You Should Know About Bitcoin

A Beginner’s Brief on Saving with Sound Money

14 min readNov 10, 2021

Cryptocurrency. Bitcoin. You’re hearing about it without even trying to. But now you’re curious. You’re being told (and somewhere in your gut, you know) that digital currency is the future, but you’re not sure how or why. Well, the future waits for no one. So what’s all the fuss about?

Bitcoin with QR code, Benoit Tessier, Reuters (Image Source: CNBC)

Maybe you’ve had a conversation like this:

Jokes aside, I wish I was having this conversation 3 years ago! My Bitcoin journey began recently - in January 2021, so I’m new here too. I’ll be honest — there’s a huge learning curve into understanding Bitcoin. Looking to Twitter and YouTube for information can be helpful to an extent. However, I’ve found that most of the big voices on those sites will tout their early adoption (circa 2017 or earlier), as well as their technical or financial backgrounds. This can be intimidating, and can lead to the feeling of “I’m too late” or “I can’t learn this.” Well, I’m here to tell you that you’re not — and you can!

Don’t get me wrong — I’ve learned an immense amount on my own over the past year, but it’s clear to me that there is an education gap for us noobs. So I’ve set out to give a Bitcoin overview for the uninitiated. I was there myself recently and think I can help bring the idea home to my family, my friends, and maybe also to you and yours.

Briefly About Me:

I don’t have a finance or tech background, but I do attribute much of my initial open mindedness to the concepts surrounding Bitcoin to my undergraduate studies in International Relations, where I took courses in political systems, international finance, and economics.

Many people start off their interest in Bitcoin as an investment asset. Although likely to be profitable, that part never interested me much — but what did interest me was the role Bitcoin could play in the world economy and individuals’ ability to preserve wealth. It was in my International Political Economy course that I learned about global finance, domestic monetary policy, fiat currency, and the gold standard. I’ll go into detail about these terms later in this blog, but these were the concepts that struck a chord with me when I discovered and began learning about Bitcoin.

Cryptocurrency & Bitcoin

Cryptocurrency refers to a form of digital payment using a technology called “blockchain,” which is a decentralized technology that manages & records transactions. These transactions are maintained on an online ledger not controlled by any bank or central authority. For more on blockchain technology → Forbes Advisor, “What is Blockchain” (June 29, 2021).

Cryptocurrencies (also referred to as “altcoins” — meaning, cryptocurrencies that are not Bitcoin) are a rapidly advancing technology that will likely play a large role in the future of the digital economy, along with Web3 and NFTs, but we’ll save that for another day.

Bitcoin (with a capital ‘B’) is the first and now, one of many cryptocurrencies, sharing all of the qualities of crypto currency generally (i.e., decentralized, transactions maintained on the blockchain, and able to be transacted peer to peer without a 3rd party).

However, Bitcoin is unique to any other cryptocurrency in its ability to act as a store of value and savings for the long term. So what makes Bitcoin so special? First, I think it’s useful to discuss (1) the concept of money generally and (2) the modern international monetary system.

Money — What is it?

Past civilizations relied on trade as much as we do today, albeit on a more local and much smaller scale. Communities needed to trade with each other for items that they could not readily produce themselves, but which they needed or desired. However, it’s easy for us to see where “money” comes in useful, for example:

Trader A has furs and wants fruit.
Trader B has fruit and wants building materials.
Trader C has building materials and wants furs.

In this example, if Trader A and Trader B come into contact to trade, neither has what the other wants or needs. Also, if Trader B wants to sell fruit, but needs to travel to Trader C to do so, the fruit will likely rot and become worthless to Trader C by time they arrive.

So how does money facilitate trade? The idea of money is so engrained in us that we don’t even realize that it was a crucial societal development. To be an effective form of money, it must have the following attributes:

Durability —Able to retain its value and be resistant to destruction or degradation over time & space. (i.e., not perishable fruit);
Portability — Able to be transported from one place to another;
Divisibility — Able to be divided into sub-parts for smaller transactions;
Uniformity (or “Fungibility”) — Able to be interchanged with other money of the same nature without distinction in value. (ex. each dollar bill is worth $1.00);
Scarcity — Able to retain value due to its limited supply (which makes money desirable enough to accept for goods & services); and
Acceptability — Able to be used widely due to mass acceptance of the item as money.

