Note: This is the only post I’ve ever written that has nothing to do with free food. It’s just something I’ve been thinking about.
A couple weeks ago, I bought cryptocurrency–specifically, Bitcoin and Ethereum. One reason I waited until now is because, even though I have a technical background, I honestly didn’t understand how cryptocurrencies worked or why they had value. Another was that the world of cryptocurrencies seemed highly speculative (almost like gambling) and full of scammers and get-rich-quick folks. What changed my mind?
1. I read the book Sapiens, which reshaped my mental model of what money is in the abstract sense. I highly recommend this book–it’s the book I imagine an alien would write after observing humanity for millennia. Sapiens is one of those books that causes a whole paradigm shift, and is undoubtedly one of the best books I’ve ever read.
2. I listened to two podcast episodes: Tim Ferriss Episode 244: The Quiet Master of Cryptocurrency, and James Altucher Episode 263: Naval Ravikant –The Largest Transfer of Wealth in Human History. In these podcasts, cryptocurrency proponents explain how cryptocurrency works and why they’re optimistic about the future of digital, decentralized currencies.
3. I reflected on the ongoing crisis in Venezuela, where the value of the local currency has collapsed (upt to 800% inflation per year) due to uncontrolled money printing, and how–weird as it is to think about it–ordinary Venezuelans’ money would’ve been safer had it been stored in a relatively mature cryptocurrency like Bitcoin rather than in cash. Another recent example is Zimbabwe’s catastrophic hyperinflation, reaching 80 billion percent per month in late 2008 shortly before the currency was abandoned.
4. Cryptocurrency has become increasingly accepted by mainstream financial institutions like the IMF. The CEO of Goldman Sachs even expressed interest in it recently. As more financial institutions begin to accept cryptocurrencies, they increasingly transition from solely stores of values to valid mediums of exchange.
5. Since Bitcoin has proven to be an effective store of value–though perhaps not yet an effective medium of exchange–it could be a reasonable hedge against an economic downturn, the way gold is (I’ve heard Bitcoin referred to as “digital gold” and I think the comparison makes sense). There various economic indicators that suggest we’re overdue for a recession, so cryptocurrencies can serve as a hedge against one.
With Bitcoin’s massive price increases in the past few months, it may seem like the ship has sailed on cryptocurrencies. But if you truly buy the theory behind them, then Bitcoin’s potential is still mostly unrealized, since the cumulative “market cap” of Bitcoin is only $100 billion–not even 1% of the world’s GDP.
My word of caution to anyone looking to trade their dollars for cryptocurrency–only invest money you are prepared to lose. Cryptocurrency is still a concept in its earliest stages, and I think there’s a reasonable chance that even a well-established cryptocurrency like Bitcoin could end up being worthless. Also, be sure to secure your cryptocurrency wallet (e.g strong, single-use password, two-factor authentication, offline hardware wallets if you have a large amount of cryptocurrency, etc.). If, like me, you’re interested in the computer science behind Bitcoin and other cryptocurrencies, Princeton has a free online course that looks pretty interesting.
If you do want to try it out, feel free to use my Coinbase referral link to get $10 of free Bitcoin when you make a $100 or greater Bitcoin purchase–and in doing so, move me ever closer to that elusive goal of owing a single Bitcoin.
Okay, back to writing about free food. Thanks for reading!
(Note: the link to Sapiens above is an Amazon affiliate link, meaning I get a small commission if you end up clicking it and buying stuff from Amazon, at no extra cost to you. Thanks for supporting FFG!)