Cryptocurrencies are something brand new in human history. In the first video, I talked about why triple-entry accounting is something so revolutionary and gave you some of the basics of Bitcoin, the first major implementation of this new kind of accounting.
In this part two, I’ll tell you about some of the other kinds of cryptocurrencies and talk about whether you should buy some. I like to use the analogy of the beginning of the Internet in the 1990s as an instructive example of where we could be now, and what the future might look like.
[music] Does Bitcoin even have any real value? Remember from part one, Warren Buffet said it’s value is >> WARREN BUFFET: But in terms of value: You know, zero. >> MATTHEW: But Michael Saylor, the CEO of Micro Strategy, which holds more Bitcoin than any other public company, says this: >> MICHAEL SAYLOR: Bitcoin is the apex property of the human race. There is no property invented in the history of mankind that is better than Bitcoin. Not land, not gold, not silver, not stocks, not bonds, nothing.
So, who’s right? What gives Bitcoin value? Really, that’s a philosophical question we could ask of all money. Just like Paris Hilton is famous for being famous, money is valuable for being valuable. Bitcoin, dollars, gold, or euros, and even those giant stone coins of the Yap people are all valuable because people believe them to be valuable.
Scarcity also influences value. Gold and silver are rare and hard to mine. Dollars and Euros are also scarce, but governments can create more. The inherent value of Bitcoin comes from its mathematically verifiable proof of digital scarcity.
As a Reddit user RIP King puts it: “Verifiable proof of its digital scarcity creates a foundation for the inherent value. The blockchain makes that possible. And people are willing to pay a certain price for that proof of digital scarcity. Current price is largely driven by speculation that this particular digitally scarce protocol will become some sort of base layer for world commerce or storage of value, now or in the future.”
You can’t know how scarce dollars or euros will be in the future, or even gold and silver, I guess, but with Bitcoins and many other cryptocurrencies, it’s built right into the protocol, and you can mathematically verify it.
Bitcoin is just one of a bunch of different cryptocurrencies, maybe you’ve also heard of Ethereum or Dogecoin or others. Let me outline several broad categories for you. Bitcoin is a store of value. In that sense, it’s like a bar of silver or gold. It doesn’t do anything other than be valuable. And really, all of these currencies can store value. But some can also do more, like run smart contracts.
Ethereum, Cardano, Binance Coin and Polkadot are examples. This is sort of like oil, it’s valuable because it’s useful for doing something, in this case, for doing decentralized finance, or DeFi, using digital contracts. Making payments is another purpose for currency if you need to pay for things at the store or give money to a friend. This is how we use paper currency and metal coins.
Nano is the best example of this: there are no transaction costs, and it’s almost instantaneous, kind of like handing you a twenty-dollar bill, except that I can do it electronically from a different continent. This was an original goal for Bitcoin, but transaction costs are currently too high and wait times are way too long, no one wants to spend five extra dollars and wait up to an hour for the transaction to happen.
Now, if you’re transferring four million dollars of Bitcoin, maybe that’s acceptable, but not really for small amounts. Speaking of small amounts, micropayments are another possible use of cryptocurrencies, and this will become more important as the “Internet of Things” grows. Nano could be used for this, and also Iota because they have zero transaction fees.
Imagine paying car insurance by the mile, or getting paid a tiny little amount each time someone watches your video on Facebook or listens to your song on Spotify, or likes one of your Instagram posts. Another category is running exchanges. Binance Coin, Uniswap, and Chainlink are examples of this. They facilitate automatic trading between different currencies, usually with no middleman required.
And then there are coins that are used for speculation, like the meme coins Dogecoin or Shiba Inu. There are a lot more coins, but I think those are the main, broad categories. There are so many! Which one should you invest in? Which coin is going to 100X to the Moon for your Lambo money?
Well. The good news is that there is a crypto that will go up to ten thousand percent in the next five years, guaranteed! The bad news is that no one knows for sure which one it is, unless you’re watching this five years from now in the future, you know what it is.
