FAQ
Frequently
Asked
Questions
We’re here to help.
Let’s handle the objections before anything else.
* This video provides an excellent rebuttal to the most prevalent myths:
“I don't understand Crypto/Bitcoin."
> This is to be expected. Crypto embodies everything you don’t know about money, colliding with everything you don’t understand about computers, lumped in with everything you fear about the internet. This book can remedy that.
“I can’t touch and handle Bitcoin, so I don’t trust it as an asset or money.”
Do you also not trust Kindle e-books and other non-tangibles? Netflix? WhatsApp messaging? Streamed music? How about e-tickets to fly or access events? Do you not trust them unless they’re on paper?
“Bitcoin isn’t backed by anything—there’s no intrinsic value to it”
> Ask the question, “What is Bitcoin replacing? What is the additional value that it delivers that is attracting trillions of dollars?” The first answer is: It is not replacing the US Dollar, but it is replacing the financial system or ‘rails’ that allows US Dollars and all other currencies to move between individuals and countries.
What is it worth to you (and every human or organization on earth) to instantly move unlimited amounts of money—be it face-to-face or to someone on the opposite side of the globe—directly from wallet to wallet without the delay and cost and scrutiny of intermediaries, between currencies, at nearly zero-cost? Indeed, in this global digital age, that is an extremely valuable characteristic that no other system can match. Just for starters, it saves retailers the 2,5% fees they pay to credit card companies.
> Bitcoin has been doing this task for 12-years with zero instance of a double-spend or counterfeit transaction. It achieves this unprecedented feat via (by 2022) >12,000 independent entrepreneurial administrators located in every jurisdiction of the globe, using tens of billions of their own dollars invested into 100-times the hardware infrastructure of Google that keeps the system running flawlessly. This book explains why this scale of decentralization and the independence of the system administrators (compared with the centralized control of currencies like the Dollar) is a collective asset that no State or central body could ever match or duplicate.
>> A great response to “Bitcoin has no intrinsic value” lies in a recent article1 entitled “You Don’t Understand Bitcoin Because You Think Money Is Real.” The article details, “U.S. dollars are an illusion. They consist mainly of numbers out in cyberspace. Sometimes they’re stored in paper or coins, but while the paper and coins are material, the dollars they represent are not. U.S. dollars are not backed by anything other than the faith of the fools who accept it as payment and of other fools who agree in turn to accept it as payment from them. Cryptocurrencies cannot be understood even a little bit by anyone who thinks money is real, solid, or “backed by” anything other than human trust in institutions whose stability is always uncertain.”
“At tens of thousands of dollars, Bitcoin is too expensive for me.”
> No, it’s not.
You’re thinking of the share market. To buy Warren Buffett’s Berkshire Hathaway (BRK. A), in January 2022 you needed $458 675 to buy a single share. That’s not how Crypto Currencies work. Bitcoin is fractionalized. When you purchase an entire Bitcoin, you’re actually buying the bundle of 100-million Satoshis. If you buy 1% of a Bitcoin, that’s 1-million Satoshis, 0.01 Bitcoins. Satoshis — 100 millionths of Bitcoins—are, for now, extremely affordable.
Bitcoin’s price is a function of Metcalf’s Law2—Bitcoin is valued by the network of adoption it serves and will serve. Metcalf’s Law lends Bitcoin (Amazon, Google, Facebook) valuation an exponential characteristic. Understanding this requires rather more this one paragraph. All will be revealed as you read on. In Chapter 12 I will explain this more fully.
"Who owns the Bitcoin? Is it an organization? Where do I complain if something goes wrong?”
> Do you also not trust Kindle e-books and other non-tangibles? Netflix? WhatsApp messaging? Streamed music? How about e-tickets to fly or access events? Do you not trust them unless they’re on paper?
"Especially, classically trained economists warn against it"
Sometimes the experts are the last people to see a revolution coming.
Circa 1993—you can bet that the Postmaster General was furiously warning against email. His job was on the line. The context of that statement is that, in 1993 the experts at handling mail were postal workers, but the paradigm of handling mail had shifted and dematerialised—the opinion of legacy experts would prove to be irrelevant.
