@ Evan

# Should I Buy Bitcoin? The price of a single Bitcoin recently reached $100,000 USD. By now everyone knows what Bitcoin is and how to buy some. Intuitively, the price of Bitcoin increases when there is more demand to buy Bitcoin than there is to sell it, and when the inverse is true the price goes down. We all know about meme-coins, which seem like (at least to me) the same exact thing as Bitcoin in a different name. So what makes Bitcoin different? Beyond buying it because the trend seems to indicate its value in USD will continue increasing, what is its fundamental value proposition? How is this value proposition different from meme-coins, or even alt-coins that are viewed as legitimate in crypto circles? What, if any, existential risks exist that could crash its price to zero in an instant? I want to explore these questions to best inform myself on how to store and invest my money for the long-term. Everyone started hearing a lot about exponential growth curves in 2020. In 1975, Gordon Moore predicted that the density of transistors would double every two years, and this has roughly held true since. As innovation fuels more innovation, we can expect that, very generally, technology progresses on an exponential growth curve. The idea that a computer program could replace the world’s reserve currency is worth taking seriously given the huge impact we’ve already seen new technology have on society over a 20-year, 10-year, 5-year, and even 2-year timescale.  When I was working at Square I direct deposited a small percentage of my salary into CashApp’s Bitcoin direct deposit program. I sold it all when I left the company. A lot has been written about Bitcoin, so I mostly hope that writing this can help me solidify my opinions so that I can make a decision on whether to invest again and stick with that decision for somewhere between a decade and a century. Up to now I also have not been able to find a good comprehensive evaluation of Bitcoin including the “bull” case and “bear” case, so I will attempt do that here. ## The Bitcoin Standard Two years ago I was trying to answer these questions I just posed and most people on the internet said to read the book “The Bitcoin Standard.” So I bought it and it has been sat untouched on my bookshelf ever since. Time to read…  *spongebob narrator voice* a few days later…. This would be a good book if the author did not repeat himself ad nauseam and if he left out his many false claims. He claims the Ethereum blockchain is less immutable than the Bitcoin blockchain, moving off of the gold standard caused a decline in art’s quality, and the internet was not a “zero to one” invention but just an improvement upon the telephone. He spends half the book rambling on and on, often with personal attacks, about how he does not like Keynesian economics. He seems to draw his counterarguments against Keynes from just a single economist, Ludwig von Mises. All of this made the book very annoying to read and proved the author quite untrustworthy. On the other hand, his general argument that hard money (ie gold) is superior to government-backed fiat is one I first read about in [*The Changing World Order* by Ray Dalio](https://economicprinciples.org). Dalio does a much better job here of backing this up and explaining how the decline of all the past major empires began by moving away from backing their currency with hard money. Government-backed money involves misaligned incentives — when the government spends and produces the money, invariably it will produce as much as it wants to spend. Hard money is supply-constrained, making inflation impossible. Inflation of course disincentivizes saving while incentivizing debt which is on a whole bad for society. Dalio shows that a populous prioritizing its future (saving money, investing in education and technology) correlates with its empire/country’s ascension. I don’t really know how to square this with present-day America which has the best capital markets in the world, but clearly does not prioritize the future in any other way. Maybe time-dimensions here have shifted since technology progresses much quicker now than in the past. Anyways, it seems obvious to me now that a global supply-constrained currency would be much better for the world than a currency owned by the US government. Since the government prints its own money and has no functional checks and balances on this power, hyperinflation and the collapse of the dollar is inevitable. So even though this book was really bad I am sold on Bitcoin’s utility, so I guess it did its job. I also did a lot of online research while reading the book. Let’s go through that. ## The Bitcoin Core Codebase  Bitcoin is software run on computers throughout the world. This software is on the internet. You can look at all the code, run it on your computer, and suggest updates to the core maintainers. A mix of volunteer and sponsored contributors around the world help to maintain the codebase. When the codebase it updated, people running Bitcoin nodes have the choice to update to the latest version. When the majority of Bitcoin nodes update to the latest version, the new software propagates throughout the ecosystem. This is literally how a version of money works and it is a software program you can look at and change yourself. There is mailing lists and IRC groups where software developers discuss how to make this version of the world’s money work best. I know this is now a pretty old concept but it has been blowing my mind. A case