But today, in July 2021, I have no idea. I like to use the analogy of what it was like in 1998, which I’m old enough to remember. It was the early years of internet companies. Let’s say that you truly believed in the power of this new thing called the internet to transform the world, and you would have been right.
But if you had a pile of cashback then, which company should you have invested in, back in 1998? Maybe Yahoo! or Netscape, or Cisco, or Amazon.com, or Excite.com. Some of those did do well in the short term. We all know now that the right answer long term would have been Amazon, but it wasn’t super clear back then.
And in fact, Amazon didn’t even report a profit until 2003, eight years after it started. Well, the same thing is true now. Let’s say you see huge possibilities in these ideas of triple-entry accounting, smart contracts, decentralized finance, and provable digital scarcity, and you think this just could be the future of finance for humanity.
Unfortunately, it’s not super clear right now which assets and which systems will be most successful, so I don’t think I can give you any specific advice. Back in the mid-1990s, we could see the potential of this new thing called the internet. It had been around two or three decades, and more and more people were starting to use it. But we didn’t know exactly what it would look like. Some people were predicting that it would change the world, and it sort of did, but slowly.
I love the way Kevin Kelly puts it: “Not only did we fail to imagine what the Web would become, we still don’t see it today! We are blind to the miracle it has blossomed into. The accretion of tiny marvels can numb us to the arrival of the stupendous. I love that phrase “the arrival of the stupendous.” And he said that way back in 2005, before iPhones and mobile devices.
Since then, we have had an accretion of even more tiny marvels. And not so tiny marvels. Streaming movies, maps on our phones, online shopping, online school. I think the same kind of thing could be happening right now with digital currencies. It’s not just the newest fad, it really is something fundamentally different, and none of us has any idea what the future will look like, but it will probably be similar to the beginnings of the internet.
Slowly we’ll find more and more uses for this technology, and one day, in a few decades, we’ll look back and realize how much has changed. But today, in 2021, we’re still at the very beginning. In the early 1990s, some people said the Internet was a big deal and was here to stay. They were right. Others said it would be the CB Radio of the ’90s.
And they were wrong. What hardly anyone foresaw was the mobile phone revolution, just fifteen years away at that point. So we got some things right, other things wrong, and just didn’t see other things coming. The same was true with the arrival of personal computers in the 1980s. And you could probably tell similar stories about the inventions of the automobile, of the radio, and of TV.
So probably it’ll be the same with Bitcoin and other cryptocurrencies. The libertarian anarchist vision of completely anonymous monetary freedom probably won’t happen for everyone. Just like the internet makes it possible for everyone to have their own printing press and TV station in the forms of a blog and a YouTube channel, but not everyone does.
In the same way, cryptocurrencies will make it possible for everyone to be their own bank, but not everyone will. But maybe, partially, on the small scale, things will move in that direction. And it’ll probably be different in the USA versus India, versus Mexico versus Venezuela. The naysayers like Warren Buffet are probably wrong, too.
Just like the people back in 1995 who said “why would you ever want to order a book online, pay five dollars shipping and then wait a week or two for it to arrive? You can drive to the neighbourhood bookstore and have it in ten minutes.” Well, they’re right. No one wanted that back then, and we don’t now. In fact, you can still drive to a bookstore.
But it’s probably not in your neighbourhood anymore, it’s probably twenty minutes away. And they only have the most popular ten thousand books, not pretty much the entire catalogue of all books, ever. And I said no one wanted to pay five dollars for shipping, then wait a week, but that’s not quite true, either.
Not no one. If you were looking for a particular obscure book, or it was worth it to you do not have to drive to the bookstore, ordering on Amazon in 1998 was a good solution. But that’s not our experience today. Amazon has consistently reduced the friction and perceived price with a Prime subscription so that when you buy a book, it feels like a good price, and it feels like free shipping, and when it arrives in a day or two.
Or even later that night. Same with Bitcoin or cryptocurrencies. It’s a bit inconvenient now, kind of a hassle. I mean, who wants to diligently memorize a twenty-four-word phrase, keep their coins on a multi-sig hardware wallet, and pay five dollars every time you transfer funds? No one.