This shift of paradigm has relentlessly repeated itself this century.
Circa 1890, talk to the oil lamp companies about electricity. Step back to 1900 and speak to the experts about the outlook for the motorcar. The experts back then are the blacksmiths and buggy builders. Jump back to the 1980s and talk to the phone companies about mobiles, chat to the telex operators about faxes, and quiz the fax machine companies about texting.
The experts in a legacy system facing disruptive innovation are almost guaranteed to be the wrong people to talk to about how their entire world is about to be overturned.
Modern economists are trained in Keynesian Theory4. To accept Crypto, they have to put aside much of their life’s work, devotion, and study. Bitcoin is a disruption and revolution. It takes dedicated study or a book like this to understand Bitcoin. Those who dismiss it without putting in the effort have not qualified themselves to make the judgment. Financially trained folks are locked into a centralized mindset where governments and banks (that nobody trusts with anything else) must underpin currency as ‘honest’ 3rd parties. Unless they’ve exposed themselves to encryption software automating this function, they’ll stay within the tramlines of what they know.
"The gains and losses are unrealistic. Something is amiss.”
> Gains are a feature, not a bug. The gains are astounding because it’s a paradigm shift. This level of efficiency is a game-changer. Disruptions of this sort always attract vast sums. In tokens that support projects with bona fide real-world use cases, the rapid escalation in prices that you see represent speculation in the short-term, yes. They represent steeply discounted value on early-stage investments into highly disruptive and valuable technologies that will be massively profitable in the long term—because they’ll elegantly solve expensive problems.
“Bitcoin is too complicated for people to use… this is a whole book describing it!”
> The concept is fairly easy, people make it sound complicated. This book is detailed because it intends to fully arm you to understand the space. It could be reduced to a pamphlet, but that would leave one with plenty of questions. The banking, transfer, credit, and money systems of the world are complicated too—there are plenty of thick books that demystify those as well, but we’re so used to them that we don’t care about the complexity; we simply use them. You can merely use Bitcoin, too, without knowing its details.
"It appears to be a gambler/bullshitters paradise."
> Yes, it is a bullshitter’s paradise, but it’s not only a bullshitter’s paradise. Because some folks are gambling with it doesn’t mean it’s all gambling. There were few conmen and bandits wasting their time in and around sleepy prairie towns in America’s West. It was the gold rush towns that attracted folks to seed rivers and try to sell fools-gold—pyrite—to unsuspecting speculators. Did this mean that successful gold miners were also fools? Should the actual gold deposits have been ignored and abandoned because there were scammers on the loose? This is a new and legitimate territory where gambling and bullshit can indeed flourish. The attendant scams are something of a measure of the lucrative environment that they’re invading.
This is a “don’t throw the baby out with the bathwater” situation. Your job is to not buy fool’s gold—study and learn to discern which projects are valid and which are false.
"Why should one (Bit)coin be so valuable."
> Efficiency.
The reason Microsoft/Apple/Google shares are so valuable was that they fundamentally changed the world. However, Bitcoin is even more valuable because it will change the world more certainly than those revolutionary breakthroughs of the digital and internet age did.
Bitcoin is highly disruptive, and the legacy central banking systems that it will replace, realize that their dominance is collapsing.
Bitcoin constitutes perfect price discovery—in 12-years, with no lobby, no bailouts, no marketing effort, and in a hostile environment peppered with constantly attempted bannings and withering slander, Bitcoin has seen every currency in the world collapsing against its surge.
Regarding literal price-value: As stated, 1-Bitcoin is the collective label we give to 100-million Satoshis (which are Bitcoin’s ‘cents’). Satoshis are very affordable – May 2021, 1-Satoshi = 0.02 US cents ($0,0002)
Seen another way, 1 Satoshi = ₿ 0.00000001.
“… and what’s to stop the next guy from creating another Bitcoin.”
*In the Brave New World and Due Diligence chapters, we cover this topic in detail.
