{"id":3003,"date":"2017-12-06T19:02:23","date_gmt":"2017-12-06T19:02:23","guid":{"rendered":"https:\/\/www.foxymonkey.com\/?p=3003"},"modified":"2018-01-11T07:35:34","modified_gmt":"2018-01-11T07:35:34","slug":"bitcoin-madness","status":"publish","type":"post","link":"https:\/\/www.foxymonkey.com\/bitcoin-madness\/","title":{"rendered":"Bitcoin Madness: Missed the boat already or time for a new era?"},"content":{"rendered":"

Disclaimer: The below article does not offer investment advice. Michael owns a small amount of crypto purchased via Coinbase<\/a>.<\/em><\/p>\n

\"Tulips\"

The Dutch started paying a premium for owning those rare flowers. But after a while, a virus hit the flowers changing their appearance and giving them \u2018flames’ in colour. This helped to increase the price of the flower.<\/p>\n

As a result, more and more people started paying multiples of the initial tulip price. Governed by the fear of missing out, people started selling their assets to buy tulips. This resulted in an extreme boom for the tulip price which was once sold for the price of a luxury home (!).<\/p>\n

Since no one was willing to pay more for a single tulip, a decline followed. The madness had to stop. People started selling their tulips in a frenzy mode and despite offering lower prices, no buyers were willing to pay any higher for a flower. Fortunes were lost in the so-called “Tulipmania bubble\u201d.<\/p>\n

This story my friends reminds me of today\u2019s crypto-world. We see an extreme increase in the price of digital coins which were once trading for next to nothing. If I remember right, one of the first transactions were two Papa John pizzas bought for 10,000 bitcoins – $80 million dollars if the pizza boy held on their bitcoins!<\/p>\n

Bubbles usually occur when people don\u2019t look at the intrinsic value of the asset. They buy assets simply because they\u2019ll definitely sell it soon to other people for a higher price. It always goes up after all!<\/strong><\/p>\n

If you\u2019re interested in economic bubbles, like I am, have a read of the South Sea bubble<\/a> (1711), the Florida real estate bubble<\/a> (1929) or look no further than our own 2008 mortgage-backed securities ;)<\/p>\n

But let’s take it from the beginning.<\/p>\n

What is Bitcoin?<\/h4>\n

Back in 2008, our wonderful banking system failed us all. This led to a financial crisis that was so strong people lost faith in the system.<\/p>\n

\"Bitcoin

So Bitcoin is a currency living on the internet and can be traded globally almost for free. A businessman in the US can send bitcoin money to some Lithuanian software developer instantly and without costs.<\/p>\n

This strong network of computers around the world operates these transactions and anyone can join. Those computers are called miners<\/em>. They also help discover new bitcoins by solving complex math problems. For mining and for helping with validating transactions, miners are rewarded\u00a0with Bitcoins.<\/p>\n

Blockchain is the technology behind Bitcoin, and you can think of it as the history of all transactions that have ever happened. Every computer in the Bitcoin network knows about all the valid transactions that took place and will be stored there forever. If you think about it for a while, you can find other interesting use cases, apart from money. Storing, for example, all the legal transactions between property owners!<\/p>\n

Why Bitcoin?<\/h4>\n

Since everyone buys and sells in bitcoins there is no need for foreign exchanges, middlemen and more importantly, failing banks!<\/p>\n

When sending money across the globe, and especially small amounts the fees are so high that is really not worth doing. Bitcoin can be traded around the world very cheaply and everyone can hold the same currency.<\/p>\n

Bitcoin, also, cannot be controlled<\/em> by any government. The amount of GBP (\u00a3) floating around in Britain is controlled by the central bank.<\/p>\n

A committee decides whether we should print more or less money depending on the current economy. Here’s an excellent video on how the economic machine works<\/a> by Ray Dalio. You may have heard of “The Fed” in the US which is really controlling these complex monetary policies.<\/p>\n

The central bank also operates fractional banking<\/em>. This means that they only hold a small percentage of your customer deposits, say 10%, and they lend your other 90% to people and businesses in order to boost the economy and make profit.<\/p>\n

With Bitcoin, THERE IS no government! Noone says we should create more bitcoins and inflate or deflate the currency. More coins are created in a stable and predictable way according to a predefined algorithm that cannot change.<\/p>\n

only $21 million coins can ever be created! Sort of like… Gold<\/p><\/blockquote>\n

Which is what drives people crazy. If there is a limited supply of coins, each coin will be extremely valuable if the demand increases.<\/p>\n

Speaking of gold, gold is a precious metal that so many generations have used to store their wealth. Because of its physical nature and limited supply, gold can preserve its value over time.<\/p>\n

During 27 B.C, Roman Centurions were paid around 40 ounces of gold per year.40 ounces of gold today is worth around $46,000 – the equivalent of what a US Army captain is paid today! Same amount of gold 2,000 years ago, same amount of gold as salary today.<\/p>\n

People call Bitcoin “digital gold” because it has similar properties and can also be traded on the internet.<\/p>\n

So there you have it. Cryptocurrency is becoming more and more popular today. One global currency, history of all transactions, decentralized nature without governments involved and no bank fees.<\/p>\n

Everyone says Bitcoin is a bubble<\/h4>\n

Things become more interesting when the value of the recent cryptocurrencies is going crazy. In October, a single Bitcoin was worth $7,000, in November it’s worth $11,000!<\/p>\n

Had you bought $100 worth of bitcoins in 2010, you would now be $75 million richer ;)<\/p>\n

In fact, the volume of crypto transactions has become so big that CME, a big financial organization announced it will soon allow Bitcoin futures trading on its platform. NASDAQ, the famous stock exchange will support<\/a>\u00a0Bitcoin futures in 2018 too.<\/p>\n

Of course, whoever states this doesn’t say the obvious: You should hold onto your bitcoins throughout these years to realise some gains. It must have been so easy to sell your bitcoins for a loss, let’s say in 2014 when for many years nothing is happening.<\/p>\n

\"Bitcoin