About eight years ago, I was sitting at the kitchen table, laboring over my laptop for hours upon hours, simultaneously Googling and texting with my “tech-savvy” friends, all while trying (and ultimately, failing, thanks to the clunky tech integrations at the time) to set up Bitcoin as an accepted payment on my fledgling personal training website.
Yes, Bitcoin, and yes, a somewhat dinosaur-esque eight years ago.
See, while Bitcoin and other “cryptocurrencies” are making news headlines just about every day in 2022, close to a decade ago, there was essentially zero-nada-zilch when it came to information on crypto, at least in a form that was understandable for anyone that didn’t have a degree in Computer Science or a background in coding.
Yet, as a geek at heart and a guy who has always paid attention to emerging technologies that I find intriguing, I knew just enough about Bitcoin and the technology behind it to at least grasp its potential to become very popular someday, and perhaps, a very good thing for humanity (more on that later). So, even though I wasn’t able to integrate a Bitcoin payment option for my website, I went ahead and purchased several shiny Bitcoins–which, at the time, was no more than some measly chump change–and since then, I’ve been “dollar cost averaging” (making purchases at a recurring time interval) Bitcoin just about every month for nearly the past decade. Of course, I only invest what I can “afford to lose” with what I consider to be a volatile, yet-emerging technology like Bitcoin, and I'm kicking myself for having sold many of my coins early on in my crypto history…
…but, needless to say, I have indeed been “orange pilled.”
Now, not only do I have a small bit of Bitcoin stashed away (no I am not a “whale,” but have set aside a little for a rainy day, although I've also cashed out of many of my other crypto positions except Bitcoin), but I’m also part of a decentralized crypto-based social media platform called Deso (you can follow me there @BenGreenfieldLife) as well as another up-and-comer called Zion, I’ve been helping my son River create his very own NFT Digital Art Collection, and I will also be releasing my own NFTs (hint: food porn) someday in the near future.
However, I must admit that it’s been a long and arduous road to get to where I am now–with a fairly decent, though admittedly still rudimentary, understanding of Bitcoin; a road that was filled with quite a bit of misunderstanding, confusion, and rabbit holes, as well some epiphanies and “aha” moment, mostly thanks to a number of Bitcoin experts (like my recent podcast guest Robert Breedlove) as well as many blogs, books, podcasts, and YouTube videos.
That's also the reason why I’m writing this article for you now: to share just a little bit of the knowledge I’ve gained over the past eight years, because even though there’s a lot more information out there about Bitcoin today, most of it is still a bit “heady” and hard to understand for the general person just trying to, say, stash away some money for a rainy day, invest in their family’s future, or hedge against the seemingly growing amount of inflation we’re currently experiencing in the U.S. Furthermore, I tend to heavily agree with author and crypto influencer Saifedean Ammous, who also believes the current broken fiat monetary system isn't doing us any favors in the health or nutrition department, either.
I hope this article helps to shed some light on what Bitcoin is, how it works, why it’s so beneficial, and how you might go about getting started with it, if you’re so inclined. Heck, it may even be the start of your very own Bitcoin “rabbit hole,” as I myself traveled down several years ago, although, admittedly, I have a heckuva lot left to learn about all things crypto, blockchain, and the metaverse. Nonetheless, if you read this and pair it with my recent show with Robert Breedlove, I think you'll at least have your head wrapped around the basics!
Disclaimer: I am definitely not a financial advisor; this information is for educational purposes only and should not be taken as financial advice. I highly recommend that you do your own research on Bitcoin before making a decision to invest your hard-earned dough in it. Capiche?
What Is Bitcoin?
So, what is Bitcoin anyway? Just some digital Monopoly money? Internet nerd cash for the Metaverse? Criminalistic currency for illicit transactions on the Dark Web?
Not exactly, and I’ll explain why.
In a nutshell, Bitcoin can be defined as a “decentralized cryptocurrency built on blockchain technology.”
Since that’s probably clear as mud, I’ll further define a few of those terms you may be unfamiliar with:
- Decentralized = Not owned or controlled by one entity; power is dispersed equally across all users.
- Cryptocurrency = A currency that relies on encryption technology to allow for proof of ownership, secure privacy, and censorship resistance.
