In 2009, probably within the first couple months of its existence, I downloaded the Bitcoin client and began mining bitcoins. Back then it was really easy-- you could get hundreds of Bitcoins per week for free, but they weren't worth anything. Not wanting to waste my time, I deleted the Bitcoin client, and any bitcoins I had mined went along with it.
Last March I thought about Bitcoins again and decided to check up on them. As I read about the progress that had taken place in the preceding years and learned more about the technical aspects of Bitcoin, I was blown away. This is going to change the world, I thought.
So I bought a few when they were around $30 a coin, a few more at $80, and then again at $110. I'm not a Bitcoin millionaire or anything awesome like that, but percentage-wise, it's the best return I've ever gotten on anything. In case you don't fanatically check the price like I do, it's at around $825 per coin as I write this.
I'm going to write the rest of this blog post to explain why I think it's important that you buy some Bitcoins, but take it all with a grain of salt. I do know a fair amount about Bitcoin, but I don't know much about investing or, more importantly, your financial situation.
It's also important to understand that buying Bitcoin is speculating. That doesn't mean that there aren't fundamental reasons to invest in Bitcoin, just that there is a very significant risk that whatever you invest will go all the way to zero. That chance may even be 50/50, but if you lose 100% if you flip tails and make 10,000% if you hit heads, it's still a good bet. As far as I can tell, that about sums up Bitcoin's prospects in the long term. However, if losing your investment would be catastrophic for you, the upside is not worth it. Do not invest more than you could lose.
In case you don't know, Bitcoin is a digital decentralized currency. Lots of people, myself and many people smarter than me included, believe that Bitcoin in its current state is similar to the early days of the internet. That means that for most people, it's difficult to grasp the concepts. Don't get caught up on understanding things like mining, 51% attacks, double spends, or even public/private keys, unless you want to. To benefit from the rise of the Internet, you wouldn't have had to understand TCP/IP stacks or DNS.
If we were to design a financial system for the world we live in today, it would look nothing like what we have. In buying the island, I had to wait for nine people to wire or ACH money to the bank account I opened specifically for the island. This took several days, and one person's bank cancelled the wire without even notifying him, because they thought it seemed fishy. Then I set up an account with a currency exchanger, which was an exercise in jumping through hoops. I put in the seller's wiring information, which again took three or four emails back and forth because of differences between Canadian and US banks.
When we arrived at the island we met with the seller and attempted to wire the money to her. First we had to wire the money to the currency exchanger, which required a half hour phone call. Then we had to wait for the exchanger to see it, and for them to send a wire. The seller didn't actually get the money until after we were back in the United States, and the cost of exchanging all the money and dealing with the fees was more than the taxes we paid to Nova Scotia.
If we were all using Bitcoin, the entire transaction could have been completed in an hour for less than a dollar in fees. That's not new-for-the-sake-of-being-new, it's something that's new and actually better.
I believe that, in general, the world will always move towards better solutions. We're switching from books to Kindle because it's actually a better reading experience. We communicate over the internet because it's faster and cheaper than any other way. I believe that Bitcoin will win because it is faster, more secure, and far less expensive than our existing system. If you're technical and you delve into the details of how Bitcoin works, you'll find that it's a revolutionary work of genius.
There are problems with Bitcoin. It's confusing in many different ways. It's relatively difficult for any individual to secure themself. It doesn't have widespread adoption yet that allows it to be truly useful. The government hasn't quite decided how they're going to handle it. And yet, this is exactly where the Internet was fifteen years ago. And all of these problems are with our interaction with the technology, not the technology itself.
It's also these downsides that create opportunity. Yes, these factors could cripple Bitcoin and make it worthless, but they're also why you can invest now and make money as it evolves. If it was mature and stable and easy for your grandmother to use, there would be only limited room for growth.
People often feel like they've missed the boat in Bitcoin because they know people who bought it at $500, $200, $100, $50, or even $1. While there is obviously some missed opportunity for all of us, the actual number is irrelevant. If Bitcoin becomes even a minor commonly-used currency, the value of a Bitcoin will orders of magnitude larger than it is now. Buying even $100 of Bitcoin has probably never felt like enough to matter, but it clearly has been for many people.
The easiest and safest way to buy Bitcoin is through Coinbase. They're a US company that complies with all of our laws and are funded by smart people in Silicon Valley. If you sign up through an existing member's link (like mine, here) and buy at least $100 worth, you get $5 extra worth of Bitcoin, as does the person referring you.
If you aren't technically inclined, keep your coins at Coinbase and enable two factor authentication in your settings. This makes it essentially impossible to be hacked. Just buy them, enable two-factor authentication, and leave them alone for a few years. If you're really good with computers, set up an offline wallet using vanitygen.
Bitcoin is a fascinating experiment and a potentially world-changing technology. I'm excited about making money on Bitcoins, but I'm more excited about the places that it will take our society if it's adopted on a mass scale. I bought Bitcoins and haven't sold any because I think they represent one of the best opportunities of our generation. They may become worthless through some confluence of events, but if they go the other way, I'd hate to miss out on it.
