to use it in a “day trader” type format: that is, they buy low and sell high without ever using Bitcoin to actually buy any goods or services. Does this work? Sure, for some people. But not for most people. Warren Buffet famously made his fortune by investing and playing the stock market, yet even he is not convinced that “active management” – aka trading your stocks manually the way that day traders do – is a better route. I don’t believe Bitcoin is a good investment tool. After its all-time high in 2017, it crashed all the way back down to the mid thousands (around $6,000 USD) for quite some time. Granted, that was still significantly higher than the below $1000 it was at before that climb, but look at the trend: $700, $20,000, $6,000, $40,000. Those are highly volatile numbers, and it’s hard to know when to buy in and cash out. Most average people – my target audience – don’t have the time or expertise to watch the market so closely and try to guess when to pull out. And as I said above, I don’t think anyone does. Who knows exactly when the bubble will burst, and if it will be a temporary setback or a long-term one? Financial advisers are historically awful at outperforming the market, so the odds of an average person who isn’t closely watching and studying the market 40 hours per week being able to do better is slim to none. It’s just gambling, and I would hate to tell my readers “you should use some Bitcoin to improve your privacy” when A) it won’t really improve their privacy (especially since most readers will use an existing exchange with “Know Your Customer” laws) and B) they might lose hundreds or even thousands of dollars as the market fluctuates. It just feels irresponsible of me to do that to people who are uneducated on the matter and expecting me to give them good advice. Also not to brush past this one, but while Bitcoin certainly is becoming more acceptable and mainstream, there are still many places where it is not accepted. I dream of the day I can pay for my groceries with Bitcoin. I doubt I would, but man it’d be cool.
So is Bitcoin Bad?
Absolutely not! For starters, I love the idea of a secure, decentralized, and transparent currency with almost no barriers to entry. An associate of mine once shared that they live in an economically disadvantaged part of the world where Bitcoin has been a godsend. A major problem with today’s increasingly digital world is that many in poverty don’t have access to bank accounts, which leaves them out of many online transactions and other financial opportunities. But most people manage to access a smartphone. According to Statista, over 3.5 billion people worldwide have a smartphone in 2020. That’s over half the global population. And that’s total population, so if we removed minors from that number the percentage of adults who own a smartphone is probably pretty high. And yet, according to Gallup, only 62% of adults have a bank account. So the rise in available wallets means a rise in access to digital funds for anyone with access to a smartphone, which is most people. A digital wallet is arguably more secure than cash under a mattress, so the rise of cryptocurrency allows for a narrowing of economic opportunities between rich and poor, especially when we’re talking about something globally-recognized like Bitcoin. No exchange rates or international taxes to change from one currency to another. Having said that, I suspect that most of my readers and target audience do not have this problem. Many or most of them probably have access to a bank account or cash, and many probably live in areas where Bitcoin is not universally accepted. Finding places to spend that Bitcoin may be hard. I like the idea of Bitcoin as a currency, not as a traded stock.
So what if you’re reading this and you’re like “okay, I recognize the risks and practicalities of Bitcoin but I’m still really interested and I want to learn more and get involved? Can you write about it?” No. I still want to keep my website aimed at beginners and introductory stuff, and I just don’t think that Bitcoin falls into that category. Furthermore, because I have chosen not to invest my time into studying cryptocurrency, I don’t think I’m really qualified to give any advice on it aside from “be careful.” But I am fortunate enough to have fallen in with a crowd who seem really knowledgeable and passionate about the subject. So if all the current talk about the latest astronomical rise of Bitcoin has you curious and interested, I highly encourage you to head over to Decentralize Today and see what they have to say about Bitcoin and other cryptocurrencies. They are far more knowledgeable than I am and I think they can probably help you get started with understanding how it works, what the advantages and disadvantages are, and maybe offer some educated speculation on what the future might hold.
Is it Bitcoin worth all the buzz? It depends. It certainly has its potential and its uses, but it’s not right for everyone, and while I personally don’t think it’s my place to get involved I didn’t want to just ignore this important and widely-discussed piece of the privacy puzzle. So I hope that this blog post has given my readers some information to make their own informed decisions with. Good luck, and move forward with caution! As always, there’s lots of bad people out there looking to make a quick buck off a buzzword. Make sure you’re armed with knowledge before you rush into anything.