Here’s a link to Part 1. Let’s get right to it.
Government Interference
It’s no secret that governments aren’t crazy about Bitcoin. I’m convinced the only reason Bitcoin wasn’t killed in the cradle is that no one in the various world governments A) understood the technology B) understood the threat it represented, and C) took it seriously.
That’s no longer the case. These recent price swings came as a result of people using Bitcoin to facilitate the transfer of Yuan out of China, and the Chinese government’s response of flexing their muscles to make it stop.
Closer to home, the IRS has set off on a Bitcoin fishing expedition, serving Coinbase with a John Doe subpoena for all customer records since inception. Coinbase responded by politely suggesting the IRS go fuck themselves, but it’s going to cost at least a million dollars to fight them in court.
It’s for these reasons that there is massive volatility in Bitcoin. I’ve already mentioned the lack of liquidity, but that’s a condition that is self-correcting (as more BTC are mined every day). Government interference is likely to remain a constant.
What they dont seem to realize is the more they sweat the Bitcoin community, the larger it grows. I think it’s safe to say that globally we’ve entered a post central government era (Brexit, Trump, the upcoming elections in Europe, etc), and people are deeply mistrustful of government control. Bitcoin fits that narrative rather neatly.
Bitcoin Storage
Okay, here’s where I’m probably going to get some pushback.
You should not be storing your Bitcoin on an exchange, even Coinbase (well, especially Coinbase, now that they’re locking horns with the feds). Don’t get me wrong, Coinbase offers great storage options that are safe and convenient, but that also makes them vulnerable to both hacking and government asset seizure.
Before I go further, I should probably mention that I use Coinbase myself. After trying several services in the US and Europe, Coinbase is the most reliable I’ve found. That said, I never leave more than one Bitcoin in my wallet at Coinbase, and I use that for transactions (they offer the best mobile phone app).
For my real storage, I use paper wallets exclusively. It’s as analog as you can get, and if you can hide a piece of paper (or a thumb drive), you can sleep well at night knowing that you’re impervious to hackers and bad actors in the government.
The other interesting aspect of paper wallets is that you can ostensibly print your own currency. I use bitaddress.org to generate my wallets. It defaults to single wallet (which I use most often), but if you select paper wallet it will actually allow you print multiple wallets on a single sheet which look somewhat like currency. So maybe you load a few of those up with .01 BTC (about $9 at today’s price) and it’s similar to carrying a $10 bill.
If you’re not comfortable with paper wallets and you really want an online solution that isn’t connected to your exchange, I would use blockchain.info. It’s the original home of the blockchain, and the most agnostic about how you handle yo bizniz. Here is more info about how they work.
Maybe I’m paranoid, but I’m a firm believer that you should take your BTC offline. It might be that I’ve been a victim of shady shit (an early Bitcoin wallet provider I was using disappeared overnight) or it might be that I’m just a security freak, but I really think you should have as little at risk online as possible.
Where’s it going?
As I stated before, I think Bitcoin will someday be $10,000 apiece and more. I suspect that’ll happen in the next four years or so, as governments get jittery and try to clamp down on it. Several countries are experimenting with cashless societies, and Bitcoin provides a nice counter to those efforts. All that increases demand.
I could be completely wrong, but I don’t think I am in this case. There has already been enough mainstream adoption of the blockchain to drive Bitcoin along with it. So, in short, you should probably own some before it becomes obvious that you have to own some.
Let me know what questions you have.
Well, this borders on futurism, but I honestly believe that at some point in the distant future we transcend money altogether. If I'm right about that, then the steps leading to that will be a whittling down of the many currencies until they are few, and eventually one. Will that one be Bitcoin? Impossible to predict. But it's on the safe side to say that whatever one world currency we end up with it'll have to be universally accepted, frictionless in transaction, and portable. BTC checks those boxes.
eddie, this is purely out of ignorance and misunderstanding. full disclosure, I only invest in stocks, bonds, and alternative investments, I don't touch commodities and I don't touch currencies, so I'm much less educated than you. I just read both threads on this, but I still can't get past one overarching question: why?
why would you buy bitcoin? what gives you confidence that it's a better use of your money than a sovereign currency? was there some incident in your life that caused you to have a distrust of the gummint?
I have a hard time with bitcoin, I hear that it's insurance against a central bank currency going away or being massively devalued, and I hear that people distrust the gummint, but how secure is it really?
enlighten me. what am I missing? I don't picture you as the type of guy who has a bunker for the zombie apocalypse, so I imagine you've thought this through.
All great points.
I trade Bitcoin, even though I'm a bit of an evangelist. I'm absolutely convinced it's a 10-bagger from here, but that doesn't mean I buy and hold. It's a small part of my overall portfolio and I'm in and out of it four times a year on average (currently out). It's been one of the best investments of my life (as far as pure return goes).
As far as why vs a sovereign currency, that's easy: volatility. Bitcoin has massive swings, and even the most exotic sovereign currencies are staid compared to it.
You're right, I don't have a zombie apocalypse bunker, though I generally consider myself an anarcho-capitalist. I'm not a fan of the way government does business, and manages to pervert its way out of monetary crises. I'll be the first to admit that this is largely a philosophical argument, but I see Bitcoin as a proof of concept that an unfettered free market produces better solutions than a central government.
Not sure what you mean by security. If you mean safety of principal, there is none. Bitcoin could go to zero. If you mean physical security, Bitcoin is harder to steal than pretty much any other currency. If you use paper wallets (or other offline solutions), it's virtually impregnable.
Thanks for the question!
It's worth noting that the most secure way to store bitcoin is on encrypted hard drives that aren't connected to the internet. This is typically the path for serious miners or people that have quite a lot of bitcoins.
For most the people currently researching BTC, chances are you will be a casual buyer. Coinbase is insured for all coins it holds and would issue payouts in the event of a site-wide breach. Coinbase also follows similar offline storage techniques as I previously mentioned to help combat potential breaches.
Additionally, if you are storing actual fiat currency on their site, that is FDIC insured.