Being involved in the Bitcoin world is very exciting. Price swings of 20% in a single day can be a terrifying, but I need someway to get my heart rate up and it beats going to the gym.
The main problem with being involved in Bitcoin, is that in 2018 everyone is an expert. Most people that don’t know what a blockchain is are quite capable of telling me how Bitcoin is a bubble that will pop, how it’s fake money, or how it’s the investment of a lifetime.
I KNOW that Bitcoin will be worth $1,300,000 by 2021! Just kidding, I don’t even know if it is going up or down tomorrow.
I’m a computer scientist, and distributed systems is one of my favorite topics. I’ve read the Bitcoin whitepaper, frequented the public software code repositories, and been involved in the online community. I understand how the protocol and software function, but the only thing I can tell you for sure is that I have no idea what the price action will be over the next few weeks. With that disclaimer let me explain why I believe Bitcoin has potential.
Aside from my tech interests I’ve been interested in finance and investing for awhile. When I was younger, I took a job at a bank for a year to learn how banks work. Here’s what I learned.
Banks suck.
I mean really. Like really really suck. From the fees, to the credit card interest rates, right back to the .25% rate you get on your savings account, they suck. The worst part however, is where I will focus, fractional reserve banking.
Fractional reserve banking was a concept introduced to me by the head of cyber security at a very large bank in the United States. I won’t name who he is because that probably wouldn’t help his career, so I guess you’ll have to trust me. He is a friend of a friend and we happened to be talking money when we met. His opinion is one that, after doing my own subsequent research, I came to adopt. He believes that fractional reserve banking is the largest Ponzi scheme the world has ever seen. It’s also legal.
As defined by our favorite source Wikipedia, “Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, but is required to hold only a fraction of its deposit liabilities.”
This means that the money the bank very nicely lent to you at a really low rate actually doesn’t exist. Strange concept right? Banks can legally create money in the form of credit and lend it out. This is why the 2007 market “correction” was a great time for all of us. We should outlaw it.
I would be all for outlawing the practice, the problem is that bank investors, executives, and the government officials that the banks lobby and pal around with don’t want to change much. Sure it might stabilize the economy and fight the constant boom/bust cycle of the market, but that bottom line wouldn’t be as fat. Enter Bitcoin.
Bitcoin is a software approach to forcing the financial system to comply with the will of the people. It has a few key features that I want to point out:
This word is thrown around a lot in the crypto-currency world. All it means is that there is no central point of control or failure in the Bitcoin network. The Bitcoin network is designed to be hosted and used by regular people. There is no Bitcoin company, there is no data center. People all over the world use their own computers to run the network and store the user’s balances. If a government or entity wants to shut down Bitcoin or control the way it works, they can’t. It’s like a hydra, if you chop of a couple heads more will just keep popping up.
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This privacy feature lends itself partially to the idea of Bitcoin being likened to a hydra. If an entity wants to destroy Bitcoin by attacking Bitcoin users, good luck. I definitely don’t own any Bitcoin by the way.
These are the main reasons for my believing in cryptocurrency as a worthy investment experiment. This is my first Bitcoin article, but I hope to do more in the future and dive deeper into some of the many different aspects of the cryptocurrency space. If you liked it then feel free to follow me and continue to learn with me as this project evolves.
