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Tell Me About Bitcoin

Posted 9/2/20 by Preston Pysh

Preston Pysh is a Swan advisor. Download the one-pager here.

What does Bitcoin intend to solve?

Bitcoin was created to put a global, digital, peg on fiat currency. Since 1971, money around the world has not had a peg. This can work, but not over a long period of time because govern­ments around the world will debase their fiat money in order to create growth through finan­cial engineering. It’s the classic Tragedy of the Commons – only between nations with their fiat money. To date, this has occurred via the bond markets, which now have no yield on a real basis. I’m sure you’ve noticed that existing fiscal and monetary policies are polar­izing social classes globally. This is the result of overusing infla­tionary monetary policies with no monetary peg. Do yourself a favor and Google: Cantillon Effect. Since Bitcoin has a fixed supply of coins and it runs on a decen­tral­ized protocol (similar to the Internet Protocol (IP) or Trans­mis­sion Control Protocol (TCP)), it has been forcing fiat curren­cies to conform to its rules for ten years now.

Until 1971 produc­tivity and compen­sa­tion rose in lockstep. After the dollar was removed from the gold standard in 1971, produc­tivity continued at the same pace while compen­sa­tion went essen­tially flat. This is the Cantillon Effect at work.

The price is so volatile!

Yes, it is  —  for now. This is a new form of currency and the current market capital­iza­tion is very low relative to existing fiat curren­cies. As a result, you get volatile swings. Addition­ally, the Bitcoin protocol has a four-year cycle based on a game theory incen­tive struc­tures used to execute fiat currency. This cycle is straight­for­ward and it’s impor­tant to under­stand why the volatility peaks every four years. To better under­stand this cycle please read this paper.

A history of Bitcoin’s price broken into four year cycles.

How does Bitcoin have a fixed supply of money?

You’ve heard the buzzword blockchain? Imagine if I could send you a digital picture. Once you receive that digital picture, you are the only person who can possess it. You can’t copy it nor send a copy of it to another family member. Well, that’s what the Bitcoin blockchain enables. Bitcoin has done this with 21 million Bitcoins. And before you say, that’s not enough units for the entire world, please realize that you can break 1 Bitcoin into 108 units. Or in other words, there are 2,100,000,000,000,000 total units. There will never be any more than that because of blockchain technology. 

There are a million crypto coins — why Bitcoin?

First, remember, bitcoin is an open-source decen­tral­ized protocol. When studying how proto­cols reach mass global adoption, you need to under­stand network effects over commu­ni­ca­tions channels. Although Wikipedia isn’t a protocol, it can serve as an example. Anyone could copy the open-source code for Wikipedia, change the name, and then try to adopt new users and overtake Wikipedia as the global source on the internet. This doesn’t happen because of network effects. Bitcoin has the strongest protocol network effect for pegged money. Here’s an impor­tant article that highlights why it’ll likely stay that way.

Telephone networks are a good example of network effects.

Governments will never allow it!

During the early years of protocol growth, this was a major concern. Today, the opposite is occur­ring. You have state govern­ments like Wyoming already passing legis­la­ture to protect Bitcoin holders. Addition­ally, you have countries like Germany, Australia, South Korea, and many more already passing laws to protect owner­ship. Here is an hour-long podcast conver­sa­tion only addressing this question — recorded in 2020.

Final note

You know there’s something system­at­i­cally wrong. The world you knew 20 years ago is not what you have today. Guess what, the fiat money, fiscal spending, and infla­tionary monetary policy are causing it. Future bailouts and a further debase­ment of fiat currency will only strengthen this trend because it’s applying more of the same policies that brought us to this point. Bitcoin is the answer to this runaway global policy and broken incen­tive struc­ture. No single-paged paper will answer the depth of questions you probably have. Here is a great resource that’s organized to help answer any questions you might have:

Find Preston Pysh on Twittter at @PrestonPysh           

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This blog offers thoughts and opinions on Bitcoin from the Swan Bitcoin team and friends. Swan Bitcoin is the easiest way to buy Bitcoin using your bank account automatically every week or month, starting with as little as $10. Sign up or learn more here.

Preston Pysh

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© 2022 Swan Bitcoin

Electric Solidus LLC
26565 Agoura Rd Ste 200
Calabasas, CA USA

Swan Bitcoin does not provide any investment, financial, tax, legal or other professional advice. We recommend that you consult with financial and tax advisors to understand the risks and consequences of buying, selling and holding Bitcoin.