Bitcoin is a new paradigm.
There is now a way for you to store and send value in a monetary medium that can’t be debased, manipulated, censored, or frozen. All of this is possible without relying on trusted intermediaries.
People are drawn to bitcoin for various reasons. Some are interested in the cryptography, protocols, and technologies that make it work. Others are libertarians looking for money that is free of political control. Some live in countries that don’t have a well-functioning banking system. Others are trying to escape rampant inflation. Some are using bitcoin mining to monetize otherwise wasted energy resources. Others are escaping tyrannical regimes with their entire net worth stored in their heads. And a lot of people are just trying to get rich.
Bitcoin’s value comes largely from the fact that it operates very differently from the fiat money the world currently uses. Anyone can independently audit the entire bitcoin system in real time. Anyone can control their own wealth without trusting a bank or government. And anyone can use money that is engineered to increase in purchasing power over time.
Regardless of your reason for being interested in bitcoin, there are three core tenets that every new adopter must internalize – or risk getting rekt.
Don't trust, verify
The fiat financial and monetary system is opaque.
Nobody, including those institutions and governments who run and regulate it, know what the true money supply is. Even if there was a way to know the true money supply in the present, there is no way to know what it will be in the future.
The rules are decided by politicians, bankers, and an elite group of unelected international organizations, all of whom enjoy very little accountability for their decisions and actions. They can change at any time and according to the whims of those same people. So it should be no surprise that when changes are made, they tend to favor those politicians, bankers, and international organizations.
Bitcoin is open, transparent, and extremely difficult to change.
The money supply of bitcoin is predetermined. It is visible and verifiable to anyone with an internet connection and a cheap computer. It cannot be changed. There will only ever be 21 million bitcoin. Forever.
You don’t have to trust anyone else to know that there will only ever be 21 million bitcoin. With that cheap computer and internet connection, you can download and run the bitcoin software. With that software, you can trustlessly audit the entire bitcoin monetary system from its genesis.
The rules of the system, including the 21 million hard-capped supply, are embedded in that code on your machine. You have the full, permissionless ability to run that code, and even alter it however you’d like. Everyone else running a bitcoin node has the same ability. If you change the rules on your node, you are no longer in the same network as everyone else, and your “bitcoin” becomes incompatible and worthless. Therefore, you are very much incentivized to stay in consensus with the rest of the network by following the same rules that everyone else has opted into.
In a very real sense, you are your very own central banker. You decide the rules of your money. You decide the supply of your money.
Having the ability to run your own bitcoin node means you don’t have to trust politicians, bankers, and elite, unaccountable international organizations like the IMF or the BIS to operate the money system fairly. You can opt out of that broken-trust system and into one where you can verify everything yourself – where the playing field is level.
Don’t trust, verify.
Not your keys, not your bitcoin
If you’re not holding the private keys to your bitcoin, you don’t actually own the bitcoin. It’s nothing more than an IOU. You may have some legal title to it in theory, but the bitcoin network knows nothing about our legal systems, nor does it care. It only understands the consensus rules that are native to it. And as we covered before, those consensus rules are enforced strictly through the open-source software running on thousands of individual computers around the world.
When it comes to ownership, those rules stipulate that a valid cryptographic signature (or signatures, depending on your setup) is required to transfer bitcoin from one address to another on the ledger. These signatures cannot be faked, and there is no way to get around this rule. If you have the appropriate private keys, you can move the bitcoin. If you do not, you cannot. Simple as that.
Another rule, as mentioned in the Don’t Trust, Verify section, is that the bitcoin money supply is set in stone. It cannot be changed. That means if your exchange goes belly up, no new bitcoin can be printed out of thin air (at the expense of all the other bitcoin holders) in order to make you whole.
The exchange that sold you that IOU is probably short the bitcoin that it owes you. The only way to know for sure that an exchange has your bitcoin is to withdraw it to your own private keys.
In the fiat financial system, you don’t really have the option to fully control your own money. You can hold physical cash, but it’s inconvenient and risky to hold in large amounts. Your dollars, and all other financial assets you own, are held by someone else – a bank or a brokerage firm, for example – in permissioned accounts that are only accessible during banking hours.
Bitcoin allows you to break free from that credit-based walled garden. You can own your fraction of the only asset in the history of the world with innate, absolute scarcity. And you can do it in a fully self-sovereign way, without the need to ask anyone’s permission. But only if you’re holding your own private keys.
It’s not as hard as you think. Sure, there’s a learning curve. It’s certainly not as complicated as the fiat system you use every day.