> It comes down to immaculate conception. Bitcoin arrived on the scene in the equivalent of a livestock stable, minus an ivory tower parent to nurture it. Precisely because of its lowly beginnings and stratospheric rise to prominence, the feat can never be emulated. In an almost biblical origin story, influential players—King Herod figures, if you will—are on the lookout for the next king of kings in this space, not to slaughter them but to adopt and control them.
I’ll repeat this a hundred times in this book: What makes Bitcoin unique is that nobody controls it—“A Revolution Governed by Rules, not by Rulers.”
This perfectly natural objection—“what’s to stop the next guy from creating another Bitcoin”—has its foundations in how things ‘have always been’—top-down, centralized, and run by ivory tower authority figures.
We must constantly remind ourselves that Bitcoin is not a company; it is a protocol. It is not centralized—and that is its key strength—nobody can dominate it.
To illustrate the issue, let’s pretend that you become my partner in building a competitor to Bitcoin—we reckon it will make us both fabulously wealthy.
Are you in? Great!
I have the design architecture and access to capable program coders. We could be ready to go in as little as 3-months.
Now for your input—you need to convince 12,000 entrepreneurs worldwide, strangers who will never meet and agree on nothing else, to invest $30-billion of their own money into the infrastructure that will run our software. The whole enterprise won’t work if we can’t do this—we can’t bring in Venture Capital money, because that will centralise and kill the project.
We’ll also need a few thousand wallet programmers and layer-2 developers to invest their efforts to build this out, so there’s little time to waste.
I’ll have some time to help you build out the next phase, and you may need all the help you can get—you have to get a trillion dollars of investment from around 200-million people.
To win over all of these independent actors named above, we’re going to be doing a lot of praying that faith in our venture can survive regular 85% collapses in investment worth yet consistently rebounds >200% in exponential growth annually for the dozen years it’ll take us.
Phew!
Do you think we can be “the next guy” to throw together a competitor?
No?
I agree—it’ll be much easier to build and succeed with a competitor to Google, Amazon, or Microsoft.
“Bitcoin has no intrinsic value.”
> We kind of touched this one further above, but it’s worth repeating from different angles: Bitcoin’s value is similar to the value of a country’s highway and rail networks—the more they’re use, the more they’re worth, and Bitcoin’s use cases are booming. Just one measure is Bitcoin having overtaken5 Paypal’s6 transaction volume. Bitcoin has a vast infrastructure that cannot be duplicated, one that moves value at light speed and at almost no cost to any part of the world without any need for permission or trust required between parties.
“There is no use-case for Bitcoin”
> I could make this book about nothing else but the use cases, but let’s restrict the response to just one use case—the Humanitarian Use Case:
In developing countries worldwide, you’ll find honest, intelligent, talented, motivated, hard-working individuals trying to secure a stable life for their family and old age. Their destiny should be to become a backbone to their local economy and provide employment to their countrymen, stemming the flow of (illegal) immigration to more robust economies. They’ll forever be denied this fundamental human right because they’re unlucky enough to be stuck with a bad government and perpetually collapsing currency. Their only way out is to become part of a brain drain and a refugee to a new land, leaving their homeland even more unstable. You’ll find plenty of these people trying to lay their hands on US Dollars as an insurance policy against loss. But to transact, they need a constant flow back into local currency. Black market currency exchanges to flip back and forth from safety to legal tender is expensive, illegal, and cumbersome. Bitcoin and its instant liquidity in any amount become those stable rails that move ever forward toward prosperity for all concerned.
“The price fluctuations in Bitcoin are mainly the result of supply and demand, even though other factors are also at play.”
> Bitcoin fluctuations are contracting as the asset matures. Unfortunately, mass adoption will bring fluctuations under control. I say ‘unfortunately’ because fluctuations are the astute investor’s friend.
“In contrast with a precious metal such as gold (which serves as store of value AND has physical use in products), Bitcoin has no physical utility in any way.”
> Only 20% true because only $2-trillion of gold’s $10-trillion market cap is a utility, the balance (80%) is all investment and speculation. Indeed, Bitcoin’s incorruptibility and capacity to move vast sums at light speed at almost no cost is a utility that will prove to make gold’s utility in industry pale into irrelevance.