- Blockchain = An unchangeable public ledger of all transactions on a network, structured in a series of “blocks.”
In other terms, Bitcoin is a public record of information that people have ascribed value to, are willing to exchange for real-world goods and services, and thus, can be used as digital “money.”
If that sounds a little arbitrary, just take a dollar out of your wallet and give it a good, hard look. Why is that flimsy piece of paper worth anything, anyway?
The truth is, a dollar bill is valuable because we perceive it as valuable. That green slip of paper is simply a token we’ve all agreed upon to represent a store of value, and an arbitrary item that you can exchange for another good or service. In essence, you can think of Bitcoin in the same way.
“Bitcoin is the first system of money that is not controlled by any entity, that is completely decentralized…It’s not a company, it’s not a product, it’s not a service you sign up for. It’s not just a currency; currency is just the first application. It is the concept of decentralization applied to the human communication of value.”
Now, I realize this is getting a little theoretical and abstract, but the main point I want you to take away from this is the idea that Bitcoin is decentralized, meaning no one owns it, no company controls it, and no government can manipulate it. In fact, the person, or perhaps even the group of people, that created Bitcoin is completely anonymous and goes by the pseudonym “Satoshi Nakamoto.”
This decentralized nature is one of the many aspects of Bitcoin that makes it so intriguing to a lot of folks–though there are also several more benefits I’ll cover in this article. However, to truly understand why decentralization is a good thing (in fact, maybe you’re thinking right now that sounds like a bad idea), it helps to first have a grasp on how our current monetary system works, and how Bitcoin vastly differs from that system.
Three Glaring Issues With Our Modern-Day Currency
Most modern paper currencies like the U.S. dollar and the Euro are referred to as “fiat currency”: government-issued money that is not backed by a physical commodity, such as silver or gold (we went off the Gold Standard in 1971, which is an entire rabbit hole in itself that I invite you to travel down someday via the wildly interesting website WTFHappenedIn1971.com), but rather relies on supply and demand as well as the stability of the said government.
Interestingly, the word “fiat” literally translates to “by decree” or “because I said so.” In fact, in the Bible when God said “let there be light,” the Latin text reads “fiat lux.”
If you’re putting two-and-two together, yes, this essentially means that the dollar in your pocket or bank account is directly tied to the stabilization of the U.S. government, and its value is not, for example, backed by a solid, rare, and valuable asset such as gold. In other words, fiat money is, quite literally, the exact opposite of “decentralized.”
Now, you can see where this starts to get a little bit slippery and slightly troubling, especially if you (like myself) have started to lose just a tad bit of faith in our government over the last few years. According to many Bitcoin and financial experts, fiat money is fraught with issues, many of which you are likely noticing in your own life right at this very minute. Here are just a few examples.
Fiat Issue #1: Money Printer Go “Brrr”
The first, and one of the most troubling issues, is that “by decree” means the government can print more money whenever they want.
So what? The more money they print, the more there is to go around, right?
Well, right…and that’s exactly the problem when you’re talking about money that is tied to supply and demand and not a scarce, stable asset, like gold. See, the more money the government prints, the more that’s in circulation, the less your dollar is worth.
In fact, thanks to unprecedented government spending, business bailouts, and stimulus packages, a whopping 80% of the money currently in circulation has been printed in the last two years!
The fact that more fiat money can be printed in any amount at any time is one of the main flaws with this currency and is ultimately the leading contributor and cause of the next two issues.
Fiat Issue #2: Susceptible To Inflation
Printing more money, in part, leads to higher inflation: a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services.
To be honest, inflation is a complicated issue that involves many factors, and I’m not going to blame it all on endless money printing, but it’s hard to deny the two can go hand-in-hand. At the very least, fiat money is much more susceptible to inflation due to its unsound nature. Just take a look at current inflation rates in the U.S., which just surpassed 7%, the highest rate in 40 years.
This is probably no surprise to you, however, if you’ve been to the grocery store lately and noticed that your ultra-healthy Paleo diet–rich in grass-fed meat, pasture-raised eggs, and avocados, all commodities that are exceedingly expensive right now–is costing you about 13% more than last year. For the average household, that translates to an extra $800-$1200 spent on groceries this year. Yikes.