Well, not exactly no one. If you’re transferring huge amounts, or if you’re a crypto-libertarian anarchist-whatever, maybe you do. But that’s not likely to be our experience in twenty years. Just like the experience of buying a book online has changed, Our experience of using cryptocurrencies will likely get much easier. Today, if someone wants to send one thousand dollars from New York City to their grandmother in Mexico City, it costs a thirty dollar fee at Western Union and takes a day or two.
In twenty years, it will cost less than five cents. Or may even be free, and will happen within ten seconds. In fact, I can do that today, right now, with Nano. But Grandma doesn’t use Nano yet. Not yet. And even if she did, she’d still have to convert it into pesos. Of course, even with Western Union, there’s a conversion from dollars to pesos. But once the demand starts to be there, there will be solutions. Yes, Western Union will still exist in twenty years, and people will still use them, just like brick and mortar bookstores still exist today.
But I think we’re going to start seeing a slow shift from that old way of using money to this new way of using money. So, I still haven’t directly answered your question about what you should invest in. Honestly, I don’t know. But I will say you should only invest the money you can afford to completely lose in case that happens. Maybe the big two: Bitcoin and Ethereum.
Buy some and leave it there for several years. For example, you could make some money that you don’t need for a long time, and then put half of it into Bitcoin and half into Ethereum, and then just wait ten years and see what happens. For context: right now in July 2021 one whole Bitcoin is worth about thirty-two thousand US dollars, which means one satoshi is worth point zero three two cents. In other words, one US Dollar can buy 3100 satoshis.
Satoshi is kind of like the Bitcoin cents, except there is 100 million satoshis per Bitcoin, instead of 100 cents per US dollar. And the current price for Ethereum is about 2000 dollars per Ether. What’s it going to be worth in ten years? No one knows. So Bitcoin and Ethereum are currently dominant. But I will tell you what I hope wins: I really like Nano.
I want to be able to pay someone instantaneously, with no fee, from my cell phone. If I send my friend twenty dollars, or twenty Nano, I don’t want them to receive 19.999, I don’t care how many nines are on the end, I want the number to start with a two, not with a one.
So I want zero fees. And I don’t want to wait, especially if I’m standing in line at a grocery store. I really do think that someday soon, it will be quick, easy, and free to send currency that people use to someone online, with no middlemen, no banking institutions authorizing it, anywhere in the world. Unfortunately, there’s no guarantee we’ll get everything right, just like with the beginning of the internet.
We got email right: you can send email from any address to any other address, across all these different kinds of systems. But I think we got instant messaging slash texting wrong. There are all these separate systems: Facebook, WhatsApp, Signal, texting. I’m still not a hundred percent sure if I text a picture to a group of people who are using Android and iOS if it will really go through to all of them.
And it’s 2021! This should be working. Same with social media. It has the potential for great good, connecting people, sharing pictures, sharing ideas, posting events. But when profit gets mixed in, we get weird results like accidentally moving people towards extremes.
See “The Social Dilemma” documentary for more about this. Probably we’ll have all the same kinds of opportunities and perils with cryptocurrencies. Same with any new technology, the advent of personal computers, or even the beginning of the printing press.
And I should warn you that with cryptocurrencies, the markets are currently susceptible to manipulation, since it’s still a relatively small market and not regulated like stock markets, but it’s likely to even out in the future. So, I don’t know what’s going to happen, but it should be interesting, and we’re fortunate to be living through this time in history. I just hope we get things right.
I’m going to make a note to myself to make a follow-up video exactly five years from now and ten years from now after this one is posted, to see how things turned out. I guess that’s assuming YouTube still exists, and that we haven’t had the zombie apocalypse, and should the Lord tarry, etc, etc.
Ten years is actually both a long time from now and surprisingly soon paradoxically, once we get there. So, before I go, a quick PS. For the sake of making a big, quick overview, I’ve glossed over a lot of detail and may have gotten some things wrong.
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