Photo is an old street in Zurich.
As with any investment, you're responsible for your money. Do your research! My main goal with this post is to bring Bitcoin to the attention of people who have heard about it but haven't given it a serious look.
My awesome bitcoin address: 1tynanCWQ3tWpnmqbU8ajQCTVY6iy2rBq
Very informative. -- Just an idea. Where it says "In buying the island", maybe you should link to that post. I think a new comer might read that sentence and say "I wonder what he means when he says 'buying the island'?" :o)
Actually I guess that's what I would think if I hadn't read the island post. -- Cuz nobody BUYS an island. :o)
I'm still reminded of eGold -- and how its limited quantities and lack of oversight or chargeback capacity brought out scammers and ponzi schemes galore while almost no one used it for legit transactions or exchanges of value. Human beings hoard, human beings speculate, human beings scam each other. I don't doubt that the technology is wonderful -- but I'm not sure human nature will come around in a timely fashion and let us use this technology responsibly.
Hello, I'm still fickle about bitcoin as well but will probably do a hundo or so. Anyway I thought about that possibility you presented for a long time and here are my thoughts:
All true though theoretically bitcoin is a completely open and transparent system as opposed to a closed currency. The 'mining' people do with bitcoins isn't some abstract waste of computer power. What 'mining' is in non technical terms is everyone reassembling the ENTIRE history of every bitcoin transaction that has occured since the beginning. Thus with so many independent peers recalculating integrity we have a better chance to call out scams (though catching people behind an anonymous address is another issue). If someone is laundering trillions of dollars thru the system it will leave a trace in the blockchain (the thing which stores all this info).
Compare this to real currency at the moment where transaction history that doesn't happen thru banks is not tracked. People launder dirty money all the time thru all sorts of fronts and none would be the wiser. People game the system and even launder money thru traceable outlets. I think the potential for bitcoin to scam is less than or equal to that of real monetary instruments atm.
I agree with you that people will always find a way to scam and hack and greed as per human nature - undeniable. I guess what I'm trying to convey though is bitcoin is no worse than any other form of scamming available than any other currency type at the moment due to it's open and constantly recalculated nature. I read somewhere one would have to hack 51% of the entire bitcoin network to even have a remote chance of including a false deposit. Compare that to current monetary instruments where banks are hacked and credit cards are forged all the time. Target just lost a few hundred million of them CC's and possible Pin #'s recently :D.
The scourge of human nature is something that bleeds into everything, finance, politics, the way we treat each other, etc...
You've got a good point about how this is pretty secure and all, but I don't much like the idea of having to exchange. I mean, I can use physical cash in a lot of places, Paypal in most places, a credit/debit card in most places... so why would I want to translate my money into a thing that exists in a computer network and that is ripe for speculation? I don't want to pay $100 for a bitcoin and have it be worth $25 next week, particularly if merchants began to accept bitcoins in a big way. That'd be like trading stock for bread or something. I guess what this comes down to is that my perspective isn't large enough security-wise to get why this is a big deal, my travel experience isn't global enough to get why this is a big deal, and from an investment perspective this is a thing that doesn't churn out income -- I'm an income investor, and I don't see myself buying bitcoins for the same reason I don't collect gold bullion. A bitcoin is a bitcoin, and it's worth whatever someone will pay for it -- and while I'm sure it'll be worth $30,000 apiece in a few years, I'm okay to miss out on that.
In this part of my life, I'm happy to be pedestrian, plebeian and totally mainstream.
If Target had left my CC and pin for the h4x0rz, I'd probably just have canceled/changed/disputed the card and any fraudulent charges. Couldn't someone also get my bitcoin info if I have a momentary lapse? Who will moderate the bitcoins, and who will help me if I make a mistake?
Couldn't someone also get my bitcoin info if I have a momentary lapse? Who will moderate the bitcoins, and who will help me if I make a mistake?
Yeah that's the next turning point for bitcoin and I think companies like Coinbase are trying to legitimatize this. Right now bitcoin is a wild west and there are horror stories of hundred thousand+ dollar accounts being hacked and no recourse to show for it.
I signed up for Coinbase recently (Tynan may be getting a 5-ver soon if that link did work as there's no indication that it does) just to check it out. They're working on merchant tools that will allow you to just accept bitcoin payments on your webpage/invoice people by email or even charge people from your smartphone on the spot! They will handle all the nitty gritty with processing, securing the passwords, generating the addresses, rerouting the money etc... Basically they are trying to be a PayPal for bitcoin where you just buy and sell and they handle the rest.
I like to think I am a smart person but like you the more I looked into bitcoin the more I realized it is not mainstream yet. You need to put in a modium of effort to understanding how it works until Coinbase and other such companies mature to take care of it all for you. It's not exactly restaurant take out yet you can consume - it's more of a 'build your own dinner' education course outside the Coinbase world.
