Forget What You Know

Changing the way someone thinks isn’t as easy as it sounds. I’m not talking about our opinions, or our beliefs, or our personal philosophies. No, what I’m talking about is the effortless kind of thought that comes to us instantly. This kind of thought requires no effort. This is the kind of thought that seems so parallel with instinct that you start to wonder if it can even be taught. Just as a physics professor would see a wall pushing back the same amount of force as the person leaning on it. Or how a piano player naturally transposes every song they hear to a C scale. But how are these strange phenomena planted in our brain? I think it takes a lot of time of being surrounded by that specific kind of thinking.

I’ve started to notice, after working for a few years with an hourly salary, that I can look at monetary value and hours of my life interchangeably. If I see something worth $60, my first thought is how that’s six hours of my life I’m about to spend. I doubt that many other people think in the same way. But the point is that I don’t spend extra time trying to calculate the numbers, I just instinctively think in those terms. I think money in general can be a very powerful tool in shaping the way we think.

I find the concept of currencies to be astounding and yet terrifying at the same time. Currency in general has practically dictated the lives of countless societies for thousands of years. And it really can be quite questionable at times. If you tried explaining the value of a dollar to someone who had never seen paper money before, you would sounds insane.

Take a $100 bill. This is a lot of money for most people. But the bill’s actual worth is no more than a piece of toilet paper. You can’t write on it, you can’t wrap things with it. Therefore its functional value seems to be limited to toilet paper. And yet, it’s still worth $100! But even then, it’s only worth what someone else will give you for it. It starts to get even fuzzier when you look at it on a worldwide scale. The fact that the whole world runs on little pieces of toilet paper which supposedly represent a certain amount of shiny metal no one’s ever seen before is pretty unsettling, at least to me. When it comes down to it, currencies are ultimately based on trust. But if things were ever to get so bad that the dollar wasn’t accepted anymore, well than all of my saved up pieces paper would be completely worthless, with the exception of wiping my ass of course.

Many people consider ‘digital currencies’ to be even more frightening. The fact that the number on your bank statement decides how much you’re worth can be pretty scary. But I think that’s because we still can’t break the habit of wanting a tangible currency that still holds some sort of value. Once we can train ourselves to look at money as unreal and imaginary, we will see a big change in the way our economies can operate. If any new currency stands a chance to change the way we think, it’s Bitcoin.

But what is Bitcoin? Many of us have heard of it, but most of us really haven’t a clue as to what it is and how it works. At its core, Bitcoins are a digital currency that allow users to make transactions online. Unlike the tangible currencies of every country of the world, bitcoins are completely virtual. They exist only online and are not controlled by a central authority like the Federal Reserve. This means you can’t get them anywhere in the real world. All transactions take place in an online marketplace, where users are untraceable. A metaphor that I found helped me understand the concept was, “If hard currency is a record, then a bitcoin is like an MP3” (What Are Bitcoins? – ABC News)

Bitcoin seemed to come out of nowhere a few years ago and has evolved from a simple internet startup to a real economic option that is respected by some, but talked about by many. Bitcoin was created in 2009 by an unknown person or group of people using the alias Satoshi Nakamoto. “Bitcoin is the first implementation of a concept called “cryptocurrency”, which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority.” (bitcoin.org)

As with anything that has the possibility to be potential life-changing, Bitcoin has its’ fair share of both loyal and trusting followers, and harsh critics. The ultimate goal here in my opinion is to get people to change the way the think about money. And Bitcoin brings some great new ideas that couldn’t be possible with a real world currency. But we do have to be careful about putting our faith into an online currency because there are some substantial risks that come along with it. In any case, the more we know, the better.

Bitcoin is a currency like no other and it solves many of the problems our current currencies suffer from. One of the biggest problems with our current dollars and other currencies used around the world is inflation. Over time all currencies lose purchasing power mainly because governments keep printing more money. This process is basically a small tax on our accumulated wealth. With Bitcoin we don’t have this problem because the system is designed to make Bitcoins to be finite. Only about 21 million Bitcoins will ever be released. The release of new Bitcoins is slowing down and it will stop completely within a few decades. Another problem regular currencies have to worry about is the risk of a collapse. They depend on governments which, as seen in the past, fail occasionally. Such events either cause hyperinflation or a complete collapse of a currency, which can wipe out savings of a lifetime in day. Bitcoin has adjusted for that because it is not regulated by any one government. It’s a virtual global currency.