"The Digital Dollar (CBDC—Central Bank Digital Currencies) will put Bitcoin out of business."
> The Dollar is a fiat centralised system—the reason the world’s economy is reeling is because of how fiat money systems (fractional reserve banking) works. I cover this grim reality in detail in this book. The solution to the centralized problem is not to digitize and program money—that only amplifies the danger.
The big difference between the fiat Dollar as it exists and a digital form of it is extremely negative—the government will inescapably remain inside your wallet 24/7. Because there will be no limit imposed on its creation, the Dollar will still suffer the same inflation debasement. The central authority will remain the Federal Reserve or Central Bank, and holders of Digital Dollars will be more (not less) exposed than they already are to confiscation and other restrictions such as what items you can buy with it. The day the Fed produces a digital wallet and issues digital Dollars is when commercial banks become irrelevant. Besides, having government-issued wallets containing government-issued currency leads to control at a level that even this anti-conspiracy theorist would find alarming and a bridge too far. E.g. Make the wrong comment on social media and the money in your wallet suddenly only works in stores within 5-miles of home—and it won’t buy travel or luxury items.
“I wouldn’t spend real money on monopoly money.”
> Monopoly money is worthless because it is printed paper with no policy, scarcity, or anti-counterfeit capability.
Fiat money—dollars, pounds, euros—is a money supply system produced at the whim of the banker cartels we call Central Banks or The Fed. There is no cap on supply and many precedents for poor policy. What it has going for it is military might backing it, and agreement between the world’s bankers that they’ll recognise the value in one anothers’ currencies.
Bitcoin is outstanding because of its highly predictable money supply system produced by computer code according to a public-record schedule laid out to the year 2140, its massive global infrastructure and meteoric rise to prominence in spite of attempts to block it.
The more one studies fiat money, the more toward Bitcoin they move.
"There's too much hype to be true."
> Yes. On the surface, that’s what it seems to be. But, as you’ll see here, there is a good reason for the hype. Amid a lot of overhyped nonsense, there are plenty of gems. Cast your mind back to the Dot-com mania of the late 90s. Among the many chancers were today’s market leaders—Amazon, Google, Youtube, Facebook. You will know tomorrow’s winners by their fundamentals (and Doge isn’t one of them—unless Tesla officially adopts it).
"It's a bubble."
> When we see currency flight out of the Ruble/Peso/Zim Dollar/Turkish Lira into the US Dollar, do we call it a dollar bubble? It’s normal for capital to flow from weak assets into solid assets. It’s an indication that people are losing confidence in one system in favor of another. Were it that Holland’s tulip bubble or Ponzi’s scheme had inflated and pulled back according to predictable events and timeframes over a dozen years, there may be some evidence to compare these with Bitcoin. The fact is, bubbles’ don’t act like Bitcoin is performing. Instead, Bitcoin is acting like a powerful magnet and store of wealth.
"It's a fad.”
> It’s a massive field comprising ten-thousand projects. Many of them are fads, the same way many of the early internet web properties were fads. Books and information like this one will help you to steer clear of those.
"By the time I hear about something, it's always too late."
> Is it too late to get involved in email, cell phones, or build a website?
Every 4-years, this objection is raised. It was said in 2013 and again in 2017. We’ll hear it once more in 2025. Crypto’s predictable 4-year cycle can be a self-fulfilling prophesy. Everyone expects prices to rise and crash, so there’s a mania that drives it to rise and crash. The only question then is, where are we on the timeline? One good way to plot the future is to look at the graphs of the past, consider the use cases, and assess market adoption. The phase we’re in seems to be rushing toward corporate adoption. The individual tokens have moved out of vapourware into practical implementations. And, the graphing of past years says we are nowhere near the top of the market now (Early 2022). Corporate adoption ought to stabilize the extremes of peaks and crashes. If you’re reading this well after I write it, visit the graph of 2022 and watch how it plays out. Compare it to history of other cycles, and use what you observe to establish where you are in the cycle.
"I can't lose if I don't participate."