can be made that this is the world’s most important software program, since it defines somewhere around [2 TRILLION dollars](https://www.coingecko.com/en/coins/bitcoin) worth of value. ## Nostr  Somehow this rabbit-hole led me to one of the tens of new decentralized social networks. This one is the [latest favorite of Jack Dorsey](https://www.coindesk.com/tech/2022/12/15/jack-dorsey-gives-decentralized-social-network-nostr-14-btc-in-funding), who started Twitter and left it partly due to its centralization, then started Bluesky and left it partly due to its centralization. I’ve checked out Bluesky and Mastodon and I didn’t think it was really anything different or special and they just seemed like worse versions of Twitter. Nostr is actually very interesting and the reason mostly has to do with Bitcoin. Nostr integrates with your Bitcoin wallet (technically your “lightning” wallet, which is a fast and cheap way of sending Bitcoin) so that users can send and receive Bitcoin with each other. It’s a simple idea and really easy to build, but the effect is all of these people are talking online together and trading Bitcoin with each other so there’s a mini economy here that is denominated in Bitcoin. There’s obviously not a huge amount of people there compared to other social networks but at the very least it’s a compelling playground type of world that shows off what the internet could look like if Bitcoin gains mass adoption. Since payments are integrated directly within the social network, people share art and ideas and [get tipped in Bitcoin](https://primal.net/e/note1hjrxue7z9jf3964dpyjy2w99vcp34u7n52jchrugf4pmth9qq70s7wsh0r). But Nostr is actually a protocol — social network clients have just been built on top of it, but there’s a few other things that have been built with it. There’s [podcasting/streaming apps](https://fountain.fm), [encrypted messaging apps](https://0xchat.com/#/) , [blogging apps](https://habla.news), [marketplaces](https://plebeian.market), and on and on. Most of these apps leverage Nostr’s Bitcoin wallet integration, and generally they could do the same thing by handling payment via PayPal, Stripe, Square, etc. Here’s the following benefits of using Bitcoin over those options: 1. Censorship-resistance. This doesn’t matter for 99% of people and use-cases but if I want to buy illegal drugs or guns or medicine or hacked passwords then it matters. For the record, I (mostly) don’t. I think it would be great if I could though and I feel like if I want to then I should be able to. 2. Transaction fees. Existing solutions charge somewhere between 2% and 3% of every purchase. Transacting Bitcoin over the lightning network is basically free. 3. Taxes. This is another controversial one and technically the US government requires that you pay sales tax for all Bitcoin purchases. But since Bitcoin wallets are pseudonymous making it unlikely that a purchase can be traced back to you, commerce via Bitcoin does not incur tax from the government. ## Read Write Own Nostr is a good example of a Web3 platform since it is based on peer-to-peer server communication, but it is not typical of the category since it does not operate on a blockchain and does not include a bespoke cryptocurrency. Ethereum is the most famous Web3 platform where commerce is denominated in Ethereum tokens. Solana is the newest competitor and is now the most popular platform. What is going on with these? What are the advantages/disadvantages of Web 3.0 living on the blockchain? Even if Nostr provides a compelling vision of a Bitcoin-native world, is this necessarily intertwined with a decentralized web? With that, our next book is *Read Write Own* by Chris Dixon.  *more time travel* This was a good book. Maybe it could have been a blog post. Yes, it definitely was a blog post expanded into 250 pages. Nevertheless, its core argument was compelling and it did not base this argument on anything obviously untrue like the last book. The author is a partner at *a16z*, a large venture capital fund that invests heavily in web3 tech. The author breaks down internet networks into three categories: protocol networks, corporate networks, and blockchain networks. The first takes form as standards defined by [IETF](https://en.wikipedia.org/wiki/Internet_Engineering_Task_Force), such as HTML, SMTP, FTP, DNS, etc. Basically the core layer of the Internet exists as collection of protocols that define how bits are ordered. In the early days people interoperated by using thin clients that implemented these protocols. Corporate networks use these protocols as well but on top of them they create their own proprietary layer where connections are created. Think Facebook/Twitter social graphs, Google’s page rank, AirBnB/Uber’s marketplaces. Network connections exist within the proprietary layers each corporation has created. Blockchain networks are essentially corporate networks defined by new protocols. The author spends most of the book arguing that blockchain networks provide the great features of corporate networks with the openness of protocol networks, so blockchains give us the best of both worlds. If I could snap my fingers and kill the Internet and the world had to rebuild it from scratch, I think Blockchain would play a huge part in the redesign. The Internet is a hodgepodge collection of standards that have been somewhat haphazardly created over time. As we unlock greater capabilities via more bandwidth and more powerful compute, more standards and types of networks are added on top of