What is fiat?

Fiat is a decree, or authoritative order. In finance “fiat” money is a money that is valuable because of a decree, or authoritative order. Fiat money is not instrinsically backed by anything, e.g., When the United States left the gold standard in 1971, this ushered in a new era of fiat currency.

What is inflation?

Inflation is the rise in price of goods and services typically measured in the aggregate through metrics like the Consumer Price Index (CPI), and other indicators. On average, fiat currency tends to be inflationary. Another term that expresses the typical effects of inflation is “monetary debasement”, which means the value of your savings is decreased year-over-year even without you spending it.

What is Bitcoin?

Bitcoin is a decentralized peer-to-peer communication ledger that allows the transfer of access to pieces of data that represent real electric energy produced by proof-of-work mining which can be translated into any fiat currency any time.

What does Proof-of-Work mean?

Proof-of-Work (PoW) means that real world computer systems called ASICS (Application Specific Integrated Circuits) are incessantly operating to find a NONCE (Number Used Only Once) in order to validate a block and add it to the bitcoin timechain. The current reward for finding a NONCE is 3.25 bitcoins. ASICS cannot find a NONCE without expending extensive electrical energy, hence “proof” of “work”.

How many bitcoins are there?

There are only, and will only ever be 21 Million bitcoins. As of mid-2024, 19.7 of the 21 Million bitcoins have been mined. The last bitcoin will be mined in the year 2140.

What is the bitcoin halving?

The bitcoin halving is a reduction in the issuance of bitcoin by 50% which happens roughly every four years. When bitcoin began in 2009 50 bitcoins were issued every ten minutes. Now in 2024, after the halving that occurred on April 20th, 2024, 3.125 bitcoins are issued every ten minutes. The exact timing of a halving occurs every 210,000 blocks in the timechain. The next bitcoin halving is scheduled for the year 2028.

Why is the bitcoin blockchain also called a timechain?

The bitcoin blockchain is synonymously referred to as a timechain because each new block is designed to be completed every ten minutes, hence a “chain” in “time”. Satoshi Nakamoto famously referred to the blockchain as a timechain, as it is a more accurate description of what is happening. The way that bitcoin tunes to the ten minute interval is by adjusting the difficulty of completing a complex-math puzzle in pursuit of the NONCE (Number Used Only Once), and hence retrieving the issuance reward.

Whats the difference between bitcoin and ethereum?

Bitcoin is a limited supply (21M) decentralized protocol that requires Proof-of-Work (PoW) in order to validate a subsequent block on the timechain. As such it is the world’s first digital cryptocurrency that is tethered to physical energy expenditures. Ethereum is a somewhat decentralized unlimited supply (though occasionally deflationary) protocol that requires Proof-of-Stake (PoS) in order to validate transactions on its blockchain. As such it is subject to larger stakes having more sway. Ethereum is better classified as a cryptotechnology, as it has no physical restrictions to its supply expansion or contraction or the ability to add information to its blockchain. Fun fact: ~60% of ethereum’s total supply (approximate because the supply changes), or 72M of its current 122M supply was distributed in its pre-mine before it was available publicly.

How do I store my bitcoin?

Bitcoin is best secured via self-custody in a cold-wallet. Popular cold wallets include Trezor, Ledger, or Coldcard. If your bitcoin is on a major exchange like Coinbase, Krakken, or Binance, then you do not technically own your bitcoin, and whatever regulations or corporate decisions are made by said companies could affect you adversely. Moreover, if any of said companies were to experience a security compromise — or to rehypothecate your bitcoin — and said coins were lost, there would be no way for you to recover them save for the companies potential promise for future payment. See: FTX, Celsius, BlockFi, or Gemini Earn.

What’s the difference between a hot wallet and a cold wallet?

A hot wallet is a wallet that is connected to the internet. A cold wallet is a wallet that is not connected to the internet. The security of a cold wallet is far superior to the security of a hot wallet.

How do I buy bitcoin?

The easiest way to buy bitcoin if for you to sign up for a cryptocurrency exchange and purchase it by linking a bank account. If you are only interested in bitcoin and live in the U.S., I would recommend using River.com. They are an excellent white glove bitcoin service that has intelligent people available to answer questions via email or telephone. As an affiliate, if you use the link provided, I receive a small compensation from the company. If you live outside the U.S. the most popular exchange is Binance, followed by Coinbase, and then Krakken. Of the three I would recommend Coinbase. Alternate ways to procure bitcoin are to earn it, sell goods or services and charge for it, or purchase it from another holder.

What’s the difference between the bitcoin ETF and bitcoin?

The primary difference between the bitcoin ETF and bitcoin is that the ETF is not bitcoin. The bitcoin ETF is an institutional grade service that enables the purchasing of a financial instrument, e.g. $IBIT, $FBTC, that is backed by bitcoin and held in custody. Of the 11 new bitcoin ETFs eight selected Coinbase as their custody partner. The bitcoin ETF offers some financial flexibility as it can be held in a traditional investors account, and traded easily for other stocks, bonds, and mutual funds. Bitcoin the actual asset is a bearer instrument. When you hold bitcoin you are holding the value. It is like a digital version of holding a bar of gold. The value is in the thing in and of itself. The advantages to holding bitcoin in self-custody include 100% guaranteed access to your property, protection from rehypothecation or cyber attack, and reasonable defense from any governmental entity attempting to seize your property. See: Executive Order 6102.

Why is bitcoin so volatile?

Bitcoin’s volatility is a feature not a bug. One reason bitcoin is so volatile is because it trades 24 hours a day, 7 days a week, 365 days a year. In other words, bitcoin is never closed for business. Traditional markets have very limited hours, e.g., the New York Stock Exchange is only open Mon-Friday from 9:30AM-4:00PM. Moreover, stock exchanges, traditional banks, and brokerage accounts are all closed for business in the United States on federal holidays. What this means is if there is a geopolitical or major news event that could effect markets although they are not open, bitcoin becomes the only game in town. As such, bitcoin can be seen as a sort of first economic responder, that readily and willingly adjusts according to the needs of capital markets. Since its inception bitcoin has always been extremely volatile with regularly 80% or more drawdowns in its price, this was in part because in its infancy so few people used it. However, each subsequent halving cycle has seen measurable decrease in bitcoin’s volatility, and as adoption increases this trend will continue. Despite this, bitcoin’s volatility will never go away as a result of it always being tradable.

What is Microstrategy?

Microstrategy ($MSTR) is a publicly traded company to hold bitcoin on their balance sheet as a strategic reserve. They call themselves a Bitcoin Treasury Company (BTC), and have amassed 279,420 bitcoins “for a purchase price of approximately $11.9B and an average purchase price of $42,692 per bitcoin”. Executive Chairman Michael Saylor considers Microstrategy to be a levered bitcoin company, offering higher yield and greater volatility than a traditional bitcoin ETF investment like BlackRock’s $IBIT. Saylor’s vision for the company is to offer various types of bitcoin-backed securities that enable traditional investors like pension funds, insurance companies, and hedge funds to access capital markets at varying degrees of risk. In their Q3 2024 earnings call (See: 3rd Quarter 2024 Financial Results Webinar Recording) he alluded to a future product that could effectively be a bitcoin backed bond stripped of the risk of bitcoin and offering a far lower but guaranteed yield.

To learn more order my book! Pay Attention to Bitcoin (2024).