The Little Bitcoin Book – Jimmy Song

Rating (1-10) – 9

Book Synopsis – You’ve probably heard about Bitcoin on the news or heard it being discussed by your friends or colleagues. How come the price keeps changing? Is Bitcoin a good investment? How does it even have value? Why do people keep talking about it like it’s going to change the world?

The Little Bitcoin Book tells the story of what’s wrong with money today, and why Bitcoin was invented to provide an alternative to the current system. It describes in simple terms what Bitcoin is, how it works, why it’s valuable, and how it affects individual freedom and opportunities of people everywhere – from Nigeria to the Philippines to Venezuela to the United States. This book also includes a Q & A section with some of the most frequently asked questions about Bitcoin.

If you want to learn more about this new form of money which continues to gain interest and adoption around the world, then this book is for you. – Amazon

Book Review – Great book that gives a futuristic take on the need for Bitcoin. It’s quite convincing and has made me a stronger believer in the benefits of Bitcoin. It’s convinced me to be a long term holder rather than a short term buyer for a fiat cash out.

Notes:

Chapter 1 – What’s Wrong with Money Today?

Countries all over the world have governments that abuse their countries fiat currency by devaluing it over time by creating more of it. A fiat currency is any currency that a government deems as legal tender and acts as a medium of exchange between entities. Fiat means “decree.” If a government decrees a currency to be currency is now becomes legal tender in that country and can be used for trade.

[Fiat currencies are used to help facilitate trade. Without a stable fiat currency, you would need to find someone that wants the goods/services you provide for the goods/services you want. This makes trade very cumbersome and ineffective. For a society to effectively develop, they need specialized labor to make the most of natural resources and efficient trade so that people can specialize rather than spread their time and ability amongst all skills needed for survival (shelter, food, transportation, etc).]

The quote below is from Futuresmag.com regarding fiat currencies (Not from the book).

“According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.

The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British pound Sterling is the oldest fiat currency in existence. At a ripe old age of 317 years, it must be considered a highly successful fiat currency. However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long-standing currency in existence has lost 99.5% of its value.”

Reasons for what’s wrong with money today:

Loss of value from inflation
Loss of privacy
- Businesses sell your data to third parties every time you spend.
2 Billion people are unbanked
Hard to send money across borders because governments limit the amount of money they can exchange
Expensive to send remittances (money usually sent from migrant workers to their family in their home country).
Governments can restrict people from accessing their own money during times of financial crisis
Single point of failure – the entire world is pegged to the dollar standard. If the U.S. dollar were to fail, we’d have an international financial collapse.

Valuable tidbits:
– Sound money holds its value over time.
– Inflation erodes wealth, especially for the saver if they don’t have assets that increase with inflation like real estate and blue-chip companies.
– High inflation erodes the average person’s wealth and puts it in the hands of those with hard assets.

“What if a new system emerged in which governments did not have the ability to arbitrarily devalue money, and faceless corporations couldn’t freeze user funds or refuse to process transactions? What if money were entirely digital, able to be used by anyone with internet access from anywhere on earth, without needing to ask permission from the authorities?”

Chapter 2 – What is Bitcoin?

Digital money without a central authority created by a pseudonymous person or group. Bitcoin whitepaper was created October 31st, 2008.

Scarcity – Bitcoin is by its nature, scarce. There is a fixed supply of Bitcoin that will ever exist. That number is 21 million Bitcoin. (How is it fixed? I’m not sure even after reading it)

Bitcoin Transactions – Every transaction is recorded on a public ledger and verified by people operating full nodes. Nodes keep and verify the entire public ledger of Bitcoin from inception.

Miners search for a number that satisfies the Proof of Work concept. Once a miner finds the number, they broadcast the proof of work answer to the entire Bitcoin network of Nodes. If more than 51% of the Nodes agree (I think that’s correct) that the proof of work answer is correct AND the transactions in the block are correct, then a new block is added to the Bitcoin blockchain and the miner gets the Bitcoin block reward (currently at 12.5 Bitcoin – September 5th, 2019).

What makes Bitcoin useful:

Scarce digital asset
Peer-to-peer network of full nodes that can’t be shut down or censored.
Mining Bitcoin makes fraud very costly
Bitcoin’s blockchain is fully and publicly auditable

Chapter 3 – Bitcoin’s Price and Volatility

Thoughts on Bitcoin’s Price:

Scarcity
Public monetary issuance plan
Fiat’s inflationary nature
Censorship resistant

Thoughts on Bitcoins Volatility:

Still a small asset class so it’s subject to volatility
As of today, Bitcoin’s market cap is 200 Billion compared to Gold’s 9 Trillion market cap.
Lower liquidity. 10 Billion transacted versus 300 Billion in Gold.
With increased adoption, Bitcoin’s volatility will decrease.

Chapter 4 – Why Bitcoin Matters for Human Rights

***This is a very important chapter. I for one didn’t realize the dire need for financial privacy. Before it only seemed like criminals wanted anonymity in payments but without it, we could easily move to an Orwellian future followed closely by a dystopian existence.

Bitcoin gives citizens the ability to control their wealth. Governments or companies can’t arbitrarily take a citizen’s wealth through inflationary practices, corporate control, or government intervention.

Half of the world’s population is under an authoritarian regime. That gives governments all the power to intervene into people’s financial lives. In China, all payments are tracked on the Wechat payment platform. Other countries can stop human rights groups access to their own funds.

