If you’ve seen Bitcoin in and out of the news but struggled to understand exactly what it is, or why its price keeps jumping up and down, we’ve sought out the answers. Bitcoin is extremely volatile and many different commentators predict different things. Some argue we’ve only just seen the beginning of how Bitcoin is going to remake the financial system. Others argue it’s a passing fad whose time is already drawing to a close.
We hit up Kevin McCarty, a Bitcoin investor and trader, to ask him to explain it to us in extremely simple terms so that non-technically minded people could understand it.
The interview is below, but first, a quick timeline:
- October 2008: An anonymous developer using the name Satoshi Nakamoto publishes a White paper explaining the underpinnings of his new digital currency. The full text of the paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” is available on Bitcoin.org.
- January 2009: Nakamoto releases the first Bitcoin software and mines the first Bitcoins. Bitcoins are initially worth $0.08 cents each. Prices rise and fall in waves over the next decade, but with each high reaching new peaks, and each low falling less far.
- Mid-2010: Nakamoto hands over control of the software behind Bitcoin to Gavin Andresen, who becomes the lead developer behind Bitcoin. Nakamoto’s wallets still hold an estimated one million bitcoins, making him, whoever he is, a very wealthy man.
- September 2012: Gavin Andresen, Jon Matonis, Patrick Murck, Charlie Shrem, and Peter Vessenes found the Bitcoin Foundation to promote the use of the new digital currency.
- October 2014: Bitcoin value drops sharply after the FBI shutters the Silk Road, a prominent trading website used to buy and sell legal and illegal items.
- December 2017: After a meteoric run, Bitcoin reaches an all-time high of $19,783.06 before the price starts to decline again.
- November 2018: After holding steady for much of the year Bitcoin crashes below $6,000. Many investors and insiders argue the downswing is temporary and Bitcoin will recover soon.
Kevin McCarty is an investor & trader who helps people turn cryptocurrency from a confusing hobby into a full-time revenue stream. Before diving into the cryptocurrency sphere, Kevin worked as a Field Engineer for Schlumberger Oilfield Services. In his free time, he enjoys lifting weights, grilling steaks, and dismantling the government’s monopoly on money.
1) So talk to me about Bitcoin. What is it?
Bitcoin is the greatest form of money the world has ever seen. Throughout history, man has used various forms of money: from seashells to gold to paper bills. All of these forms share one fatal flaw: their supply can be modified. Gold can be mined, and bills can be printed.
Bitcoin is the first form of money whose supply isn’t governed by man, but by math.
There will only be a total of 21 million Bitcoins ever created, and that fact alone makes Bitcoin the greatest money ever known. The rabbit hole goes much deeper, but Bitcoin’s finite supply is the #1 reason why it’s so revolutionary. There’s great technology behind the scenes that makes it possible, but I don’t want to take too much of your time explaining it.
2) Wasn’t Bitcoin just another bubble?
Bitcoin’s price was just in another bubble, but this is to be expected for a commodity of fixed supply. As demand increases, supply stays (relatively) the same, meaning that the price will organically go up over time. There have been bubbles in the past and there will be bubbles in the future.
Despite this volatility, price movements don’t change the underlying asset. At the end of the day, 1 BTC is still 1 BTC, and the network performs just as well at $1 or $1M.
Another reason Bitcoin goes through crazy market cycles is that Bitcoin is “engineered to FOMO,” as I call it (fear of missing out). If Apple starts going on a massive upward streak, you sigh and say “huh, too bad I didn’t buy any shares. Maybe next time.”
On the other hand, if Bitcoin goes on a massive run and suddenly becomes the world’s currency, there is no next time! This concept makes people FOMO in and make terrible investment decisions, all because they’re scared of missing out.
Bitcoin will continue to have boom and bust cycles, so it’s best to buckle up and enjoy the ride.
3) How can you even buy and use Bitcoin?
It’s much easier than you’d expect. The technology has come a long way and is much more user-friendly than back in the early days. The easiest way to buy Bitcoin is right on the popular dollar-based digital transaction service CashApp, or you can use an exchange like Coinbase.
Beginners can store their coins on the exchange, but it’s advised to use a hardware wallet like the Ledger Nano S. This USB drive will keep your coins offline, making it extremely hard to steal them.
I’ve got a whole beginner guide on my website that goes into detail about how to buy and store.
4) Why is Bitcoin better than regular money ie the dollar?
