I have gone down the rabbit hole of Bitcoin and Cryptocurrency and this is some of the result of a year of reading, investigating, and investing in these technologies.
As someone who has a bit of a techy background, Bitcoin is something I've been aware of since it was created in 2008 but I've not paid much attention to until the last year. Starting out I thought Bitcoin and Crypto were one and the same, a volatile and unregulated wild west of technology masquerading as currency with very little use in the real world other than to seemingly make or lose money quickly. Much of of the world still sees Bitcoin in this way with International Monetary Fund (IMF) chief Kristalina Georgieva stating that just because it has 'coin' in its name doesn't make it money. Warren Buffet and Bill Gates have both recently denounced Cryptocurrencies, specifically Bitcoin, as not doing anything and therefore not worth anything.
I got into Cryptocurrencies sort of by accident, but mostly out of curiosity. A random conversation on Twitter recommended a Web Browser called Brave. While being generally more secure than other browsers, it gives you a cryptocurrency called BAT (Basic Attention Token) that add up over time as you gain a percentage of the advertising profits ever time a small ad pops up in the corner of your screen. I thought why not try it, downloaded it, and within three months I found I had enough BAT to play around with on an exchange - I didn't really know what an exchange was but it had a load of different cryptocurrencies on it and they all seemed to be increasing in value by the hour if not the minute (early 2021 and then late 2021 were two major peaks in the Crypto market). I could also make withdrawals to my bank account having converted BAT and other cryptocurrencies to real money which was interesting to say the least. I made a little bit of money from the free BATs I received and thought this could be a good thing. Long story short, I made a bit, lost a bit, and kept investigating.
After a year and a bit in, I have come to the realisation that much of Crypto is what they say it is - ponzi schemes run by a CEO and a marketing team that want you to invest so when the value goes up, they can sell. Some Crypto, like the Brave Browser actually has a use case that works, so I will continue to get a few BAT each month simply for browsing the web and that'll pay for a few coffees a year. Other Crypto, like Luna, are marketed as world changers, have a massive community of developers and fans, and go from almost $200 per coin to zero within two days and people lose millions of dollars.
It wasn't until I bumped into other Christians on Twitter who were discussing faith and Bitcoin while being critical of Crypto that I started noticing there was a difference between the vast majority of Cryptocurrencies (if not all of them) and Bitcoin. The conversations have led to me thinking more about money and the ethics of money than I ever thought I'd be interested in. So, here is a blog of a few things I've learnt and as I learn from discussion, I'd love it if you disagreed or have questions! I'd also love to know if anything I've said is inaccurate or wrong and look forward to updating this or posting more as I continue to learn. Feel free to comment here or wherever I've posted this.
For ease of access in what is a long post, here are the headlines:
What is Money?
Over the course of my life, I have not given much thought to what money is or what makes a pound coin or a dollar note valuable until this last year. I was aware of something called a gold standard and knew inflation wasn't a good thing if it got too high. My parents instilled in me an ethic of avoiding debt as much as possible, saving a bit each month, and putting money in things that lasted - a very good ethic that has been followed as much as possible except for that wobble called university.
Having looked into money a bit more over the last year it has gradually become more obvious that what my parents were teaching me is the polar opposite of what our government (and society?) does. As recent memory shows, when the economy looks to be in a pickle, the government calls for society to spend money and puts forward money itself to encourage it, even if it doesn't technically have the money to do so. This has led to crazy inflation rates that haven't been seen in decades and the cost of living has skyrocketed as the value of the currency has decreased. The Bank of England attempts to set a monetary policy to keep the value of money stable and this continual fiddling with how money works seems to be having more of a negative impact than is generally recognised. It is this ability to fiddle with the monetary policy that has broken the value of our currency and is also the problem with many, nay all, cryptocurrencies... bar possibly one.
So what is money? Money is a medium of exchange that is given value by those who use it. An economist will have a longer answer but that will suffice as a definition for now. History shows us that shells, rocks, glass beads, and paper have all been mediums for exchange in various cultures that needed to work out how to trade oranges for building materials when the person who supplied the materials didn't want to exchange it for buckets of oranges.
There are six accepted markers for what makes good money: You want things scarce enough that it requires energy to acquire it, durable enough that people can't destroy it or that it rots, acceptable enough that people want it (not everyone wants or likes oranges, let alone buckets of them), divisible enough that smaller quantities are valuable, uniform enough that people aren't jealous that you received a better looking £1 coin, and portable enough to fit in a pocket or small bag (for your average person - we aren't speaking of millionaires here).
