Bitcoin Q&A – Questions and observations from a friend, answered by me! (Part 1 of 2)

00:01 Hey everyone, I got some great questions 00:03 and observations from a friend about 00:05 Bitcoin. So, I want you to read you some 00:07 of what he I want to read you some of 00:09 what he sent me and then my responses 00:11 and my own thoughts and observations uh 00:14 based on that. Okay. So, first of all, 00:16 he says, "I am intrigued by Bitcoin 00:18 enough to hold the Bitcoin I bought 8 00:20 years ago, but not necessarily buy 00:22 more." Um, and so he's saying basically 00:24 he just doesn't have the conviction uh 00:27 to buy more. And I presume the 00:30 observations below are the reason for 00:32 that. So I am going to answer his 00:34 observations below to the best of my 00:36 ability. Okay. So he says my position 00:39 meaning Joel's position Joel's positions 00:41 assumes several things. Number one, 00:44 people will continue to collectively 00:46 agree that Bitcoin can be a store of 00:49 value in some sort of unwritten social 00:51 agreement. Uh and then he says all money 00:54 generally is this way. So Bitcoin is 00:56 dependent on this remaining true. What 00:58 happens if uh people decide another 01:00 crypto is better? Well, actually, let me 01:02 address it piece by piece. So, one um 01:05 anything that is used as money is 01:06 dependent on people believing that it 01:09 will store its value over time. Gold 01:10 works that way. The US dollar works that 01:12 way. Everything works that way. And what 01:15 matters is the credibility of its 01:17 monetary properties. So all of these um 01:20 things, you know, people's objections 01:22 often miss something that is answered in 01:25 three words, which is credibility of 01:28 monetary properties. And I'll talk more 01:30 about what that is. So yes, um all of 01:34 money assumes that people have decided 01:37 that the credibility of the monetary 01:39 properties is good enough to use it as 01:41 money. So the dollar has no inherent 01:43 value. Um it's it's a piece of paper. 01:46 It's literally a piece of paper and you 01:48 have to use it to pay your taxes, but 01:49 you can literally get US dollars 5 01:51 minutes before you pay your taxes. So, 01:52 it's not like you actually have to hold 01:54 US dollars to pay your taxes. You just 01:56 have to have them at the point at which 01:58 you actually need to pay the taxes. Um, 02:00 and of course, the US military, people 02:02 say, "Yeah, but the US has a military." 02:04 Well, so did every other country where 02:06 the dollar, you know, their currency 02:07 went to zero. Every country where the 02:10 currency went to zero also had a 02:11 military and they couldn't stop it. So 02:13 what matters is the credibility of the 02:15 monetary properties. So the reason 02:17 people use the US dollar is they believe 02:20 that although the US government prints 02:21 about 7% more money per year that they 02:24 won't print more than 7% more per year 02:27 and that that will only show up in 02:28 inflation of between maybe 4 to 9% per 02:31 year. And most people don't think 02:33 there's a better alternative because 02:34 they don't understand Bitcoin. And so 02:36 those the the credibility of those 02:40 monetary properties of the dollar is 02:41 good enough for them. Now, I don't think 02:43 it should be because if you understand 02:44 Bitcoin, you realize that the 02:46 credibility of those monetary properties 02:48 of the US dollar completely suck. Like 02:50 they make no sense. It makes absolutely 02:52 no sense to hold US dollars if you can 02:54 hold Bitcoin instead. But a lot of 02:57 people again don't understand Bitcoin. 02:58 But gold works the same way. The 02:60 credibility of gold's monetary 03:02 properties works the same way. So, um he 03:05 talks about sort of the social contract 03:06 that we all just it has value because we 03:08 agree it has value. That's actually not 03:10 the way it works. It has value due to 03:13 the credibility of its monetary 03:14 properties. So once something has 03:17 credible monetary properties, then it 03:20 becomes value because of the credibility 03:22 of those monetary properties. And after 03:25 that uh process happens, you can trust 03:28 that it will retain its value to the 03:30 degree that it retains the credibility 03:32 of those monetary properties. So it's 03:34 not sort of some weird accident that 03:37 gold is valuable. Gold has better 03:39 monetary properties than any other 03:41 metal. And that was discovered thousands 03:43 of years ago. Humans figured out that 03:45 gold was the scarcest metal on the 03:48 periodic table that had uh the other, 03:51 you know, requirements of being a good 03:53 money. It was divisible. It was durable. 