As I mentioned, the fact that its supply can’t be tampered with is what makes it so earth-
shattering. However, there’s a ton of other reasons that it’s the best money available.
First, transactions can’t be censored. Bitcoin is a peer-to-peer network that by design is open for anyone to use.
Right now, 90% of the world’s money is digital. It’s not physical cash, it’s numbers on a screen. Unfortunately, we handle most transactions through centralized third parties like PayPal or Venmo. These third parties can and will censor people from sending money, as shown with Alex Jones, Tommy Robinson, and many other “controversial” figures.
That’s not cool, and shows why the ability to transact without third parties (using Bitcoin) is so powerful. You and I can log on right now, and no one can prevent us from sending money. That’s important for any currency to succeed.
Further, it has all the characteristics you’d expect from sound money.
It’s portable, since your keys can be written down on a piece of paper and transported anywhere.It’s divisible. With USD, you can only go as low as a penny. Bitcoin can be divided indefinitely, into smaller and smaller subunits. It’s durable, since there’s no physical asset under it, you can store your keys and hold the asset forever. Custody is simple and doesn’t depend on anything in the real world. Bitcoin is the only asset in the universe that can’t be taken by the government. This is especially important after we saw what happened with gold. I could go on and on, but the summary is that it’s a censorship resistant store of value that’s completely un-confiscateable.
5) Why is Bitcoin better than any of the other cryptocurrencies (altcoins) currently on the market? What about Bitcoin Cash?
The #1 thing that separates Bitcoin from the alt coins is that there’s no one in charge of Bitcoin. This makes it infinitely more decentralized and censorship resistant than anything else out there. Bitcoin was launched by an anonymous developer using the pseudonym Satoshi Nakamoto, who disappeared years ago. 99% of the alt coins were launched by centralized corporations or foundations who could easily be controlled or shut down. Sound money needs to be as decentralized as possible, and if there are central planners who determine the fate of the currency, governments or other nefarious individuals could easily force changes on the currency.
Additionally, Bitcoin’s design is the best on the market. It’s been running for 9 years now with minimal downtime. That’s because its code is made to be strong and robust. The developers know that when you add more features, you actually add more attack vectors. Bitcoin has resisted attack because it’s so simple and effective.
Further, there’s nothing really that alt coins can do that Bitcoin can’t do. Sure, some alt coins have features that Bitcoin doesn’t, but most come at the cost of centralization. For example, transaction speed can be decreased by routing through a third party, like PayPal. Bitcoin decided instead to focus on security, censorship resistance, and decentralization, and that’s why it’s been running uninterrupted for so long.
Bitcoin Cash (BCH) is a hard fork of Bitcoin (BTC) that was launched last year. A hard fork is a technical term for splitting the Blockchain network underpinning Bitcoin in two. The Blockchain is a complex ledger which records information in a peer to peer network. Simply put, means they clone the transaction history and balances up to a certain point, then fork and change the consensus rules so that their chain is no longer compatible with the main Bitcoin chain. Imagine it like a “fork” in the road.
The split was motivated by a disagreement within the community. BCH wanted to increase the block size, BTC wanted to keep the same block size and activate an upgrade called SegWit. We couldn’t agree, so the BCH people went their own way and now
there’s two coins. BCH is almost identical to Bitcoin, so it has a lot of the benefits, but at the end of the day it’s not as effective (in my opinion). They have larger blocks, which means it’s harder to run the node software, which means it’s less decentralized. The coin is worth less than BTC, so there’s fewer
miners securing their network. There’s also less liquidity and fewer network effects, since Bitcoin kept the name brand.
Technical aspects aside, I’m not a fan of Bitcoin Cash because they deceive people who go to bitcoin.com and expect to buy Bitcoin (BTC). There’s also a lot of drama going on behind the scenes between who controls BCH, and they’re actually going to hard fork AGAIN in a week from now.
Stick to Bitcoin (BTC) and you’ll live a happy and healthy life.
6) When will I be able to buy chicken nuggets with Bitcoin?
Put simply: you can use Bitcoin to buy chicken nuggets when McDonalds starts holding Bitcoin. Myself and many others in the space who believe that Bitcoin must achieve status of “Store of Value” (like gold) before it becomes a “Medium of Exchange” (like U.S. dollars).
As long as the price of Bitcoin is volatile, it won’t be a suitable Medium of Exchange (MoE). Businesses will insta-sell so they can…you know…pay their bills. Bitcoin volatility will only disappear once the liquidity is so high that selling won’t have an impact on price. That’ll only happen once the price is in the seven (or eight, or nine) figures.