Once something achieves all of these prerequisites to function as “money,” it facilitates trade, allowing for increased quality of life. Civilizations have used various items as money including sea shells, precious metals and gems, coins, and paper currency notes. These items also typically follow a similar pattern to adoption as money: (1) acquired as a collectible item, (2) used as a store of value, (3) used as a medium of exchange, and (4) used as a unit of account. For more on the evolution of money→ “The Origins of Money”, Nick Szabo (2002).

All that is said to say — money hasn’t always been what it is now, and will continue to evolve with societal and technological advancement.

Money — How Does it Function?

As discussed, money emerges as an intermediary tool that facilitates trade, allowing for the growing, global economy that we live in today. With that global economy, however, comes additional difficulties, particularly as international trade and cross-border finance has grown ever more complex.

Today, the US dollar is the world reserve currency. This system was established via the 1944 Bretton Woods Agreement after World War II, when the US was at the height of its global dominance. In order to promote and stabilize trade relations in the after-war period, the prevailing nations came together to agree upon a international monetary system. Under this new Bretton Woods system, the US dollar was pegged to the price of gold at a set rate ($35 per ounce), and other dollar-holding nations would peg their currencies to the dollar. This system reduced exchange rate volatility internationally, but also allowed the US to gain disproportionate influence on the global economy.

Governments like stable/fixed exchange rates because they facilitate international trade, but are hesitant because it limits the use of domestic monetary policies to achieve economic or political goals. By being the reserve currency, the US could have the best of both worlds. Although the dollar was the standard the world operated from, the US could still create (print) more dollars as needed to achieve its domestic policy goals (i.e., wars, social programs, corporate subsidies).

However, by printing more dollars than could be balanced with the agreed-to gold standard, the US eventually defaulted on its promise to the global financial system. In 1971, due to the inadequate gold reserves, President Nixon took the US off the gold standard by halting all redemption of gold for dollars, and concurrently devalued the dollar. This marked the end of the Bretton Woods System, moving the US onto a purely fiat, or government-issued currency, standard. For more on the Bretton Woods Agreement → Investopedia, “Bretton Woods Agreement and System” (April 28, 2021).

Since 1971, the US has had free reign to print as many dollars needed to fund its domestic and trade policies. The dollar still remained strong in relation to other nations, so demand for dollars remained high. Other countries still hold dollars and buy US Treasury Bonds that funded (partially) the US’s expenditures. Before 1971, there was a natural limit to how many dollars could be printed. Today, with the dollar not backed by any hard asset (i.e., gold), but merely the “full faith and credit” of the US government, the federal debt is now a run away train — sitting currently over $28 trillion dollars.

At its current debt levels, which are continuously increasing, the US cannot reasonably expect to ever pay it down (ex. by exporting more goods than it imports, collecting taxes, and/or reducing federal spending).

So what does that mean for the future of the US dollar?

The US Dollar is in Trouble

US debt is rising at alarming rates, while our government continues to print money at unstainable levels. In fact, in 2020, the US printed 40% of all the dollars currently in circulation. When the dollars are printed without a source of funding and not due to any real economic productivity, the value of existing dollars is necessarily reduced or “watered down.” This causes prices of goods and services to rise, which is called “inflation.” Inflation acts as a hidden tax in that it reduces what each dollar can purchase, while allowing the US government to continue on with its federal spending.

Inflation is a big topic today, as I’m sure you’ve heard on the news, or seen reflected in your expenses. From last year, inflation is up 5.4%, but this number is based on one set of calculations that is not entirely agreed upon, with many believing inflation rates to be much higher. You’ve also likely heard the term “transitory,” meaning that the high rate of inflation is temporary and due primarily to supply shortages, shipping backlogs, and low employment levels. All those are likely to be factors, but what goes conspicuously unmentioned are the high rates of money printing and unsustainable federal spending leading to a less valuable dollar — both which are likely to continue on well beyond what could be considered transitory.