Fiat Issue #3: Encourages Wealth Redistribution And Concentration
Because the quantity of fiat money can be arbitrarily increased to an infinite number, by nature, the distribution of money can be distorted. Wealth can be simply redistributed, as opposed to produced (namely by creating or contributing value), often concentrating at the “top” with the people that create the currency in the first place.
This is actually taking place at a rapid pace in our economy right now. In the last two years, the world’s richest individuals have gotten exponentially richer, gaining on average $2.9 Billion to $4.5 Trillion (yes, really), while at the same time, many working-class folks are realizing the money in their bank accounts is quickly dwindling.
Those are just a few examples of the problems with fiat currency. If you’re interested in learning more, I highly encourage you to read the books “The Fiat Standard” by Saifedean Ammous, and “The Creature from Jekyll Island” by G. Edward Griffin (which my two twin boys are actually reading right now as part of their Economic curriculum).
Where Bitcoin Differs From Fiat & Why It’s Considered “Sound Money”
As you can probably guess, Bitcoin is inherently free of some of these same issues, and unlike fiat, is considered to be “sound money.” Sound money, also known as “hard money,” is a stable currency that, according to Robert Breedlove, meets five distinct traits:
- Divisible: Relatively easy to divide into smaller parts without affecting its fundamental characteristics.
- Durable: Not easily destroyed and retains value over time.
- Recognizable: Can be quickly identified and verified as authentic.
- Portable: Easy to transport and store to facilitate long-distance trade.
- Scarce*: Perhaps the most important factor, sound money should be rare and not easy to either obtain or produce.
*Scarcity is one of the main differentiators between Bitcoin and fiat money. Bitcoin’s supply is limited to 21 million, ever. Fiat money, on the other hand, is unlimited, and entities tend to abuse the power of unlimited money.
Vijay Boyapati goes on to add that an “ideal store of money” should also meet the following criteria:
- Fungible: One unit is interchangeable with another of equal quantity.
- Established History: The longer a good is perceived to be valuable by society, the greater its appeal.
- Censorship-resistant: A new attribute that has become increasingly more important in our society, referring to how difficult it is for an external party to prevent the owner from keeping or using the money.
Bitcoin meets all of these standards for sound money, and in fact, outranks both gold and fiat–except of course when it comes to “Established History,” as Bitcoin is admittedly still in its infancy in terms of overall public adoption.
Additionally, there are several other interesting potential benefits of Bitcoin I’d like to highlight for you that go above and beyond these set characteristics.
Other Potential Benefits Of Bitcoin
As I mentioned, Bitcoin is decentralized, meaning it’s not owned by a single government or entity that can control it or manipulate it to its own benefit. You’re now probably getting the gist of why that might be a good thing.
However, quite coincidentally, this idea of decentralization really comes full circle if you’ve been following the “Freedom Convoy” trucker protests in Ottawa. Just a few days ago, the Canadian government enacted the Emergencies Act, which has allowed them to order banks to freeze the accounts of any individual citizen or corporation linked to the protests, essentially restricting their access to their own money, and negatively affecting their ability to pay their mortgages, insurance, loans, etc. Regardless of your thoughts on whether this move was warranted or not, it’s simply a perfect example of the potential ramifications of having a centralized currency controlled by the government. (Note: theoretically, the government could do this with Bitcoin, too, if you keep your Bitcoin in a third-party exchange that can be affected by an external entity. However, there's a way around that that I'll tell you about shortly.)
And in an even more recent example, in just the past few hours of writing this, as a response to the Russian invasion of Ukraine Western allies have cut the centralized Russian banking system from Swift (“Society for Worldwide Interbank Financial Telecommunication), which is a system that enables international trade via fast, cross-border payments. This will likely be a massive hit to Russia's economy, its leaders, and its citizens. Now, I'm not saying I don't support this move, as I certainly don't want to to go war and am behind any effort to stop us from doing so, as well as to prevent the needless suffering of tens of thousands of people–I'm simply saying it's another example of the spiral effects of a globally centralized banking system and how that can impact everyday citizens that likely had nothing to do with the decision to invade another country.