*Personal thoughts. Who wants to live in a world that turns 1984 into reality? Probably no one. But I also understand that a lot of criminal activity and unwanted activities can be thwarted through surveillance, but at what cost to society? Are we trading off one evil for something far worse? What if the government becomes the criminals? Now with access to practically every detail of our lives, how much more harm can be done? An evil regime can easily show how financial privacy with some nefarious actors might be the better of two evils by far.

Venezuela is a prime example of the need for Bitcoin. In a dictator led country like Venezuela that is going through hyper-inflation (2,300,000% inflation in 2018), Bitcoin gives Venezuelans a fighting chance. With capital controls tightly held by the government, restricting money being transferred into other more sound currencies, Bitcoin allows locals to receive and exchange Bitcoin simply by having internet access. It’s hard to confiscate and hard to track by governments.

Because sending money to other countries goes through intermediaries, as much as 30% of aid has not made it to its intended destination because of corruption. Bitcoin allows direct access for funds to be transferred to the correct receiving party without going through potentially corrupt intermediaries.

Cashless Society

It’s frightening that we’re moving over to a cashless society. By 2030 most people will not be using paper notes and coins to make transactions. This sounds great but paper notes and coins gave financial privacy to both the buyer and seller. In countries like China, they are implementing social credit systems that rates every citizen’s social score. Their score is dependent on their financial health, political opinions, identity, and social circle. This allows the Chinese Communist Party to social engineer social outcomes by punishing unwanted behavior and favoring wanted behavior. If you have a good social score you get access to traveling abroad, good schools for your kids, good rates on loans, etc.

Chapter 5 – A Tale of Two Futures

Phases of Bitcoin:

Store of Value (SoV) – Bitcoin adoption starts with the concept of Bitcoin being a store of value. People are purchasing Bitcoin to ward off against inflationary governmental practices through monetary policy/quantitative easing. This is especially true of countries that experience moderate to severe inflation.
Medium of Exchange (MoE) – As Bitcoin becomes a worldwide store of value and price becomes more stable, individuals, merchants, and later larger businesses will use Bitcoin as the de facto form of payment because it’s a better store of value.
Unit of Account (UoA) – As Bitcoin becomes the most desirable form of money, things will be denominated in Bitcoin as the reserve currency.

Chapter 6 – Bitcoin Q & A

Who is Satoshi Nakamoto?

No one knows. He/She/Group created Bitcoin under the pseudonym Satoshi Nakamoto.

Who controls Bitcoin?

No one in particular. Bitcoin is the summation of Full Nodes, Miners, developers, and agents that use the Bitcoin network for transaction. Bitcoin is a decentralized network of people who hold an ongoing copy of the entire Bitcoin ledger called full nodes. The ledger holds all the transactions ever made on the Bitcoin network. Miners compete for Bitcoin by producing blocks in the Bitcoin blockchain.

Isn’t Bitcoin too volatile?

Since it’s inception Bitcoin’s price has grew from .001 of a cent to currently 11k. The volatility of Bitcoin will most likely to continue until there is mass worldwide adoption.

What actually backs Bitcoin’s value?

People buy Bitcoin because its deflationary store of value property, it’s inherent ability to transfers large sums across borders without censorship, gold-like properties of fungibility, scarcity, portability, and divisibility. There are many other properties that give Bitcoin inherent value and its price is driven by increasing demand from people that see and need the value of Bitcoin’s properties.

How can Bitcoin be Trusted?

Most things that have become entangled with our daily lives we don’t fully understand like the internet, cars, planes, medical devices, etc. but we still use them without batting an eye. Too big of a question to answer.

How reliable is Bitcoin?

Bitcoin has been operation 99.98% of its life since inception. It’s been more reliable than Visa and other centrally ran organization.

Why have so many Bitcoin exchanges been Hacked?

Because exchanges have vulnerabilities and lots of cryptocurrencies they can steal. That’s why most advocate that if you don’t custody your own Bitcoin you don’t actually own it. Exchanges have been hacked but Bitcoin itself has never been hacked.

Do criminals use bitcoin for money laundering?

Yes because Bitcoin is permissionless but far more money laundering has been done through the currency financial institutions.

Is Bitcoin a Ponzi scheme?

No.

Is Bitcoin a bubble?

No from a High Time Frame (HTF) perspective but in Low Time Frame (LTF), Bitcoin will have multiple “bubble-like” spikes and crashes continuing to make higher lows during each cyclical spike and crash, trending upward in the long term.

Bitcoin has inherent value and continues to grow in value as the network of users grows (Metcalf’s Law). Also, the life expectancy of Bitcoin expands the longer it’s in existence (Lindy Effect). Bitcoin’s true value could upend the existing worldwide monetary system and periphery apparatuses that are made possible by this legacy financial system.

What is Tether and how does it affect Bitcoin?

Can governments ban or turn off Bitcoin?

Is Bitcoin legal?

Is bitcoin mining a waste of energy or bad for the environment?

What if someone with a supercomputer or quantum computer hacks the Bitcoin network?

How can Bitcoin stay decentralized?

Does Bitcoin protect privacy?

How can Bitcoin meet the needs of 7 billion people?

Is there extreme wealth inequality in Bitcoin?

If there are only 21 million bitcoins, how can the whole world use them?

How can I afford bitcoins? The price is so high!

How do I acquire bitcoins?

How do I use a bitcoin wallet?