In fairly recent history currencies were tied to gold. You could cash in your paper bills and receive gold from the bank. In the 1970s the last remnants of the gold standard were abandoned though it hand't been fully the standard since the 1930s. When someone says 'Bitcoin has no intrinsic value', they need to say the same for the US Dollar and the British Pound - though both have some gold reserves, the currency is so inflated that there is very little connection to the value of gold. All major currencies only have value these days simply because people use them and are willing to accept them for goods and services - that is until they aren't. Many currencies in the developing world are tied to the US Dollar or in some African countries, the Franc (even though the Franc is dead) which is pegged to the Euro. If inflation is high in the US or Europe, it is worse in developing countries because of their reliance on Western currencies. Colonialism isn't really dead, economically speaking.
Many of us are attempting to store currencies, mostly in digital format, for periods of time hoping they will increase in value but with the Dollar and the Pound this is a failing endeavour.
It could be said that spending your pounds now is the best thing to do because they are as valuable now as they'll ever be. Therein lies the problem and as inflation increases, more currency is pushed into the system, the money already in people's accounts will decrease in value due to it no longer being as scarce.
So where should you put all of your hard earned energy? You work and you are compensated for it in a currency. Some will not be able to store it beyond paying for the food, bills, rent, and services that keep them going. Even then may find themselves like the government, spending money they don't have. Unlike the government, these people find themselves having far more troubles as debt collectors come hunting and they, unlike the government can't print more money to avoid defaulting on their debts. It is why charities like CAP are invaluable to serve those who find themselves in this situation - financial freedom or the lack of it plays a major role in people's wellbeing. Those who are able to store a little bit of money each month will find the banks offer such low interest rates you may as well be shoving cash under a mattress if it wasn't so insecure or uncomfortable (if you save enough of it).
This is where Bitcoin comes in. I'll come back to the money question in a moment but a little intro to what Bitcoin is will hopefully be helpful. Bitcoin is a fairly straight forward concept that isn't unique to the digital age. It is a public ledger showing who owns what and when certain amounts get transferred to another owner, the ledger is updated. There are cultures that had similar means of transactions through the ages. The difference with Bitcoin is that the ledger is decentralised by being verified, updated, and secured by an ever-growing number of devices known as miners and nodes.
Each node and miner has a copy of the ledger and verifies each transaction - you can setup a node for under £100 and see the entirety of Bitcoin's transaction history which fits on a 1TB hard drive. Nodes secure the network because a node both has a record of the ledger and makes sure code isn't changed. Code changes and monetary policy changes have been attempted and failed and they only get harder to implement the more bitcoin is adopted. This is because every node (or at least the vast majority) must consent to the changes or you end up with a new cryptocurrency. This makes it very decentralised and can withstand even the biggest dictatorship trying to control it and then totally ban it. A miner is a node with additional functions. A miner secures the network by competing to validate transactions for which it receives a small transaction fee. Miners also compete to solve complex maths problems to create new bitcoin which will only be possible for a finite amount of time due to what is known as halving until there will be no more bitcoin to create (click here if you are interested for more tech speak). In the early days of Bitcoin a miner could be a personal computer and many people mined a lot of Bitcoin as a geeky side project and then forgot about it or lost their hard drives. Now mining requires a lot more processing power, and although you can install mining software on your laptop, you will more likely burn your laptop out before you make any money.
A miner does use energy and the more Bitcoin is adopted the more energy and processing power is required to mine Bitcoin. For many this is said to be a waste of energy and damaging to the environment but I'll discuss that further on in a bit more detail. From what I've researched and investigated, the proof of work mechanism which secures Bitcoin is a feature of the code and a means of making the currency fair and valuable for all as opposed to being a bug and a waste of energy. Other mechanisms for verifying transactions in Cryptocurrencies such as proof of stake are simply traditional currencies made digital - those with more money staked in the currency get more of a say in the monetary policy and are better placed to make money when price pumps. Far from a waste of energy, Bitcoin monetises energy and this is a major point for discussion when I discuss the environmental impact in a moment.
Is Bitcoin money? Well, the fact that 1 Bitcoin is worth between £23,000 and £24,000 ($29,000 and $30,000) at this point in time says it has value. Whether it is intrinsic or not, people at least find it acceptable enough to spend a lot of money on it. As 1 Bitcoin is divisible into 100,000,000 sats (short for Satoshi, the pseudonym of the anonymous group/person who invented Bitcoin), anyone can start saving in Bitcoin even with only a few pounds at a time. 1 Bitcoin is the same as any other Bitcoin and so is absolutely uniform. Bitcoin is scarce in that only 21 million bitcoin will ever be able to be mined into existence. It is durable in that while you have access to Bitcoin through digital wallets on a phone or computer, technically you are only holding onto private keys that identify the bitcoin is yours. It is the public decentralised ledger that "holds" the coins. For those escaping warzones or areas with hyperinflation without access to banks, one could technically leave with a memorised private key and nothing else, and be able to access their bitcoin when safe to do so without being concerned with banks, currency exchanges, or being robbed. Which in turn, shows that Bitcoin is extraordinarily portable. Many are also arguing that Bitcoin is a store of value that is better than fiat (traditional currency) but this seems to be persuasive relative to your own currency's inflation rate. If your currency is facing hyperinflation, which many currently are, Bitcoin looks rather stable.