03:54 It was portable. It was authenticable, 03:56 verifiable, all of those things. Gold 03:58 met those requirements better than any 03:60 other metal. And it wasn't like some 04:02 grand, you know, round table decided 04:04 that. People tried lots of different 04:07 metals and it kept coming up that gold 04:09 was more scarce, more divisible, more 04:11 portable, more durable, more 04:12 authenticatable. So they kept coming 04:14 back to gold. And so as more people used 04:16 gold, more people use gold. And as soon 04:18 as everybody was using gold, everybody 04:19 was using gold because everybody was 04:20 using gold. So again, it was not some 04:22 sort of weird, you know, social 04:24 contract. It was the credibility of 04:26 gold's monetary properties. That is 04:28 entirely the reason gold has the value 04:30 it has, which is now more than $20 04:32 trillion. is the most valuable asset in 04:35 the entire world. Um, and Bitcoin is 04:38 about 2 trillion. So, Bitcoin is less 04:40 than 10% of gold, which is something 04:42 like 22 trillion and Bitcoin's 2 04:44 trillion. Um, so anyway, so it comes 04:47 down to the credibility of the monetary 04:48 properties and that is an objective 04:50 thing. So if you went back to the 04:52 beginning of time and you understood the 04:54 periodic table and you understood, you 04:56 know, how rare each of the elements was 04:59 in the world, you could have predicted 05:01 in advance that Bitcoin would emerge as 05:04 the monetary metal for, you know, 05:06 history until the advent of uh the 05:09 telegraph and basically electronic 05:11 communications which made gold hard to 05:13 use uh because gold is not electronic in 05:15 nature. So prior to the invention of the 05:17 telegraph, you could have predicted 05:19 prior to that point that gold would be 05:21 the money that everybody would land on 05:23 and you could have done that far in 05:24 advance. It wasn't s sort of some it was 05:27 not a social contract that everybody 05:28 just decided. It was based on the 05:30 credibility of gold's monetary 05:31 properties. And gold had those 05:33 credibility of those monetary properties 05:35 from the very moment the earth came into 05:37 existence based on how much gold there 05:39 was compared to other metals and the uh 05:42 properties the uh the monetary 05:45 properties of gold. Um, so anyway, so 05:47 Bitcoin, it's it's easy to see how 05:50 Bitcoin has become the dominant 05:52 cryptocurrency and the fastest growing 05:55 most used sort of new form of money 05:58 because and again it's not because a 06:00 bunch of people got together and said 06:01 let's just use Bitcoin. It's because the 06:03 credibility of Bitcoin's monetary 06:05 properties is are far better than the 06:09 credibility of the monetary properties 06:10 of any other electronic uh currency. And 06:14 I'll go into more details on that. So 06:15 again, it's not a social contract. It's 06:17 based on the credibility of the monetary 06:19 properties. Those three words extremely 06:20 important. Credibility of the monetary 06:23 properties. Okay. So what happens if 06:25 people decide another cryptocurrency is 06:27 better? The answer is they're not going 06:29 to because the design of Bitcoin uh hits 06:33 a very specific target. And so uh it 06:37 turns out in retrospect Bitcoin hit the 06:39 exact bullseye for what you want in an 06:41 electronic currency. and more than 06:44 20,000 other cryptocurrencies exist by 06:47 people trying to change something about 06:49 Bitcoin. And every single attempt 06:51 they've made has made it worse. So at 06:54 this point, Bitcoin has 16 years of 06:56 history, one six. It has uh what's 06:59 called hash power, which is the the the 07:01 Bitcoin miner securing and auditing the 07:03 network. That is, you know, many dozens 07:07 of times larger than the next closest uh 07:11 cryptocurrency. And I'm not even sure 07:12 what's even second on that list cuz 07:14 nothing's even remotely close. Uh so 07:16 Bitcoin is just absolutely dominant. And 07:19 in order for something to take the place 07:20 of Bitcoin, it would need to have better 07:23 monetary properties. The problem is it 07:26 can't have better monetary properties 07:28 because it's never going to be able to 07:29 compete with the uh security 07:31 architecture of gold, sorry, of Bitcoin 07:34 as it relates to the Bitcoin miners and 07:36 all of that. Sorry, give me one second 07:38 here. 07:40 So uh the Bitcoin mining network is so 07:43 dominant that nothing is even remotely 07:46 secure as compared to Bitcoin and the 07:49 security is a key part of the certainty 07:52 and credibility of the monetary 07:54 properties. So um you can't make another 07:56 cryptocurrency that's more you can make 07:59 it that's more divisible, durable, 08:01 authenticable, portable, blah blah blah. 08:03 Um but that's the problem is again not 08:06 the monetary properties. It is the 08:07 credibility of those monetary 