> The safest place for a ship is in the harbor. Bloomberg recently stated the exact opposite of this: The only way you can lose is not participating in Bitcoin. If you’re not in Bitcoin, of course, you can’t directly lose what’s not invested, but you can lose the opportunity. You can also lose massive ground to inflation as currencies devalue. This is a way to peg some portion of your total investments to a burgeoning asset.
“Bitcoin is a classic ‘greater fool’ theory.”
> A greater fool theory is one where there doesn’t appear to be intrinsic value in an asset, so one is holding it at a lower price only to sell it to a ‘greater fool’ who will buy it for a higher price. This book will put the ‘no intrinsic value’ argument to death. The ‘fools’ who sell out of Crypto generally buy back in—that’s not how a greater-fool trap is supposed to work.
A slightly different angle: The food in my refrigerator is not there because I’m hoping to sell it to a greater fool shortly. It’s there because I’ll get hungry soon. Bitcoin and other Crypto-assets have countless use cases that are increasingly playing out in the real world. Read on and all will be revealed.
"I don’t believe in it.”
> Money is a game we play with ourselves. In the words of famed historian Yuval Noah Harari, “Fancy giving a monkey a $1,000 note for a single banana. The monkey would laugh and respond, What do you think I am? A human?“
A decade ago, 0.0001% of humans thought a single Bitcoin was worth under 1-Cent. At this moment, 1% of humans believe one Bitcoin is worth tens of thousands of dollars. The trajectory of its value is worth taking seriously.
"What about crime? Are transactions traceable?"
> By 2022, Bitcoin is the single worst currency a criminal could choose for crime.
What is the number-one preferred currency7 of crime?
It’s cash. Crisp US-dollar notes. (In the absence of dollars, any other major fiat currencies will do.)
For massive crimes when suitcases of 100’s become ridiculous? Million and Billion dollar White Collar crimes? Ordinary bank transactions are easily cleaned by dirty bankers.
Authorities love it if you use Bitcoin for crime. They can easily track the Bitcoins as they come to you and you spend them. They can acquire the IP addresses implicated in crime, and from that build very strong prosecution cases.
As a medium for financial crime, Bitcoin is a foolish choice. Unlike cash’s invisibility to the authorities and centralized banks’ confidential transactions, Bitcoin / Crypto transactions occur on the public ledger, so that at every moment, every Satoshi in existence can be identified and tracked on the open public blockchain. You just can’t see who owns the wallet they’re in. But if a crime is big enough, that hurdle can be overcome.
Although, unlike opening up a bank account, you don’t have to volunteer personal information to acquire a bitcoin wallet. If you want to trade it or move it into our out-of-fiat currencies, those trading institutions will need fully verified identity information. So, any crime big enough will see the authorities pierce the veil of anonymity.
As to the crimes perpetrated by Blockchain projects—overstepping regulations as projects roll out, $2-Billion in fines have been levied. Compared with the $200-Billion 8in fines levied on banks and traditional finance during the same period, this looks paltry. But when you consider that Crypto’s decentralized finance space is innovating 1,000 times more aggressively than traditional—and overstepping the mark is inevitable when innovating—Crypto is positively boy scout-ish as a law-abiding sector.
“China does (did) a lot of the mining. What if the Chinese government outlaws that as well?”
> Hallelujah! China *did* ban mining. As I write this, the Chinese miners had their electricity physically cut, and to pay off their debts, dumped vast amounts of Bitcoin onto the market. The Bitcoin price tumbled to less-50%, briefly under $30,000—those coins were snapped up9 into known long-term wallets, and the price rebounded to the mid $30k region within 24-hours. The Chinese mining rigs were priced and sold by the ton. Most of them are on their way to West Texas, where there is plenty of surplus wind energy. This brings to an end the constant nagging worry about “what will happen.” It happened, and it is great for the sector.
In an online forum, I was challenged by this statement. I thought it a question with merit, so I included it and my response here:
“Gold, once mined, keeps its properties indefinitely (you can forget it, it keeps its value ). Bitcoin, on the other hand, needs constant maintenance* from miners. Take the miners from the equation, and the utility value of Bitcoin drops to zero, forget gold for six thousand years, it keeps its properties intact.”