Additionally, China has long been primary purchaser of US debt, but they may find US Treasuries less and less appealing as they gain in global economic dominance, which they are achieving at a rapid pace. This could pose another problem if they decide to stop purchasing US Treasuries and instead seek repayment of the US debts they took on. Treasury bonds are currently at zero to negative rates of return, making them unattractive locally and internationally — and are no longer being considered risk-free investments, as they had been for decades.

For more on threats to the US’s global economic dominance → “The Changing World Order”, Ray Dalio (March 25, 2020).

Protecting Wealth from Inflation

Your dollar buys less than it used to. We accept this as a normal part of the economy, but is it? We accept that our grandparents could buy a home on average for $17,000 in 1970, but you’d be lucky to find one for under $300,000 today. We’re earning more in dollars than previous generations, but is our purchasing power any better? No. It’s getting worse.

This is particularly jarring when technology is a deflationary factor that should be reducing costs of living. It removes inefficiencies and allows for more to be produced with less human and financial capital. However, the problem is, much of those inefficiencies are our jobs — but that’s another topic for another post.

So prices are rising and the dollar as the reserve currency is looking shaky. How do we ensure we retain the value of our hard earned money? You acquire hard (“sound”) assets and/or money.

Sound vs. Unsound Money

In its most long-term usage, money acts as a store of value, allowing us to save what we earn today for use in the future. When the value of the dollar is being inflated away, saving your wealth in dollars is a recipe for poverty.

Sound money/assets are those that retain value over time, primarily due to its scarcity. With dollars being printed at high rates by the US government (via the Federal Reserve & the US Treasury) at will, there’s no argument to support that it is a scarce asset that will retain value over time. Fiat currencies are inherently unsound assets due to their susceptibility to government policies that cause fluctuations in its value and scarcity. For more on sound money → “The Principle of Sound Money,” Mises Institute (August 8, 2006).

For hundreds of years, gold has served as the hardest and most sound asset. Many nations, including the US, still hold large gold reserves, but it is largely out of reach and impractical for individuals to amass large amounts of physical gold themselves.

As discussed earlier, the US dollar is more unsound than ever, losing value rapidly, and preventing long term savings without investing it in other, often risky, investments (ex. stocks, bonds, metals, commodities).

Luckily for us, another asset was created in January 2009, when Satoshi Nakamoto invented Bitcoin, the world’s first cryptocurrency.

Bitcoin is Sound Money for the Digital Age

Bitcoin has emerged as the most sound money in existence because it is:

Durable (exists over a vast network of computers and does not degrade over time as it only exists digitally);
Portable (can be transferred over infinite space & time through the internet without a 3rd party intermediary);
Divisible (each Bitcoin can be infinitely divided into smaller units, called “Satoshis” or “Sats”);
Fungible (each Bitcoin or Sat is as good as another);
Scarcity (there is a supply cap of 21 million Bitcoin that will ever come into existence, this is coded in and immutable);
Acceptability (every day more individuals and institutions are acquiring and using Bitcoin);

And a new addition to the qualities that make an asset desirable as money —

7. Decentralized (outside the control of any particular government’s attempt to manipulate, seize, or ban it).

Holding Bitcoin as a Hedge Against Inflation

Beyond the profit potential of buying Bitcoin as an investment, the more interesting & impactful role of Bitcoin will be its unique capability, as sound money, to serve as a long term store of value and protect your wealth against inflation. Some proponents of Bitcoin say it’s “Gold 2.0,” and I mostly agree with the comparison (as opposed to comparing it to a stock), although I and many others believe it to be superior in the increasingly digitized world.

In past civilizations, the ones who adapted more quickly to new and better forms of money fared far better than those who resisted the change. When gold became a better form of money than silver, those who acquired the more highly valued asset maintained their wealth far better than those who only made the switch once they had no choice. In fact, resisting the inevitable future is often a financial death sentence.

Bitcoin currently is being rapidly amassed, previously by individuals (“retail investors”) and now more and more institutions are buying in. This includes the El Salvador, the first country to adopt Bitcoin as legal tender. The world is changing — and so is the money.