the old ones. Dixon mostly argues that corporate networks are bad because corporations act as unilateral dictators over their respective networks. Benevolent dictatorships are the best organizational structure; of course, the problem is that no dictatorship can stay benevolent indefinitely. People will search for alternatives when a “regime” changes in a way they don’t like, as has already happened to some extent with Google[^1] and Twitter[^2]. Some corporate networks will stay benevolent for a long time, and they will persist long after their leadership becomes corrupted; as they say, Rome did not fall in a day. We’ve seen throughout history that democratic organizations eventually win out. Even China has ceded that they need some form of a free market to compete in the global marketplace. Blockchains provide a free market and democratic ownership within Internet networks. ## What to Do?[^3] I am completely convinced now that blockchains will one day be a foundational part of the internet, of course the big question is how long does that take? My intuition is that it takes a long long time, because it is going to take a lot to move people away from existing corporate-owned platforms. But, similar to Bitcoin succeeding because governments will not indefinitely print their money responsibly, corporations will not indefinitely govern their networks responsibly. So blockchain networks are something that I am looking at as a very long-tailed investment that I am fairly certain will pay off well in something like 50 years at the most, meaning I expect blockchains to be a foundational part of the internet within 50 years. I look at Bitcoin in a similar way but with a much shorter time horizon. The US government has displayed plenty of irresponsible monetary policy in the past few years and I expect this trend to continue. I look at Bitcoin as an investment that will pay off well within the next 20 years, by which I mean within 20 years Bitcoin will be commonly used as a store of value, if not a method of payment. Of the USD I am converting into cryptocurrency, three-quarters is going to Bitcoin, one-sixth to Solana, and one-tenth to Internet Computer. A brief word on the latter two… Every operation on blockchains costs money so that the nodes running the blockchain can be compensated. This is why blockchains all include a native cryptocurrency, which is the token its nodes are paid in. Solana is a new blockchain that has the lowest-cost transaction fee because it uses a unique method of verifying transactions called Proof of History, which combined with Proof of Stake provides strong cryptographic guarantees while using very little compute. Internet Computer is a blockchain that natively provides many building blocks for building a web3 ecosystem — an identity platform, http interoperability and cloud computing primitives. Basically right now you can deploy your website on this blockchain and anyone can access it from a web browser. There are many more blockchains that are interesting and the space is evolving really quickly, these two are just the ones that caught my eye and seem to me like building blocks for the future. ## Gripes I did not end up reading much text on cases against Bitcoin and Web3, as I decided these points are fairly obvious. This is new technology so there is massive reason to believe it will end up having no consequence to the world as 99% of new technology ends up this way. The cases against these technologies are well documented and encapsulates the prevailing sentiment around them. Bitcoin has no inherent value, is not optimally scalable, is pseudonymous rather than anonymous, requires more user responsibility than fiat alternatives, and will potentially be adversarial to the US government. Blockchains are always less efficient than traditional networks, charge per transaction, (mostly) include network lock-in via their bespoke cryptocurrency, and require that users set up and learn how to use [hot wallets](https://www.coinbase.com/learn/wallet/hot-vs-cold-crypto-wallet-what-is-the-difference). There are many reasons to believe neither of these technologies will succeed. I take the point of view that all of these downsides are going to be alleviated through technological progress (the open source community building solutions to all of these problems is huge and iterating extremely quickly) and through cultural shifts (learning to use the internet was once a big hurdle for everyone, but we have learned and taught each other effectively). It’s completely reasonable to be pessimistic, however pessimism around new internet technologies has not typically been a winning strategy. [^1]: I recently added [Kagi](https://kagi.com) to my list of software subscriptions. It is $10 per month and offers high quality search without ads. I recommend it. [^2]: I think the new Twitter is pretty cool, but many people don’t like Elon and have switched to one of the many alternatives. Additionally, some cracks have already started to show in their new model with Elon banning accounts he does not like or disagrees with. As mentioned before, Nostr is a good alternative, even if it is somewhat more difficult to get started with. To get started I recommend the [Primal](https://primal.net) client, for which I pay $7/month but is also great to use without paying anything. [^3]: Is it necessary to say this is not financial advice? I see that everywhere but I always think that it is probably not necessary legally. Anyways, this is not financial advice.