*By “constant maintenance,” I think he means ongoing mining and administration. Of course, all transactions need effort and input. So long as the internet exists, mining is part and parcel of the ecosystem.
> Quill pens, fountain pens, and/or ballpoint pens leave an indelible record for all time. In my interrogator’s words, ink on paper “keeps its properties indefinitely (you can forget it, it keeps its communicative value).”
I then re-wrote his statement, amending it to make my point: “Email, on the other hand, NEEDS constant maintenance from technicians (‘SMTP,’ or Simple Mail Transfer Protocol)”; take the technicians from the equation and the utility value of email drops to zero; forget parchment for six thousand years, it keeps its properties intact.”
In the 21st Century – which is more valuable? Pens/paper or email?
"What if the Bitcoin system is hacked?"
> To hack it, one would have to take over 51% of the network, and the hack would have to return more profit than the investment cost of perpetrating the hack. The hardware investment to mount such a hack runs to tens of billions of dollars—and with that kind of investment it would be more profitable to just be a miner.
More than that, it takes 24-to 48-months to construct enough hardware to mount a hack. This translates to 36 months worth of warning to the network that a hostile actor is preparing themselves. Besides the infrastructure and time cost, the waiting list to buy the necessary hardware to achieve the hack is endless. The community is hyper-analytical, and inter-communicative. They have a massive vested interest in looking out for newcomers who may change the ethos.
To summarize: with a 51% stake and tens of billions of dollars necessarily invested, the incentive to add value rather than collapse the system is monumental.
Another quirk of the system is its decentralized nature, with far-flung operators having a shared vested interest, means that local conditions, individuals, or laws cannot dominate you or your holdings.
“Quantum computers—Won’t a quantum computer capable of doing in a few minutes what ordinary computers take centuries to do, dominate the Blockchain and defraud it?”
> If only the hackers have the quantum computer—yes. But the money on the inside and doing the transactions of the blockchain guarantee that any pirate quantum computer will be trying to overpower quantum computers running the system. The balance will be restored.
"When the shoeshine boy talks about it, it's time to get out" (1929 Stock Market crash wisdom)
> In our hyperconnected social media world, there is very little privileged information. If your cab driver isn’t talking about the latest opportunity, it probably isn’t an opportunity. Because of media, it might feel like mania, but Bitcoin has only achieved 2% market penetration.
Whereas stock markets are top-down (and American dominated)—where the oldest and wealthiest individuals are fully invested with the poorest who lag far behind, Bitcoin is fully international (with America lagging per capita). Bitcoin has its most extensive per-capita penetration in the most flawed markets and collapsing economies. The wealthy and institutions are the latecomers this time around.
Another difference is that the stock market is governed from behind an impenetrable veil of secrecy, controlled by a small group that makes decisions in their own best interests. Crypto is governed by immutable software rules rather than by secretive rulers. It is a price discovery mechanism that reveals global market sentiment at light speed. Negative inputs can indeed shake trust, but this is true for all markets that float in price.
"Who runs the software? Who has the keys to change it? Who do I turn to with a problem?"
> Again’, is a little like, “Who runs the Email network?” Email is a protocol that runs through servers that service providers access. Bitcoin and other Blockchain tokens are similarly supported by a network of servers. Each commercial exchange, vault, wallet developer, or brand of cold storage hardware ledger is responsible for the tokens that cross the threshold onto their domain.
In his “Blockchain and Money” MIT lecture*, in mid 2021 Head of America’s SEC, Prof. Gary Gensler, answers the following similar student question:
AUDIENCE: I have a question about a theoretical event where a better hash function is found than the SHA25610. How would that be practically implemented into the Bitcoin network?
>> He’s essentially asked that same question about “who runs the software and has keys to the vault / can change the system.”
GARY GENSLER: “So how would any relevant change be adopted into Bitcoin is always a challenge because it’s a decentralized network. All decentralized networks have a little bit of a governance challenge. The governance challenge is, how do you do software updates?