If you’ve bought bitcoin but haven’t withdrawn it to your own private keys, stop reading this and do it right now. My company, Unchained, specializes in helping people hold their own bitcoin securely and with built-in fault tolerance. Your own personal Fort Knox. If you’re new to bitcoin and are planning to buy some, make the decision right now to take your coins into self-custody. There will only ever be 21 million bitcoin, and you should never trust yours with anyone else.
Not your keys, not your bitcoin.
Stay humble, stack sats
Bitcoin’s volatility, as measured by the ever-shifting exchange rate with US dollars, is a focal point of critics and skeptics. I’d like to reframe the discussion.
Bitcoin is arguably the most stable thing on the planet right now. Its rules cannot be changed. Its supply is absolutely fixed. These inherent qualities make it a perfect measuring stick for economic value. A world that adopts 21 million bitcoin as the denominator for economic calculation optimizes its communication protocol for determining relative value. Noise is removed from the system.
The world around bitcoin is extremely volatile. Wars, lockdowns, inflation, financial crises, quantitative easing, debt spirals, yield curve control. It’s hard to know what the rules will be from year to year. That makes it hard to plan and easy to misallocate capital. On the other hand, we see exponential growth in information systems and productivity across various industries that drives the costs of once-expensive products and services to near zero.
To add insult to injury, the denominator the world uses to measure all of this economic activity is constantly changing. Consistent monetary debasement occasionally and temporarily yields to violent bouts of deflation as natural forces attempt to correct excess leverage. That cycle is met with more forceful debasement by monetary and fiscal authorities to stop cascading liquidations. When the crisis settles, the cycle starts all over again. Around and around we go.
The bitcoin exchange rate is not immune from this chaos. Very few people truly understand what bitcoin is and why it’s important. A general lack of understanding, paired with high levels of macroeconomic uncertainty, leads to wild shifts in demand for it. With a perfectly inelastic supply, the effects of those demand shifts manifest as price volatility.
The most recent bull market ended in late 2021. From its peak around $69,000 per bitcoin, the price fell over 75% to around $16,500. Bitcoin does this from time to time. It corrects drastically over periods of time that feel like forever, especially if you bought a lot of it during the bull market. This bear market had two very closely related drivers: 1) extreme macroeconomic headwinds as interest rates dramatically increased in response to inflation caused by unprecedented monetary and fiscal stimulus injected by governments and central banks around the world, and 2) sustained selling pressure from the massive implosion of crypto, blockchain, DeFi, NFTs, Web3, and dog coins as their centralized-ponzi-scam nature was laid bare.
That volatility cuts both ways, of course.
There have been times in bitcoin’s history when it seemed like nothing could stop its inevitable march to $1 million per coin. Sometimes the price goes up week after week, relentlessly. All dips are bought. Corporate news channels cover it every day. CNBC asks every single guest their opinion on “crypto”, despite the fact that none of those people understand it at all. If you own bitcoin, it’s impossible not to be infected, at least to some degree, by a sense of euphoria.
So what’s the proper approach to bitcoin in the context of this volatility? Recognize that price is noisy, especially in the short term. Continue learning and exploring. Try new tools. Focus on the fundamentals. Regardless of the price, the macroeconomic landscape, the news cycles, the crypto ponzis, the lockdowns, the wars, the pick-your-crazy-thing-going-on-in-the-world, bitcoin’s heart continues to beat, steadily. A new block about every ten minutes. 21 million bitcoin forever.
Each bitcoin is divisible into 100 million units called satoshis, or “sats” for short. With approximately eight billion people on the planet, there are about 262,500 sats per person. You can currently buy that amount of bitcoin for about $60.
I believe the world is in the process of rearranging itself to make bitcoin the global money. Buying bitcoin at this point in history is the most lopsided, asymmetric trade of all time. With that thesis, you must approach bitcoin with humility and a low time preference. Bitcoin becoming global money will play out over years and decades. There will be plenty of volatility in the meantime. Don’t get caught up in it – in either direction.
Stay humble, stack sats.
To most people, bitcoin is unintuitive. It’s alien; unlike anything they’ve ever seen before. It’s the complete opposite of the fiat world around us – a permissionlessly accessible source of incorruptible truth.
But if you keep digging, it becomes hyperintuitive. When bitcoin’s significance finally dawns on you, it’s a sight that can’t be unseen. You can’t unring that bell.
Bitcoin’s unyielding nature incentivizes you, incentivizes the world, to embrace it as it is. It’s not going away. It will continue to grow in prevalence and adoption. It can’t be changed, and so you must adapt to it.
These three key tenets should help: Don’t trust, verify. Not your keys, not your bitcoin. Stay humble, stack sats.