What’s more, because of its hard supply cap at 21 million, Bitcoin is by nature deflationary, as opposed to inflationary–meaning the more people that have Bitcoin, the more its value goes up, not down (of course, I should mention that depends on people actually adopting and purchasing Bitcoin in the first place).
Additionally, due to being completely digital, Bitcoin is also “immune to borders,” which allows it to be easily sent and received anywhere in the world, at any time (banks do not need to be “open”). And finally, Bitcoin is incredibly transparent, as all transactions are viewable on the public blockchain ledger, which makes it practically impossible to corrupt.
So, why does this all matter?
Well, if history tells us anything, it’s that having a sound currency is vital to progress, growth, and stability. Evidence from the largest civilizations shows that the lack of a stable monetary standard is generally associated with societal and economic destruction, such as with the collapse of the Roman Empire or the Great Depression.
Regardless of your personal thoughts regarding the value and importance of money in your own life, having a sound currency system is absolutely vital to humanity’s well-being as a whole.
How Does Bitcoin Work?
Alright, now that you understand just a little bit more in terms of the potential benefits of Bitcoin, especially when compared to our modern-day fiat currency, you’re probably now moving on to the obvious question…
…But Ben, how does this digital money thing actually work?
To be honest, I’m nowhere near what you would consider a “cryptocurrency expert,” nor am I well-versed in blockchain technology, ledgers, Bitcoin “mining,” or any other details that would allow me to clearly explain to you how Bitcoin works on a technical level. Therefore, I will refer you to other experts that can.
In fact, this excerpt by Vijay Boyapati, author of “The Bullish Case for Bitcoin,” gives a pretty good gist of how Bitcoin works:
“Bitcoins are transferable digital tokens that are created on the Bitcoin network in a process known as “mining.” Bitcoin mining is roughly analogous to gold mining except that production follows a designed, predictable schedule. By design, only 21 million bitcoins will ever be mined and most of these already have been — approximately 16.8 million bitcoins have been mined at the time of writing. Every four years the number of bitcoins produced by mining halves and the production of new bitcoins will end completely by the year 2140.”
Additionally, in a very detailed post on his Substack, Robert Breedlove gives a primer on Bitcoin that I’d recommend reading, in which he states:
“With Bitcoin, no matter how much its price increases, it is absolutely impossible to create any new supply flow beyond its mathematically enforced and universally transparent issuance schedule. Also, a higher market price means a more secure Bitcoin network, as the resources allocated to mining are used to secure it. Like a vault with walls that thicken as more value is stored within it, Bitcoin adapts to become a more secure monetary network as its market capitalization grows. Absolute obstinance of the algorithmically enforced Bitcoin monetary policy drives a virtuous cycle that perpetuates the expansion of its network:
Now I'll admit, that was all quite dense, so here's a little summary of the main points:
- Bitcoin is created by a process called “mining” which involves individual computers on a global network completing complex mathematical functions in order to add new Bitcoins to circulation, as well as verify transactions on the Blockchain.
- The more miners that join the Bitcoin network, the more secure the network becomes.
- Mining gets more difficult over time (but more profitable, to incentivize miners), slowing down the production of Bitcoin until the full supply of 21 million is reached, likely in the year 2140. This mining schedule is tied to a predictable algorithm.
- As more people adopt and buy Bitcoin, the less of it is in circulation, the more one Bitcoin–and subsequent fractions of Bitcoins, called “Satoshis”–is worth.
That’s just the tip of the iceberg. If you really want to know the technical nitty-gritty of how Bitcoin works, I’d suggest checking out the video How Bitcoin Works in 5 Minutes, and for a more basic primer, this article. To get further down the rabbit hole, I'd also recommend reading two of my favorite books of late: The Fiat Standard and The Bitcoin Standard (ideally in that order). Plus, I have even more resources for you at the end of this article.
If you’re still scratching your head, don’t worry–it takes most folks many months, and sometimes years, of learning about Bitcoin before they fully grasp how it works on a technical level. However, I would say that if you’re intrigued by the concept, and are at least starting to grasp how this type of currency could benefit society, don’t let not understanding all the nitty-gritty details keep you from learning about how to get started with Bitcoin, which I’ll walk you through how to do next.