Holding Bitcoin means holding your wealth without a bank — and therefore without the inefficiencies (fees, limited banking hours, low rates of return) of adding a middle man. The growth of the financial sector has exploded in recent years, all without producing much of anything. Rather, this industry is primarily sucking value out of every transaction it oversees and manages, benefitting shareholders and hurting customers.

Holding Bitcoin means that despite political polarization flipping the US from red to blue to wherever we go next, your wealth will not be subject to political ambitions and pitfalls. With elections every 4 years, no politician is likely to make the changes to our current debt levels, as the means would likely be very unpopular (ex. cut government spending, raising taxes) and painful for the economy.

Holding Bitcoin means never having your wealth devalued by inflation, since it is a scarce asset that cannot be watered down. With the cap of 21 million Bitcoin hard coded into the technology, and is not dependent on the will of any person or government. Even holding a fraction of a Bitcoin (Satoshis) will prove to be beneficial as the demand increases and liquid supply dwindles.

Holding Bitcoin means an alternative way to save your wealth without needing it to be tied to the failure or success of a stock, bond, or other investments. Today if you try to save your money in cash, your wealth is a melting ice cube that is consistently losing value, so you must invest it somewhere. Stocks are still a beneficial way to invest your cash, but with the economy as inflated as it is, it’s uncertain if stocks can keep hitting record all-time-highs.

Holding Bitcoin means being able to participate more fully in the digital economy of the future. Banks and nations are already discussing digital forms of their own currencies, but they will suffer from the same problems unless the system is fundamentally restructured. So clinging to your paper dollars won’t protect you from the increasingly digital financial landscape — you just need to pick your player.

I have a long time horizon on Bitcoin, meaning 10+ years out at least, as many “Bitcoiners” do. We believe in its future and believe it will preserve the quality of ours. With a long time horizon, it is also more likely that you will be able to spend your Bitcoin as Bitcoin, rather than having to sell it for dollars.

Money has changed before, and it’s changing again. The future doesn’t care if you’re ready, so don’t be left behind.

Buying Your First Bitcoin

You can buy a fraction of a Bitcoin. I want to say this first, because with Bitcoin currently sitting at around $67,000, investing can seem daunting. It’s imperative to have a outlook to the future. Bitcoin adoption is still very low, but that is already changing. Demand is increasing, and supply is static. Economics tells us the result is an inevitably rising price — and now is the time to buy in.

It used to be harder to get, but Bitcoin is becoming more mainstream and user-friendly. I’m not advocating any one exchange, but some are certainly easier to use for beginners.

Set up an account with a cryptocurrency exchange (i.e., Coinbase, Gemini, Binance). Note: look at fees, types of crypto tradable on each exchange, and whether or not it provides you a “crypto wallet” or a “private key” to maintain custody of your Bitcoin (rather than keeping it on the exchange).
Deposit fiat currency (dollars) into your account from your bank.
Purchase Bitcoin (symbol: $BTC) as a market order (to be filled immediately). Many exchanges also offer limit orders (to be filled automatically at a certain price point), but I wouldn’t suggest that getting started.
Don’t worry about short term price fluctuations. It’s currently a volatile asset, but that doesn’t detract from its long term value. As they say, “when in doubt, zoom out.”

Here’s a how-to video for Coinbase:

https://www.youtube.com/watch?v=o9TZCCE6l3E

Storing your Bitcoin can be done in the following ways:

Keeping it on the exchange. This is the easiest way, but like any website, there is always the possibility of nefarious actors trying to hack it. However, Bitcoin is no more susceptible to digital theft than dollars are.
Storing it in a “hot wallet”, which is an off-exchange wallet that will provide you with “keys” to access your Bitcoin.
Storing it in a “cold wallet”, which is essentially an off-line, physical hard drive that you can transfer your Bitcoin on to.

In Summary

I hope this Beginner’s Brief was helpful and informative. There is so much more to Bitcoin and the growing digital economy that you’ll never stop learning once you dive in. I encourage you to make the leap, throw a little money in so you have skin in the game, and get learning at your own pace. I never thought I’d find money so interesting, that is, until the money changed and will likely change the world with it.