But can you buy stuff with it? For most of Bitcoin's existence it was unable to be a good means of purchasing items in shops because it takes upwards of 10 minutes to get enough confirmations that your transaction has been verified and accepted on the ledger. Developments on what is called a layer 2 protocol (all networks, including the internet, have layers) called Lightning has made near instantaneous transfers possible, not just locally, but globally, with tiny transaction fees. It is this development in the last year or so that has moved Bitcoin up in the world and led to El Salvador making it legal tender, but more on that in a moment as well.
In terms of what you can buy with it, it depends on where you are. If you live in El Salvador or the Central African Republic, you can buy anything with it as it is legal tender and other countries are beginning to engage with it as a possible currency. Companies such as CoinCorner in the Isle of Mann are developing payment systems for shops to be able to take Bitcoin payments without needing to use QR codes and phones but in a similar manner to your current Debit and Credit Cards. They also have several businesses accepting payments for food, drink, and clothing in the Isle of Mann. I believe it is only a matter of time before businesses start accepting Bitcoin more readily across the UK, even more so when governments get an idea of what Cryptocurrencies are and whether to regulate them or how to tax them.
So why do I invest in it? Mostly because I see it being a good investment over a longer term that stores the energy of my work better than traditional currency and bank accounts currently do. I also think it is a better money, free from government/corporate changes in monetary policy, and hyperinflation. It is the way it is being used across the globe that also makes me think it is a valuable and ethical thing to invest in.
I think Bitcoin is ethically neutral. Just like money, it is how you use it that becomes a question of ethics.
You of course, are welcome to disagree and I'd love to hear your disagreements and concerns in the comments for me to think through and interact with. Below are my thoughts on some of the main contentious issues raised against Bitcoin.
Ethics & Developing Countries
Bitcoin, due to its decentralisation, is not controlled by anyone, there is no CEO pulling the strings, it is available to all and that includes both tyrants and those seeking to be more democratic, professional criminal and priest, billionaire and kid in a township and everyone in between. One reason I'm keen to invest in Bitcoin and eventually use it beyond a store of value is because of the way it has the ability to free developing countries up from their dependency on western currencies.
Cryptocurrencies do tend to have a reputation of being used by criminals. Bitcoin is only used by criminals who are hoping to get caught. Bitcoin as already stated is a public ledger, while private keys are private and funds are only accessed with the private key, wallet addresses for transactions are pseudonymous meaning transfers can be tracked and those dealing with large transactions can be caught. Other cryptocurrencies are more anonymous but then they have an uphill struggle to show themselves to be better than the already established Bitcoin and anonymous money isn't necessarily a great idea either. I think being able to catch criminals who steal are launder money is a good thing. All that said, criminals are still seeming to prefer good ol' US Dollars or cash more generally for their nefarious practices.
One of the arguments El Salvador used for going to Bitcoin as legal tender was that remittances through Bitcoin would save millions on the middle men that charge upwards of 6% for sending dollars from El Salvadorians in the States to their kin back home. While many in the media and in power are stating El Salvador is a failed experiment, it is still early days and there are many reasons to think it will grow in its adoption over time. If it frees developing countries from the middle men and economies benefiting from keeping them 'developing' then I think that is a good thing.
One of the reasons I think it will work in El Salvador, given more time, is Bitcoin Beach and their education program in El Zonte. This is a locally led initiative that created a micro economy around Bitcoin in a small community that gained attention across the globe. It has been so successful that it caught the imagination of the president and led to legislating Bitcoin as legal tender. There are now other initiatives such as Bitcoin Lake in Guatemala, Bitcoin Ekasi in South Africa, Bitcoin Jungle in Costa Rica, and a similar Bitcoin Beach in Brazil all seeking to bring financial freedom to highly unbanked populations. They do this through education and creating a micro economy using a currency that is free from the inflation and politics and insecurity of the locations they are in. What is more, through the Lightning Network, anyone can ping a few hundred Sats (the small divisions of Bitcoin - 4000 sats is currently about £1) over to a charity the other side of the world with hardly any cost. The fees attached to remittances and global transfers of traditional currency makes it untenable to send small amounts of money. Bitcoin fixes this.