How To Get Started With Bitcoin
Perhaps you’re starting to get the gist of this Bitcoin thing, and maybe you want to dip your toes into the water and see what it’s all about. If so, here is some step-by-step guidance on how to get started with Bitcoin, including how and where to buy it, how to keep it safe and secure, and how much to invest.
Even if you’re not quite ready to buy Bitcoin just yet, you may want to bookmark this for a later date because, not to toot my own horn, it’s really hard to find an easy-to-understand breakdown like this anywhere else!
Step 1: Buy Bitcoin
Back in the day, buying Bitcoin used to be a purely peer-to-peer transaction system where one computer would send Bitcoin to another computer (think of Napster or Limewire). Lucky for us mere mortals, however, Bitcoin tech has come a long way, and most of it is now bought on an “exchange” similar to the New York Stock Exchange, or via a third-party custodian.
When it comes to individuals or small families buying Bitcoin, the easiest route would be to use a third-party custodian, which is a service that connects “buyers” with “sellers,” and handles all of the fiat-to-crypto exchange for you.
Here are a few third-party services where you can easily buy Bitcoin:
One very important thing to know about these services, however, is that they also have access to your Bitcoin, kind of like keeping all your money in a checking account instead of in an envelope under your bed.
That’s not necessarily a bad thing, especially if you plan on regularly spending your Bitcoin (more on why you may or may not want to do that in a minute), but if you want to have more security and plan on holding your Bitcoin as more of a “savings account,” I would recommend that next, after purchasing through one of these companies, you set up your own “cold wallet.”
(And, if you remember the Canadian trucker protest example from above, this would be another reason that you may not want to keep your Bitcoin stored with a third-party that can be influenced by other entities…just sayin’.)
Step 2: Store Your Bitcoin Key
I’ll admit, the term “store” is a bit misleading. As you know, Bitcoin is digital, so you aren’t necessarily throwing it in a piggy bank on your kitchen counter. What you’re actually doing is storing the private key to access your Bitcoin–which is a randomly generated hexadecimal code of numbers and letters. Most people will also then turn their key into an encrypted “seed phrase” which is 12-24 regular words that are easier to memorize.
Note: Your private key or seed phrase is super, and I mean super important, to keep private, safe, and secure because it’s the only way you, your family, or anyone else for that matter, can access your Bitcoin. Sure, you could memorize your seed phrase and call it good, but I would highly recommend that you instead store it safely in some kind of storage device.
Just take a lesson from the guy who lost a whopping $250 million in Bitcoin because he forgot his private key…Yeah, don’t be that guy.
For ultimate safety and security, I would recommend the “cold wallet” route (offline), as opposed to a “hot wallet” (online), which involves purchasing a physical device to keep your key secure in your own home, safe, etc. That way, you can never forget it, it can’t get “hacked,” and anyone that knows where it is can access it as well. This article covers this process a bit more in-depth if you're still lost.
Here are some devices you can purchase for storing your private key in a “cold wallet,” some of which also allow you to generate your own private key:
- Trezor device (generates your own private key & stores it – this is the one that I own and keep in a special storage safe)
- Ledger device (generates your own private key & stores it)
- Coldcard (most advanced; stores your personally-generated private key)
It’s worth mentioning that there are other ways to store your key if you’re a company or an individual with large amounts of Bitcoin, such as setting up a “multi-sig” storage scheme, which is like a trust held by multiple parties–but that's not necessarily “Bitcoin 101” material. ;)
Step 3: Decide On An Investing Strategy
Now, before you start trying to buy your daily Starbucks latte using your Bitcoin, you may want to think long and hard about what your investment strategy is going to be. This is a personal choice that ultimately comes down to your philosophy on money, your faith in the structure of Bitcoin, and, quite frankly, your outlook on the future as a whole.
The question is: Do you want to spend, sell, or hold (also known as “HODL,” for you crypto nerds) your Bitcoin?
The truth is, everyone has a different philosophy when it comes to what to do with your Bitcoin once you have it. Personally, I’m viewing Bitcoin as a long-term “hedge” against the U.S. Dollar, as I believe the value will continue to increase over time–so I invest in it on a regular basis and hold it (meaning I don't spend or sell it). This also appears to be the approach for most people invested in Bitcoin today, as well as many of the experts I've mentioned.
