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