Letter #1: Cryptocurrency - A 21st Century Tool for Finance
2020 and 2021 have been amazing years for Bitcoiners. Bitcoin, easily the most identifiable of the cryptocurrencies and already a major hit with Main Street investors, has become mainstream with Wall Street, with seasoned traders and analysts from JP Morgan Chase (one of the largest banks in the world) to BlackRock (the largest asset manager in the world) showering it with accolades and rosy predictions about its short-term and long-term future.
Perhaps you already know all of this and are a veteran in this space. Or perhaps you’re like I was in the middle of 2019: completely new to Bitcoin but itching to learn and understand more.
What is Cryptocurrency?
A cryptocurrency is a digital asset. But what does that mean?
First and foremost, cryptocurrencies are online — you don’t have to use coins, cards, or paper money. While some cryptocurrencies do represent real-world objects (more on this later), the value of most cryptocurrencies is tied to the benefits that they offer. For example, Bitcoin is easy to transport and transfer, safe and secure for online or real-world payments, and a solid store of value.
We’ve touched on it a bit already, but it’s important to understand that cryptocurrencies serve a variety of purposes. For example, millions of merchants currently accept them as payment for goods or services. Can you imagine paying for your groceries or for a haircut with Bitcoin? It’s completely possible thanks to the businesses that accept Bitcoin directly and other companies, like PayPal and BitPay, that act as payment processors for businesses that want to accept Bitcoin but immediately convert it to fiat.
Maybe you’ve heard Bitcoin being compared to gold. How is that possible since gold is shiny, physical, and has been used for thousands of years? Simply put, a lot of smart people understand that there is significant value in an asset that isn’t controlled by a government or company who can simply create more of it whenever they want. Do you ever wonder why the purchasing power of the U.S. Dollar continues to shrink with each passing year while the value of gold and Bitcoin go up? It’s because the U.S. government and U.S. banks continue to “print” trillions of dollars worth of money each year that simply didn’t exist before. Meanwhile the “creation” of new gold or Bitcoin on an annual basis is tiny by comparison.