However, there are definitely folks who treat Bitcoin more like a stock and take a “day trading” approach, buying and selling it regularly depending on the price for short-term gains. There are even those who regularly spend Bitcoin on everyday items, like residents of El Salvador where Bitcoin has recently been declared legal tender.
You may also be wondering how much you should invest in Bitcoin, which is frankly another personal choice no one can decide for you (and no, you don’t have to buy a full Bitcoin at once). Some folks decide to “ape in,” or purchase a large lump sum, usually when the price of Bitcoin drops. Others will start small and dollar-cost average a certain amount on a daily, weekly, or monthly basis, no matter what the price is. Personally, I did both: I “aped in” and bought a few Bitcoin at first, and since then I’ve been dollar-cost averaging each month for the past several years to continue to add to my investment.
Additionally, if you’re really bought in to this Bitcoin thing, you can get a Bitcoin rewards credit or debit card, which is essentially a regular credit card that allows you to spend dollars, but you get rewards back in Bitcoin. I personally have the BlockFi credit card, which offers 1.5% back in your personal choice of a dozen cryptocurrencies, and 3.5% crypto rewards on all purchases in the first 90 days. (If you use my link to sign up here, you can get $10 added to your BlockFi interest account and $40 in bitcoin after you fund your account.)
The Best Resources For Learning More About Bitcoin
Whew. How are you feeling after what was likely a head-spinning primer on Bitcoin? While I know I didn’t answer every possible question, my hope is that you at least got the gist of this often misunderstood and misrepresented cryptocurrency, including a sense of why I’ve chosen to invest some of my hard-earned money in it for the past several years.
If you want to continue your trip down the Bitcoin rabbit hole, I highly suggest looking into the following experts as guides for your journey:
- Robert Breedlove
- Michael Saylor
- Saifedean Ammous
- Peter McCormack
- Andreas Antonopoulos
- Anthony Pompliano
- Preston Pysh
Despite being quite a fan of Bitcoin myself, I’m certainly not advocating that you drop everything and put all your so-called eggs into the Bitcoin basket. To be honest, if you've been paying attention to the price, you'll notice it's been quite volatile as of late, perhaps showing us that it's not as immune to global influences or anti-fragile as once believed. Additionally, the U.S. Dollar today is still holding strong compared to other currencies, and personally, I've also hedged my bets with other secure investments in gold, silver, guns, ammo, food, etc.
However, I do believe in the potential of a sound currency like Bitcoin to have a powerful impact on our society and humanity as a whole, including one profound benefit I’ve not yet mentioned…
…its tendency to lower your “time preference.”
“Time preference” refers to the ratio at which an individual values the present, relative to the future. A lower time preference means you have the ability to defer short-term gains to instead invest for the future (which is a concept I actually discussed, albeit in a different context, in a recent Sabbath Ramblings entitled “Glory”).
Once again quoting the prolific Robert Breedlove, “hard money” like Bitcoin can lower our time preference in three ways:
- By providing a reliable way to protect value across time, hard money incentivizes people to think longer-term.
- As a stable unit of measurement, hard money enables markets to grow ever-larger by reducing the costs and risks of free trade, which increases the incentives for long-term cooperation.
- Self-sovereign money (like gold and Bitcoin) that cannot be manipulated by any single party reduces governmental intervention which encourages the growth of free markets, which increases their long-term stability.
Robert also goes on to say, “A lower time preference is an important part of what separates humans from other animals. By considering what is better for the future, we can curb our animalistic impulses and choose to act rationally and cooperate for the betterment of everyone involved. As humans lower their time preference, they develop a scope for carrying out tasks over longer time horizons. Instead of spending all our time producing goods for immediate consumption, we can choose to spend time creating superior goods that take longer to complete but benefit us more in the long run.”
In other words, by having a reliable form of money that actually holds its value over time, the more we can plan for a distant future, the more capital we create, the more wealth and abundance we have individually and as a civilization, the less we need to fight, and the more we can love each other freely.
And that, my friend, is the potential beauty of Bitcoin.
Now, I want to hear from you: What’s your experience with Bitcoin? Is this your first time learning about it, or have you already invested in it? Did you find this article helpful? What other questions do you have? Let me know in the comments and I’ll personally reply!