08:09 properties. The level of certainty with 08:12 which people in the world can be 08:14 absolutely certain that that will not 08:16 change. So people are only going to 08:17 decide another cryptocurrency is better 08:19 if the credibility of those monetary 08:21 properties is higher. And Bitcoin is the 08:23 original, the most distributed, the most 08:25 decentralized, the most secure, the most 08:28 ABC XYZ, every conceivable thing you'd 08:30 want in a cryptocurrency. Bitcoin 08:33 already has it. And there's no 08:35 compelling would uh would take the 08:37 mantle from Bitcoin. And if that were 08:38 even possible, it would have already 08:40 happened in the last 16 years. Um so 08:42 something really has to be radically 08:45 better in some profound way to be better 08:48 than Bitcoin. And I just don't see, you 08:50 know, neither me nor numerous other 08:52 people have researched this don't just 08:53 don't see how that's even possible. 08:55 Okay. So it's not going to be another 08:56 cryptocurrency. And you can uh if you 08:58 want to watch the videos I've done 08:60 specifically about why nothing will out 09:02 compete Bitcoin and why there will not 09:03 be a bit. So, um, the the the again, if 09:08 you want to if you want to understand 09:09 why nothing will out compete Bitcoin, do 09:11 a search for the word out compete, O U T 09:14 O M P, out compete on my website, 09:16 joelomgar.com in the resource section or 09:19 on my Facebook page, uh, or the the 09:21 keyword search MySpace 09:23 M, which talks about why Bitcoin will 09:26 not be just just the way Facebook 09:28 replaced MySpace, why that will not 09:30 happen to Bitcoin. I've got got a lot of 09:32 good resources about there uh about that 09:35 out there. All right. So then uh he goes 09:37 on to say or maybe the government 09:38 decides we're going to make our own 09:40 blockchain crypto and there will only be 09:42 15 million instead of 21 million like 09:44 bitcoins and it's backed by a precious 09:46 metal. Um I would say well that's 09:48 already happened. The US dollar was a 09:50 currency backed by the by precious metal 09:52 which was gold and then they broke the 09:54 promise. And the problem is every 09:55 government currency they always break 09:57 the promise. um the government uh 10:00 promises to be responsible. They tie it 10:02 to precious metals. Then they 100% of 10:06 the time throughout all of human history 10:07 have always printed more of the currency 10:10 than they had precious metal to back it 10:12 and it has devalued the currency and 10:14 eventually the currency has collapsed. 10:16 That has what is what what has happened 10:18 with every government managed money 10:20 throughout all all time. Um, so the 10:22 government's already done that. And if 10:23 they make it a cryptocurrency or a 10:25 central bank digital currency, CBDC, it 10:28 doesn't matter. Again, we're looking at 10:29 the credibility of the monetary 10:31 properties. Governments have no ability 10:34 to be credible with the monetary 10:36 properties because everybody knows 10:37 they're going to debase the currency. 10:39 Debbasing the currency meaning means uh 10:41 inflate it away or um change the basis 10:45 of it. Um so instead of in the case of 10:47 Bitcoin, there's 21 million. There will 10:49 never be more. Uh in the case of the US 10:51 dollars, there's 22 trillion and they're 10:53 just printing more 7% more a year. So 10:55 within a year or two, there will be $23 10:57 trillion in circulation and there's just 10:59 no end in sight. They'll never stop 11:01 doing that. Okay. So then it goes on to 11:04 say the original Bitcoin will only ever 11:07 be 11:08 uh 21 million, but you can make an exact 11:11 copy of the blockchain and call it 11:12 Bitcoin 2.0. So instead of the 11:14 government printing money, is there a 11:15 risk that other coders will write new 11:17 cryptos? And how does Bitcoin retain 11:19 retain its value if someone makes 11:20 another one exactly like it with only 10 11:23 tokens? So, it's even more scarce 11:24 because there's only 10 tokens instead 11:26 of 21 million or 10 million instead of 11:28 21 million. Again, what matters is the 11:30 credibility of the monetary properties. 11:33 So, if I come out and say, "Hey, here's 11:34 Joelcoin and there's only 10 of them. 11:36 It's super scarce." The problem is, 11:38 yeah, but it's not decentralized. I you 11:41 have no way of knowing it's going to 11:42 only stay at 10. In the case of Bitcoin, 11:44 there's more than 100,000 people running 11:47 Bitcoin nodes, every one of which has a 11:49 veto over changes to that 21 million 11:52 supply. If I roll out Joelcoin and I'm 11:55 the only one who has a node that 11:58 supports Joelcoin, you don't have any 11:60 way of believing or knowing that they're 12:02 that I'm not going to change the rules 12:03 on you. And so it just it makes no sense 12:06 to pursue some other crypto because you 12:09 just have no way of knowing that it's 12:11 going to have a fixed supply. In the 12:13 case of Bitcoin, it's distributed 12:14 worldwide. There's more than 100,000 12:16 nodes. They're running on satellites. 