Environment and Energy
In 2021, Elon Musk seemed to impact the Bitcoin price by saying that Tesla would allow Bitcoin payments and proceeded to then buy a lot of Bitcoin. Soon after, Tesla backtracked on this saying that Bitcoin was bad for the environment and therefore until it was 'cleaner' they would no longer accept payment - they didn't sell their bitcoin though showing that they still think it has value. To be sure, Bitcoin mining uses a lot of energy, more than many countries as many remind anyone listening, but it is as only as bad for the environment as any electricity usage is. What produces the electricity is what matters.
There are people starting up coal powered power stations to power their mining operations, which isn't great. However, there are also people using mining operations to monetise wasted energy from renewables and from the waste of other industries - making them cleaner. There is much back and forth on this topic but there is some research showing a lot of the fear over environmental damage is misplaced. For the most part, those comparing the energy use of bitcoin to various countries don't tend to consider the energy use of our current monetary systems, or the environmental impact from gold mining. Over time, as the rewards from Bitcoin creation continue to halve, the network incentivises cheaper, and more efficient methods of energy creation to power the miners. Because of its value, Bitcoin also incentivises clever use of gases to harness energy. There is also potential for making use of natural energy such as waterfalls in rural areas to mine bitcoin and fund conservation.
All that to say, like anything used by humans, there is an environmental impact. I personally think the impact of bitcoin is no worse, if not much cleaner, than the impact of gold mining or the energy used by our current financial systems. Unlike both, Bitcoin mining incentivises innovative ways to source energy that could lead to more sustainable and green energy creation.
How do I buy Bitcoin?
Firstly, as most people in Cryptocurrency say, I'm no financial advisor. Make sure you do a bit of research and only put money in that you are willing to see the value go up and down on. I see Bitcoin as a long term investment and have moved away from the constant checking of price and being concerned about peaks and troughs and when to buy and when to sell. It is still disconcerting to see major sell offs as has been happening since November 2021 but I think (and I could be wrong) the long term price of Bitcoin will go up substantially as its wider adoption and use is inevitable. While it is low, think of it as buying at discount.
I'm also gradually ditching the various other coins I put money into, some of them I may just have to take a loss on. I say this because there are several methods to buy Bitcoin - using exchanges like crypto.com, Etoro, or Binance (or any number of exchanges) are legitimate ways of doing this with two big issues:
You can be overwhelmed by the number of currencies and, if like me, you join in a bull market where everything goes up, you can be tempted to throw money around and find yourself regretting it in a bear market - where everything suddenly turns red.
If you buy on an exchange and leave it there, you don't own your Bitcoin (or any coin for that matter). You have an I-owe-you dependant on the exchange to have enough Bitcoin in reserve if you did want to remove it from the exchange. Technically if you buy on an exchange, you aren't using Bitcoin. There are incentives on an exchange to keep it there like short term savings with a little bit of interest because it is in their interest for you to keep it on the exchange. If an exchange goes down, or your account gets hacked, they aren't regulated like banks and you may lose your money.
What I would recommend to those interested in the UK is to use Coin Corner (affiliate link). It costs each time you purchase Bitcoin but you can remove it from the exchange for free through the Lightning network to your own wallet off an exchange if and when you are ready to (click for an introduction to wallets - I use BlueWallet but also recommend Muun for its simplicity). Other exchanges will allow you to buy for free but will charge you varying fees for removal on top of the network transaction fees - they may end up being cheaper so please do a bit of homework before copying what I do!
For more detailed information on getting Bitcoin click here.
In the long run, keeping your Bitcoin secured (you are your own bank with Bitcoin - it is solely your responsibility if you lose it) looks like keeping it off of your phone and in hardware wallets. It may also look like running a node or if you've got time and money ($10k+), setting up a miner.
I'm still learning but I'm fairly certain Bitcoin is here to stay and spending the time to figure it out is a good investment of my time. Stacking a few sats each month is a good investment of my money. It is also fun knowing that sending a few sats each month across the globe to one of the growing number of micro-economies is helping other people out.
Resources
I had a conversation with a Twitter friend on my podcast about Bitcoin - you can listen in below or at www.criticalwitness.uk/podcast.
The Bitcoin Standard - a decent intro to money, economics, and Bitcoin, but a bit preachy with debatable historical accuracy in some places where money is discussed. The bits about Keynesian economics were interesting but read with a critical mind. The chapters on Bitcoin are helpful. Here is a critical review.
Twitter: Bitcoin Beach, Bitcoin Lake, Bitcoin Ekasi, Bitcoin Beach Brazil, Hope House, Christian Hodler, Mission 21M, there are many others but you'll find them if you follow these
I also find Coin Bureau on YouTube helpful as a pointer to all things Cryptocurrency.