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

00:01 Sorry about that. It was raining hard 00:03 enough that I was afraid I was going to 00:04 lose the first video if I didn't dry 00:05 everything off. So, I dried everything 00:07 off. Here we go. Okay. So, next series 00:10 of questions. My friend says, "At some 00:11 point, at some point in the future, at 00:14 some in some unforeseeable way, will we 00:16 be able to determine what the value of 00:18 Bitcoin is without the US dollar?" 00:20 Meaning, if the dollar collapses, how do 00:22 we know the value of Bitcoin? Uh, isn't 00:24 it always based on the US dollar? The 00:27 answer is no, but I'll explain. Uh 00:29 people in Europe see it in euros, but 00:31 it's based on the value of the dollar. I 00:32 think also wrong. That is not correct. 00:34 I'll go into that. I'm not exactly I'm 00:38 not saying it's pegged to the dollar. 00:40 I'm saying that everybody understands it 00:42 in terms of US dollars and it has uh its 00:44 Bitcoin price uh dependent on the US 00:47 dollar and not vice versa. All of that 00:49 is incorrect. Okay. So um but let me 00:52 explain why. So the value of anything 00:55 that is used as money is a proportion of 00:58 how much of that thing there is as 00:60 compared to all of the things that could 01:02 be bought with that thing. So the value 01:04 of the US dollar is based on how much US 01:07 dollars you have compared to all the US 01:09 dollars. And that is what percent of all 01:11 the stuff that that US dollars can buy 01:14 right now that you have the right to 01:16 purchase. So quite simply, if there's 01:19 only 10 US dollars and you hold one of 01:20 them, you can buy onetenth of all the 01:22 stuff that US dollars can buy at that 01:24 time. Uh if the government inflates it 01:26 so that there's now $20, you have one 01:29 out of 20. So now you can only buy 5% of 01:31 the stuff instead of 10%. Okay? So all 01:34 currencies work that way and Bitcoin is 01:36 priced like every good and service in 01:38 all currencies. So, uh, Bitcoin's price 01:40 stands alone based based on its 01:43 purchasing power. And the the reason 01:46 people look at, uh, Bitcoin in terms of 01:49 US dollars is because they're in the US 01:51 and things are priced in US dollars. But 01:53 the more uh, Bitcoin you own, eventually 01:56 you start to mentally price things in 01:59 Bitcoin. So, for example, my power uh, 02:02 in Mississippi is super erratic. Uh I 02:05 feel like sometimes uh the power is more 02:08 stable in third world countries than at 02:11 for whatever reason than my power in 02:13 when I'm in Mississippi. Okay. So uh a 02:16 generator to make my power stay on all 02:19 the time costs $20,000. A natural gas 02:21 generator that can run 24/7 for eternity 02:24 on natural gas and power my house and 02:26 everything in it cost $20,000. Well, at 02:29 roughly $100,000 a bitcoin, that's 1/5if 02:31 of a bitcoin. So when I think about 02:33 buying that generator, although it's 02:34 priced in US dollars, I think about it 02:36 in Bitcoin terms. Do I want to spend 1/5 02:40 of a Bitcoin on a generator so that my 02:42 power stops going out? So I'm wrestling 02:44 with it. I can't decide if I do or 02:46 don't. What is the value of a hot of 02:47 being able to take a, you know, a hot 02:49 shower? What is the value of the air 02:50 conditioning working? My TV working, my 02:53 internet working. Now security systems 02:55 are on their own backup system, so I'm 02:56 not worried about that. But uh 02:58 everything else that is convenience in 02:60 my house uh runs on power. And again 03:03 it's as simple as the fact that when the 03:05 power is out uh all the conveniences go 03:07 away. Um so is that worth 1/5if of a 03:10 bitcoin. And again that's something I am 03:12 wrestling with. But I think about it in 03:13 bitcoin. Eventually that generator will 03:15 be priced in bitcoin and it'll be worth 03:18 you know bitcoin will be worth a lot 03:19 more than it is now. But you'll walk in 03:21 and they'll say, "Hey, this generator is 03:23 0.05 bitcoin or 0.1 bitcoin or 03:26 0.00002 bitcoin, whatever it is." Uh 03:29 that day will come. So every currency uh 03:31 bitcoin trades in every currency. Nobody 03:33 thinks about the price of bitcoin in the 03:35 US dollar except people in the US. 03:37 Everybody else thinks about it in terms 03:39 of their own currency. But they only 03:40 think about it that way because that is 03:42 how their brain processes purchasing 03:44 power in in in uh the future. That will 03:47 be in Bitcoin. And people will think 03:49 about everything the way I do, which is, 03:51 hey, I want a generator. Is it worth one 03:53 of a bitcoin? And eventually when it 03:56 gets down to, hey, I can get, you know, 03:58 my favorite iced mocha frappe with 03:60 whipped cream and chocolate drizzle 04:02 decaffeinated, you know, that cost seven 04:04 bucks. Well, eventually that will be 04:07 priced in Bitcoin and I'll think about 04:08 it as, hey, do I want to separate myself 04:10 with from this much Bitcoin in order to 04:13 have one of those? Um so but uh yeah so 04:16 the answer is Bitcoin's value is not dep 04:18 uh not based on the US dollar at all. 04:21 It's not based on any currency. It's 