We all know that on our laptops, our iPhones, software updates are going on right now, unbeknownst to us.
(With) the commercial enterprise, the central authority has a way to update the software. We probably sign some terms of use that allow them to do that.
In a decentralized network like this, there has to be a consensus. And so the only way really to update the software for a new hash function or for most everything else is, in essence, that the nodes (computers that operate the system), the operators (12,000 of them in May 2021) of the software collectively in a consensus form adopt it.
So it’s another way that not only is the data immutable because of these hash functions, but the software is (too). And that comes both with benefits and costs.
Some people would say that’s a bug of blockchain. Some people would say it’s a feature.
The software is more challenging to update than software in centralized systems.”
>> My interpretation of Gensler’s response is that it would be an arduous and time-consuming task for a bad actor to make mischief. Suppose you dig into the extent of this Three-Trillion dollar market sector. In that case, you’ll appreciate that every minute detail of the system is under constant scrutiny by a global army of geeks with a strong vested interest in maintaining stability. The instant any discontinuity is detected, news flies out over social media and through specialist groups. Countermeasures would be swift, and plenty of warning will reach the market, giving us time to withdraw assets until the threat has passed. Just Coinbase and Binance alone amount to nearly $200-billion in market cap (June 2021. They are entirely invested in this sector. They would have massive countermeasures to combat any threat to their survival.
"I'm abroad and can't access my wallet. Who do I call?"
> The same way that your assets sit in discreet asset classes—property, stocks, bonds—your Crypto assets would be on different layers. As previously covered, access to them and troubleshooting would be via the provider of the particular service into which you had placed your asset—be it the commercial trading platform, vault, downloaded wallet app (from a named supplier), or cold wallet USB ledger.
In his “Blockchain and Money” MIT lecture*, in mid 2021 Head of America’s SEC, Prof. Gary Gensler, answers the following similar student question:
AUDIENCE: I have a question about a theoretical event where a better hash function is found than the SHA25610. How would that be practically implemented into the Bitcoin network?
>> He’s essentially asked that same question about “who runs the software and has keys to the vault / can change the system.”
GARY GENSLER: “So how would any relevant change be adopted into Bitcoin is always a challenge because it’s a decentralized network. All decentralized networks have a little bit of a governance challenge. The governance challenge is, how do you do software updates?
We all know that on our laptops, our iPhones, software updates are going on right now, unbeknownst to us.
(With) the commercial enterprise, the central authority has a way to update the software. We probably sign some terms of use that allow them to do that.
In a decentralized network like this, there has to be a consensus. And so the only way really to update the software for a new hash function or for most everything else is, in essence, that the nodes (computers that operate the system), the operators (12,000 of them in May 2021) of the software collectively in a consensus form adopt it.
So it’s another way that not only is the data immutable because of these hash functions, but the software is (too). And that comes both with benefits and costs.
Some people would say that’s a bug of blockchain. Some people would say it’s a feature.
The software is more challenging to update than software in centralized systems.”
>> My interpretation of Gensler’s response is that it would be an arduous and time-consuming task for a bad actor to make mischief. Suppose you dig into the extent of this Three-Trillion dollar market sector. In that case, you’ll appreciate that every minute detail of the system is under constant scrutiny by a global army of geeks with a strong vested interest in maintaining stability. The instant any discontinuity is detected, news flies out over social media and through specialist groups. Countermeasures would be swift, and plenty of warning will reach the market, giving us time to withdraw assets until the threat has passed. Just Coinbase and Binance alone amount to nearly $200-billion in market cap (June 2021. They are entirely invested in this sector. They would have massive countermeasures to combat any threat to their survival.
"What about crime and terrorism—with Bitcoin used in nefarious ways?"
> There seems to be a consensus forming amongst (US) regulators and law enforcement that Bitcoin is the safest and most manageable crypto asset network in terms of oversight. In June 2021, this issue was put to the test when hackers brought an important US gas line to its knees in a ransomware attack11. Bitcoin ransom payments were traced to a rented server and retrieved. Although the identity of individual wallet holders is hidden, every transaction is wide open for scrutiny.