Ironically, this means that today, you’re incentivized to hold.
Why would you buy chicken nuggets with an asset that’ll go 100x in your lifetime, when you can spend dollars which deprecate at 3% a year?
7) Bitcoin has been described as a borderless way to share money in a way so the
government can’t steal it. So isn’t the government going to find a way to shut it down?
They really hate stuff like that. You’re right, they really do hate stuff like this, but there’s a few factors that make Bitcoin completely resistant to government censorship.
As I mentioned earlier, there’s no central authority or CEO of Bitcoin. Even if the government wanted to “shut it down,” who would they subpoena? There’s no one in charge. The second thing is that the peer-to-peer nature of the network means its incredibly difficult to shut down. As long as someone in the world is running a Bitcoin node, people can broadcast transactions. The node software is light and can be run on most computers, and due to this there’s a giant network of nodes running. Today, there’s around 11,000 nodes worldwide. It would be extremely difficult to shut them all down.
You’re also right about Bitcoin being borderless. That in and of itself is a huge benefit. Anyone who’s ever had to wire internationally knows that it’s a pain in the butt, and usually costs an arm and a leg. Thankfully, all Bitcoin addresses look the same – whether you’re from Argentina, Australia, or America – so sending internationally is fast and affordable.
8) What is your endgame? You want people to buy more Bitcoin?
My endgame is simple. I used to be big into politics. I slowly learned that most of the problems in the world exist for two reasons:
1. Massive corporate lobbying means that the governments and corporations are slowly
becoming one, and the only way to fix that is to decouple government from monetary policy.
2. Rampant inflation is screwing over the world from an economic and social standpoint. The results of adopting a sound money (like gold or Bitcoin) will be much more powerful than any short-term campaign can accomplish.
I realized that hyperbitcoinization (making Bitcoin the one world currency) would fix most problems, and shifted all of my focus towards making this happen.
9) What is the concept of “Digital Gold” and why should I care?
I’m not sure who coined the “digital gold” metaphor, but it’s a phrase used to describe Bitcoin as a digital store of value, like gold. I think it’s the best, simplest way to describe Bitcoin to outsiders using a meme. Everybody knows gold. It’s valuable because it can’t be faked. Alchemists have been trying for centuries to create gold out of lead, and it’s not happening.
This is what makes gold such a great store of value: like Bitcoin, its supply is hard to tamper with. It can be mined, but unlike other metals, there’s isn’t that much gold in the world. The known supply on earth is difficult to increase at this point in time. There’s so much gold out in the market, that any increased mining activity wouldn’t impact the price. Gold is a great comparison because for a while, it was used as money. Prior to WWI, there was a long period of time where gold was used as the world’s currency, and a “Gold Standard” ruled. This period saw an unbelievable growth in the world’s economy due (in a large part) to free trade and minimal currency manipulation, and I expect the Bitcoin Standard to do the same.
The phrase was popularized by a great book called “Digital Gold,” which recounts the history that brought Bitcoin to where it is today. Must read!
10) Any final thoughts on Bitcoin and what people should do with it?
Everyone (and I mean it, everyone) should do two things. Number one – start buying and holding Bitcoin. Read up on Dollar Cost Averaging and start allocating a small portion of your net worth to Bitcoin.
You don’t have to become a full-time trader, or obsessed with Bitcoin like I am, but you should have some exposure to Bitcoin. At this point in time, it’s irresponsible NOT to have a small bit of your portfolio in Bitcoin. Besides Venture Capital round investments in Uber, there’s very few vehicles that have performed as well as Bitcoin over time.
Second, everyone should spend a little bit of time each week studying Bitcoin. There’s a LOT of information out there, and sometimes it feels like you’re drinking water from a firehose. I get it.
Instead of trying to become an expert overnight, take your time and slowly get acquainted with it. Follow Bitcoiners on Twitter, and attend local meet-ups in your city. After a while, these actions will pay off.
Lastly, a great resource everyone should read is Saifedean Ammous’ “The Bitcoin Standard.” This book makes the case for sound money a hundred times better than I can, and is truly an incredible read. Unlike other Bitcoin books, it’s easy on the technical aspects and instead focuses on the big picture macro-economic case for Bitcoin. Most of the ideas I’ve regurgitated here – I learned from Saifedean!