12:18 They're running on p personal computers. 12:20 I've got two Bitcoin nodes running at my 12:22 house. All of those have a veto over 12:24 changes to the network. No other 12:26 cryptocurrencies like even remotely even 12:29 remotely close to that, which means you 12:31 just can't trust that it won't change. 12:33 And other cryptocurrencies are 12:35 constantly changing. They're changing 12:36 how much there are. They're changing who 12:38 gets it. They're changing how it works. 12:40 And um you just can't trust that 12:42 somebody's not going to pull the rug out 12:43 from under you. Uh same with the 12:45 government. Obviously, you can't trust a 12:46 government not to pull the rug out from 12:47 under you. Um he also asks, "How does 12:51 the distribution of Bitcoin eventually 12:52 happen?" Meaning, how does it become the 12:55 means people start to buy uh a house or 12:58 a business? Is that the goal? So yeah, 12:59 eventually every uh currency strong 13:02 currencies out compete weak currencies. 13:05 So, as more people hold a strong 13:07 currency and spend a weak currency, uh, 13:09 which is what people are doing, they're 13:11 holding Bitcoin, spending US dollars. 13:13 And as that happens, they end up with a 13:15 higher and higher percentage of their 13:17 net worth in Bitcoin. So, eventually, 13:19 you get to the place where I am, where 13:22 I've got virtually 100% other than very, 13:24 very low bank account balances to just 13:26 make sure a a check doesn't bounce to a 13:28 babysitter or something like that who 13:30 doesn't take Bitcoin. um I I have you 13:33 know 100% of my liquid assets in 13:35 Bitcoin. So as that happens more and 13:37 more people transact with more and more 13:40 people exclusively in Bitcoin and I 13:42 already transact exclusively in Bitcoin 13:44 with anyone who will take Bitcoin and 13:46 that number of people keeps going up. So 13:48 as that number of people keeps going up 13:51 a larger and larger percent of the 13:53 economy is people swapping Bitcoin 13:55 instead of US dollars. So if you want to 13:57 see this uh work in real time with other 13:59 currencies, look at the US dollar in 14:02 Venezuela. So almost nobody's trying to 14:05 store value in the Venezuelan Bolivar 14:07 because it hyperinflated to basically 14:09 zero. And so what everybody's doing is 14:11 they might buy a you know they might get 14:13 paid in Bolivian uh sorry Venezuelan 14:15 Bolivar and then 5 minutes later they go 14:18 buy some groceries but they're not 14:20 holding on to that currency for longer 14:21 than minutes or days at the most. So 14:24 more and more of the economy is 14:25 transacting US dollars. Well, US dollars 14:28 are not the official currency, but 14:30 people are doing exactly what they're 14:31 doing with Bitcoin. They're uh holding 14:34 the US dollars and spending the 14:36 Venezuelan bolivar. And as more and that 14:38 happens, the US dollar is a better store 14:41 of value and the Venezuelan bolivar 14:44 slowly goes to zero and a larger and 14:46 larger percentage of the economy ends up 14:48 just US dollars. So the same thing is 14:50 happening with Bitcoin. It's just much 14:51 earlier in the adoption cycle. It's a 14:53 lot easier for people to switch from one 14:55 paper currency to another because they 14:56 understand it. With Bitcoin, there's a 14:58 high learning curve. So, it takes a lot 15:00 longer for people to get it. But that is 15:02 already happening with Bitcoin. And as 15:04 that happens, people are buying things. 15:06 They're buying cars. They're starting 15:07 businesses. They're like a lot of that's 15:10 already happening. It's just happening 15:12 uh on a small and growing scale. So, 15:15 it's sort of not on the radar for most 15:16 people. Okay. 15:18 Then next series of questions related to 15:21 here says uh the value will at some 15:23 point in some unforeseeable way be able 15:25 be or how will the value at some point 15:27 in the future be able to be determined 15:29 without knowing the value of the dollar 15:31 meaning what if the dollar collapses how 15:32 do we value Bitcoin? Uh isn't it always 15:35 based on the US dollar as in um so the 15:38 answer is no. The value is not based on 15:41 the US dollar. And I'm going to do a 15:43 separate video. So I'll turn this into 15:44 two parts. Uh because I'm afraid because 15:46 it's raining so hard right now that I'm 15:48 going to lose this video. So, I'm going 15:49 to go ahead and upload this video and I 15:51 will start a second one momentarily 15:52 where I answer that