Any transaction via an exchange requires KYC ‘Know your Customer‘ / FICA-level registration. With enough legal justification, the authorities can also crack the identity of specific owners. And, albeit they might seize wallets, they will never be able to open them to access the contents.
"Surely Bitcoin is to some degree a threat to central banks and governments. It's unlikely they're just going to give up control over their currencies. They'll use the angle of terrorism or anti-money laundering laws to crack down on it."
> The answer is twofold. To arrive at both, we need to deconstruct money into a currency component and an asset component.
A currency is defined in Law as something you can exchange as a medium of exchange or in a transaction without incurring a tax obligation.
In 2014 the IRS declared12 Bitcoin to be an asset. As an asset, it is subject to tax codes applied according to transactions or capital gains. Any citizen failing to report their asset status is guilty of tax evasion—so that there is no reason to outlaw the asset class.
Although Bitcoin can be used as a currency, that is not its best use. Instead, there are derivative blockchain applications that are much better suited to the currency purpose. They integrate with Bitcoin. And, again, a declaration of any changes in the asset—including conversions into currency, need to be made. This will be the same in all tax codes.
All currencies need to be backed by something. Gold in the past, and government promises in fiat instruments currently.
It seems highly likely that governments will increasingly back their currencies with Bitcoin and issue Dollars, Pounds, Yen, etc., against it. This will be covered in detail in the “Fiat Currencies” chapter of this book.
That “Bitcoin” suggests currency in its name and went through a stage in its lifecycle when it was anticipated to become a currency causes us all to see it as a direct challenge to fiat currencies.
Indeed, that sort of language certainly creeps into my descriptions of function.
The fact is that this sector is likely to mature to become an adjunct to government Crypto Currencies, seamlessly integrating with them.
A future wallet might contain the private Bitcoin asset on one layer and a second layer of currency applicable within that territory. The asset and currency would be digitally interchangeable via an exchange that reports to the relevant authority.
Weak governments will likely see their currencies collapse, and their citizens will then use the predominant international money in their region, backed by a crypto asset.
The following two italicized statements13 come from 97-year old Vice Chairman at Berkshire Hathaway, Charlie Munger. Charlie is the partner of esteemed investor Warren Buffet, who holds similar views:
"I can't support the crime associated with this money system."
> Paper currency has been used in crimes forever, yet Charlie’s wallet is full of it. Surveys have established that under 0,15% of crypto transactions are associated with crimes. Similar studies found 2.5% of regular financial transactions are criminal.
"I don't like a money system that's invented out of thin air."
> Innovations tend to be “out of thin air”—that’s why they’re innovations—they find solutions to problems that are insoluble to existing systems. So, to not like the efficiency, reduction in costs, elimination of counterfeiting, and speed of transactions, seem like a strange stance.
Charlie took additional swipes at Bitcoin, so let’s hear him out and then consider the response14 from Michael Saylor, co-founder of Micro Strategy Corp.
“I think the whole damn (Bitcoin) development is disgusting and contrary to the interests of civilization,” said Munger.
> Michael Saylor responds: “(That’s just) Baiting a 97-year-old man. They didn’t ask him about Tik Tok, Netflix, Amazon, Apple, Facebook, Google, or Microsoft. They didn’t ask him about any of a hundred other new technologies. If you want to understand Bitcoin, it’s 10 hours of study to scratch the surface. You might start to understand it in a hundred hours. I don’t think Charlie Munger has spent 100 hours studying Bitcoin. So, I think it’s kind of unfair to poke him with the question. Berkshire Hathaway is a generation behind all technology. They’ve never invested in Microsoft and Google, and only in Apple 40 years late because a person that worked for them invested. The controversy is because Bitcoin went from zero to a Trillion dollars in 12 years. It’s more disruptive than Amazon, Apple, Facebook, Google, and more disruptive than anything in our lifetime. When I’m 97, would you ask me about the latest greatest hologram simulation technology startup that my grandchildren use that’s taking the world by storm? Would you expect me to get it? Do you go to your great-grandfather for advice on new technologies? Hathaway has been successful, but they haven’t been successful technology investors this century.”
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