One of the most controversial features of Bitcoin is that the transactions are untraceable meaning no organization can trace the source of your funds. This creates both benefits and risks for the company. “This is a clear benefit in many areas of the world because governments that are supposed to guard against fraud are actually defrauding people by taking their savings partially or fully.” (Bitcoin: Benefits and Risks – Ivan Raszl)

While many Bitcoins users like the idea of this true privacy, the untraceable coins act as a double edged sword. This feature of Bitcoin of also attracts crime. People can buy and sell drugs and other illegal items with significantly less risk of being tracked by authorities. Bitcoins in this regard are similar to regular cash which is used by criminals. This fact may bring unwanted attention from governments that will outlaw Bitcoin. Jeff Reeves, a columnist from Market Watch and clear opponent of Bitcoin, was quoted in regard to Bitcoin’s anonymity saying: “This is great when you’re trying to keep a deal under the radar from the police or the tax man … but if your account is hacked and your bitcoins are stolen, you have little recourse to catch the thieves.” (marketwatch.com) At the expense of seeming somewhat biased, Reeves does still make a good point.

Reeves goes on to mention a few other aspects where Bitcoin fails to meet his standards. One of his talking points involved Bitcoin priding itself over not having a central authority. “Proponents like to talk about how bitcoin has no central bank or authority behind it as a net positive, but that fact also means a lack of true value. A bitcoin, then, is simply worth whatever a random person is willing to pay.” I don’t really agree with what Reeves is claiming here. He’s trying to make a correlation between a ‘Federal Reserve’ type of authority, and a currency’s value. But just as I said earlier, a currency is only as valuable as the trust its users put into it, regardless of any central authority or regulation.

While still on the Jeff Reeves article, I feel like there was one strong point he made involving risks from an investing standpoint. “While bitcoin surged from about $13 in January 2013 to a peak of roughly $1,150 at the end of November 2013, prices were as low as $178 a few weeks ago. Such a wild range in roughly two years should show how speculative bitcoin is.” I may not agree with Reeves on the whole, buy I must admit that those numbers are quite shocking and they certainly don’t help Bitcoin’s cause. A Yahoo News article from April of 2013 address the company’s first true ‘crash’ during the week leading up to April 13^th. “Many saw it coming, but that didn’t stop the Bitcoin bubble from bursting: after rising to dizzying heights, the digital currency suffered its first true crash this week. The price of the virtual “geek” currency had soared through the stratosphere in recent weeks, trading for a high of $266 on Wednesday — only to come hurtling back to Earth in just three days. By Friday, a single Bitcoin was worth just $54, according to the Mt. Gox platform, which manages 80 percent of the Bitcoin transactions and had to briefly shut down trading Thursday.” (The Bubble Bursts on E-currency Bitcoin – Anne Renaut)

Unfortunately, fluctuation is actually the least of the company’s worries. Because bitcoins are untraceable, they’re also unrecoverable. If your credit card is stolen or somebody hacks into your bank account there is a good chance you will not lose any money as banks will fix your balance. Even cash can be potentially recovered if the police acts fast. But with Bitcoin if you lose it you lost it for good. There is no mechanism to recover stolen or lost Bitcoins. If somebody hacks into your wallet where you store your Bitcoins you lost them for good. But that doesn’t mean there aren’t solutions. The best way to store your Bitcoins is on disk that is disconnected from the internet.

After the long list of pros and cons it’s hard to say whether or not bitcoins are smart investment. I think it should vary from person to person. I think Ivan Raszl put it best by saying, “Inevitably the question arises whether one should get involved in this new phenomena. I don’t recommend putting large sums of money into it as the bubble will inevitably burst… but nobody knows when exactly. But I do think it’s a good idea to get familiar with the system and perhaps buy just a small amount for the experience or to support the growth of the Bitcoin eco-system.” And who knows, maybe with everyone buying little bits and pieces to support the company’s growth, we’ll start to see great progress.

I decided to do just what Raszl was saying and familiarize myself with the system. I wanted to see just how easy or difficult it was to buy and manage bitcoins online. So I went onto one of many Bitcoin trading websites, (I chose coinbase.com), and converted about half of one week’s paycheck into Bitcoins. Technically I don’t have a whole coin just yet because the conversion rate is around $240 USD per coin. I haven’t decided to make any purchases with my fractions of a coin as I’m more interested in just observing the growth or decline of my investment.

While I would greatly like to see Bitcoin succeed and progress as a company and a currency, the thing that matters most is that we change the way we see money. To think about what money will be in the future you have to shake off the chains of the past and your preconceived notions of what money is. Money is not just, or should I say, is more than a medium of exchange. It is also a medium of information. It tells us what the marketplace wants and the price it is willing to pay for a particular good or service. “The (often fatal) flaw in fiat currencies is that they manipulate and distort the information contained within the currency, thereby damaging the information flows involved in the exchange of goods and services. For instance, the practice of quantitative easing engaged in by major central banks has encouraged money to go into certain markets (such as stocks), distorting the information reflected in the price.” (Forbes Magazine) If nothing else, Bitcoin offers a provocative way to think of the future of money, which is exactly what we need.

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