And the number one reason you should not buy bitcoins: "In case you don't fanatically check the price like I do..."
It is interesting. If Bitcoin is able to replace other currencies, even in a very small fraction of transactions, despite being such a big leap, isn't it also possible that a technically superior currency could replace Bitcoin?
That's something I've been considering as well. My thoughts are that while there are a bunch of other alt coins that are innovating on the Bitcoin concept, Bitcoin is the first mover and the one with the most traction; and since Bitcoin is a protocol whose code can be modified/upgraded, it could always stay ahead of the curb by incorporating the good ideas developed by the smaller alt coin communities.
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I still think you have a point - but it is too bad this was written during the peak of the run to date. Lets hope it was one of many to come....G/L.
3 months later and bicoin is down from Tynan's article's price of $825 to $572. Also, yesterday the IRS decided to treat them as assets, not currency which means any appreciation anyone has on a bitcoin is subject to the 28% capital gains rate tax. I warned of this uncertainty 3 months ago and I took some flak for it. I'm not gloating, just wish I'd stated my case more persuasively.
Today's price vs the article price is irrelevant. It's a high variance investment that, in 3-5 years will either be worth a ton or nothing. This sort of fluctuation, and the events that caused it, haven't changed that.
I might be the only person here who couldn't care less about the price of an investment -- I make my money from residuals. If bitcoins paid a dividend, interest or something, I might buy them. But they just sit there like gold and silver -- IMO equally over-priced holdings that just complicate my taxes and force me to constantly decide "buy or sell?" I suspect bitcoins will go up and down like some kind of carnival ride, but I just don't see them becoming mainstream enough to be useful.
Comments on Mt.Gox?
I think that Erik Vorhees said that Mt Gox was the most incompetent business in the history of the world. If someone did manage to steal 740,000 bitcoins, it would indeed be the biggest theft in the history of the world (the second biggest was an art heist worth only $110m).
I bought bitcoins yesterday because I was waiting for this to happen. Now that Gox is gone, the price of bitcoins is going to soar. Why? Bitcoins always go up four days after they hit #1 on Google Trends, it has been exactly three months since the last peak in the bubble cycle (which has always been the turning point), and bubbles historically start after bad news (the FinCEN regulations in March, or the Silk Road bust in October). The bad news removes uncertainty and creates publicity, which encourages people to buy.
Mt Gox was certainly more trustworthy than Tradehill and BitInstant, and Bitstamp and Coinbase are even more so. Eventually, the final exchanges will be institutional (like Wall Street). Each generation of exchanges is more trustworthy and less likely to fail than the last.
Finally, I should point out that this is exactly what should happen with bitcoins. If Mt Gox did business with dollars, the US government would have stepped in and kept them afloat by devaluing our money. Here, nobody can step in and say that our bitcoins are now worth (21,000,000 - 740,000) / 21,000,000 as much as they were yesterday in order to pay off Mt Gox. It is a tragedy that people lost money in this affair, but people who used bitcoinbuilder to get Gox bitcoins knew the risks and we are not going to be forced to bail them out.
I think that bitcoins are a big deal. Maybe not this year or next year, but within the next five to ten years, I believe that there's a good chance that they will revolutionize online financial transactions. So I bought some a few months back with the intention of holding them for many years, selling only once each one was worth thousands of dollars.
And yet... I was obsessed with the ticker price of a bitcoin. I had a plugin for Chrome that always showed the current price at the top of the window. On my phone I had a widget to see the price at all times. For weeks, I was never more than a few dozen minutes out of date with the price.
Eventually it occurred to me that I was never going to do anything with the knowledge of the current bitcoin price. If it actually did rise to the level at which I'd be willing to sell, I'd certainly hear about it through other people. So I cut myself off. No more tickers, no more checking the price. My little stash of bitcoins remains encrypted and backed up, and I'll check the price in a couple years.
The amount of access to information that we have is extraordinary. We're so used to it that it's hard to think of it in historical perspective, but we literally have easy access to millions of times more information than people had just fifty years ago. Acquiring this knowledge feels valuable, but often really isn't.
If I weren't so passionate about the ways that mobile devices are changing the world, I'd be spending my time in one of the following three areas: Crypto currencies like Bitcoin, the commercialization of drones, and the rise of 3D printing.
Oh, time is so our enemy. Even a long-lived life only amounts to 750,000 hours or so. And as per my recent keynote at the 2013 Mobile Outlook on a "Framework for Stupid Ideas," one of my guiding principles is to "focus on focus" to maximize the value of each of those hours. Since mobile is my deepest passion, I'm not willing to dedicate the time to dive into any of these other things.
Another of my framework points is to play in a "space that matters." And these three spaces really, really matter -- that much will be obvious to everyone in the span of a few years. So I'm hoping that some other entrepreneur will be as passionate about one of these three spaces as I am about mobile. I figured I'd present a few highlights from each of them to showcase why they're such a big deal.