04:22 based on its purchasing power of goods 04:25 and services what it can buy in the real 04:27 world. And when uh those other 04:30 currencies eventually go away presuming 04:32 they do then bitcoin will be you uh 04:35 people will think in terms of bitcoin 04:37 and price in terms of bitcoin uh and 04:40 it's not dependent on anything else. 04:41 just again in the Vhimar Republic when 04:44 uh the the uh the German mark uh 04:48 inflated you know into 04:49 oblivion it was just based on itself and 04:52 people used different currency or they 04:54 transacted in gold or they did other 04:56 stuff but um but no no currency is based 04:59 on another currency's value they all 05:01 float or the vast majority of the 05:03 currency of the world float freely in 05:05 value compared to each other but none of 05:07 them are based on the value of another 05:09 and 05:12 Sorry. Same is true of Bitcoin. Okay. Um 05:16 another So this uh puts forward a 05:18 thought which is all of this is based on 05:20 the fact that Bitcoin will continue 05:21 increase in value because people will 05:23 inject capital into it. Value/ capital 05:26 must be generated to then inject into 05:28 Bitcoin until there is mass adoption and 05:30 people buy products and services with 05:32 Bitcoin, not just paying with Bitcoin. 05:34 That is an exchange to a currency. Uh so 05:36 yes, as long as everything's priced in 05:38 other currencies and most people 05:39 transact in other currencies, people 05:40 will continue to to trade in and out of 05:42 Bitcoin um for their local currency. But 05:45 again, that will happen less and less as 05:48 time goes on. So just like with the 05:50 Venezuelan Bolivar, initially if you had 05:52 US dollars, you always had to trade 05:54 trade them back into Venezuelan Bolivar 05:57 to buy stuff. And eventually nobody 05:58 wanted Venezuelan Bolivar, so you could 05:60 just use the US dollars directly in 06:02 Venezuela uh because nobody wanted the 06:04 local currency. And the same is true of 06:05 Bitcoin. Eventually it'll just everybody 06:07 will want Bitcoin. Nobody will want to 06:08 be trading in and out of it. Um anyway, 06:11 so that's that's how that will happen. 06:14 Um another thought here is the person 06:16 says the exchange fees are worth the 06:18 cost. I imagine there are some sort of 06:19 processing fees for foreign transaction 06:21 types uh when you pay with Bitcoin or 06:23 convert into US dollars. So yes, every 06:26 time you process any transaction 06:28 anywhere, you're paying some sort of 06:29 fee. Uh normally Visa and Mastercard 06:31 charge 2.9% which is a super high fee 06:35 especially when most merchants are only 06:36 making a couple percentage points of 06:38 profit and half of that or you know 06:40 almost all of that ends up being eaten 06:42 up by credit card processing fees. Um 06:45 but Bitcoin is the same way except on 06:46 the Bitcoin lightning network uh which 06:49 is how payments are typically made uh 06:51 the fees are fractions of a penny. So um 06:54 and then to trade in and out of fiat 06:57 currency which is government currency 06:59 there are some transaction fees 07:00 typically you can get them as if you try 07:03 hard as low as point4% uh or on Coinbase 07:07 Advance for example or 0.55 on Robin 07:10 Hood or uh anyway so yes there are fees 07:13 to trade in and out of US dollars but 07:15 those fees get lower and lower um with 07:18 each passing month and year because more 07:21 people are doing it and the uh exchanges 07:23 have to compete with each other. Um but 07:25 uh again in the future you won't have to 07:27 trade in and out of uh government 07:29 currency because you'll be able to just 07:30 directly pay with Bitcoin which as of 07:33 yesterday is exactly what you can do at 07:34 Steak and Shake. You can go to Steak and 07:36 Shake and you can buy stuff with Bitcoin 07:38 at Stake and Shake without ever 07:40 converting in or out of uh another 07:42 currency. All right, last step it says 07:44 the exchange fees are worth the cost. I 07:46 imagine there will be some sort of 07:47 processing fee. Uh oh. 07:50 Um, and then uh the hypothesis that if I 07:53 hold money in Bitcoin that it will be 07:55 worth more in the future than it is now 07:57 and therefore I can buy more stuff with 07:59 it. Um, so uh all again all of that uh 08:04 is premised on the fact that there is 08:06 less Bitcoin and it's not inflating. 08:09 There's only 21 million. Therefore, you 08:10 can trust its monetary properties and 08:12 therefore over time it will go up. Uh 08:15 the credibility of Bitcoin's monetary 08:16 properties dictate that it will go up in 08:18 value over time, although it will be 08:20 volatile. It will go up and down on its 08:22 way up. Um the US dollar only goes down. 08:25 So it feels stable, but that's because 08:27 it's always sinking. It's just not 08:29 sinking fast enough that everybody has 08:31 to jump off the ship immediately, but it 08:34 is absolutely positively losing value. 08:36 Um so anyway, hope all that is helpful. 08:39 Uh just some musings on a rainy Saturday 08:42 afternoon. And uh I'm free to answer 08:45 anyone's questions or send me stuff. 08:46 I'll do videos about them. Have a great 08:48 day, everyone. Thanks.