Posted November 23, 2021
By Zach Scheidt
What I Learned From My Rookie Crypto Transaction
I bought some sports tickets from a friend last week.
And just before I sent the money through my Venmo app, a thought occurred to me...
"Why not try paying with crypto?"
You see, my friend Mike is a big bitcoin guy.
Yep, he's that guy that sits down at a table with friends and won't shut up about cryptocurrencies, blockchain and altcoins. And a lot of times I find the one-sided conversation annoying.
But this time, I decided to go with Mike's bitcoin enthusiasm. And so instead of paying him in U.S. dollars, I asked if he could help me set up a bitcoin payment.
I was surprised at how much I learned!
It's So Much Easier Than I Thought
Mike was a gracious teacher.
After some good-natured ribbing about how I didn't usually appreciate his Bitcoin conversations, we got right to work.
Mike suggested I open two different accounts with two different crypto platforms so I could see how they each worked.
Both of these platforms set me up with a wallet. I had to send money from my bank to the wallet and then used that money to buy bitcoin in the open market.
Next, I sent a certain amount of Bitcoin (a very small fraction of a single bitcoin) to Mike for the tickets. All I had to do was copy and paste his wallet number into the app and the currency was sent.
The process couldn't have been any easier!
And while I'm still a fan of using U.S. dollars for most transactions, I can see how this method would be very helpful sending money to friends or businesses abroad.
Another thing that I learned was that I'm a total rookie when it comes to cryptocurrencies!
It wasn't hard to get up to speed on a bitcoin transaction. But there's so much more to the space than I ever realized.
And while I realize that I'm just scratching the surface of the cryptocurrency markets, I'm grateful to have colleagues with some incredible knowledge on the subject!
James Altucher is our resident cryptocurrency expert. And I'm blown away by all that he knows about this exciting area of the market.
If you've been reading Rich Retirement Letter for a while now, I'm sure you've seen his name mentioned.
Today, I wanted to share some of James' wisdom with you directly. Years ago, James wrote up everything you need to know about bitcoin.
After all this time, everything in this article below still rings true.
So please enjoy his message below from my colleagues at Altucher Confidential.
And stay tuned, because we’ll have more details on a brand-new cryptocurrency project James and his team are working on soon.
Everything You Need to Know About Bitcoin
By James Altucher
Back in 2013, I thought Bitcoin was a scam. I was wrong.
In order for cryptocurrencies to succeed, people need to understand at a basic level what they are. Nobody needs to learn complicated cryptography or blockchain.
Just understand why this is important for us as a society now. Then you will know the potential for Bitcoin. And you will be popular at cocktail parties.
THE PROBLEM WITH MONEY
Every new form of money solves the major problems of the last.
Barter has a lot of problems. If I have a bag of rice and I need shoes, what if you make shoes but you only need 1/2 bag of rice. Do I get 1/2 a pair of shoes?
Then coming up with 1000s of exchange rates just to go out and buy groceries is almost impossible.
PLUS, what if you have to move (your kingdom is attacked). How are you going to carry all that rice? All of those shoes?
Money has two purposes:
- as a store of wealth / savings
- to make transactions
Barter is horrible as a store of wealth. And for transactions, best case it’s very difficult.
But problems lead to opportunities. Which leads to…
Gold and silver are scarce. It’s hard to mine.
It’s hard to forge because you can measure by weight.
So the scarcity combined with the lack of forgery makes them good choices for money. I can convert my rice into gold coins, you can convert your shoes into gold coins, and now we can trade and now we can buy whatever we want.
As a store of wealth, it’s not great but not horrible.
If my kingdom is attacked and I have to move, gold and silver are easily stored and carried as designed jewelry.
BUT, two problems.
- What if you live in a country that doesn’t have any gold mines. Now you either have to trade for gold or start attacking countries.
- What if you wanted to buy a house right now: are you really going to bring a truck of gold bars to the closing? Or if you have to move to another country and you have a lifetime worth of savings: are you going to ship all of your gold bars to your new home?
People say that gold is “real” as opposed to (later) paper money and cryptocurrencies.
This is not really true. Gold is a rock. But it does have industrial uses (silver is better for this because of price but still…). Gold and silver are great electric conductors, can be used as SILVERware. Can be used as antibiotics (hence great for fillings on teeth).
So we can say that gold money is “backed” by something that has real use with value associated with it.
But we still have to solve the problems above.
Countries made paper money that was like a contract with the government that all of that money can be converted into gold.
This was great for transactions (easy to carry paper money).
This was great for a store of wealth (put the money in a bank and you can go anywhere). The first banks for paper money backed by gold helped fund every war in Europe in the 1800s. Good job!
When paper money is backed by gold it also puts a clamp on inflation. You only have as much paper money in a country as there is gold in that country.
So you can trust the government to not go crazy printing money that is not backed by gold (like Germany in the 1920s when trillions of Marks were printed and the country went into an inflationary death spiral that was at least one cause for World War II).
BUT, why benefit the countries where gold is easy to mine and punish the countries where gold is hard to mine.
Also, the world is expanding in every way: more people, more technology, more innovation, more THINGS.
I’m not sure this is a good thing or a bad thing (see: Germany above) but sometimes countries need to balance debt with money printing to manage their fiscal policy.
The US went off of gold in the early 70s in order to fund the financial needs of both the Vietnam War and the social programs of Lyndon Johnson.
This created inflation.
Paper money will often lead to this situation. Someone will say: why do we need the gold part?
Again, might be good or bad. There’s a lot of debate. Did money printing save the US in 2008 and 2009? Maybe. Or will there be future problems caused by this? Maybe.
Nevertheless, there are other problems with paper money that need to be solved:
a. No privacy. If I’m making a sizable (greater than $1000) transaction I’m usually not using cash but either a credit card or a money wire.
So that means your bank knows. Other banks know (the bank you are sending money to, the Federal Reserve, the local Reserve bank, etc).
Government agencies know (the IRS, the NSA, etc, etc).
Potentially sites like Google and Amazon know depending on what payment services you use and what you are buying.
So you have no privacy on your transactions with paper money.
b. Fees. If I send a friend in Korea money, I go through my bank (fee), local reserve bank (fee), Federal Reserve (fee), International wiring system (fee), their central bank (fee), their local reserve bank (fee), their local bank (fee).
That’s a lot of fees. Those fees help create inflation because every transaction needs to have a profit on top of those fees.
c. Forgery. Something like $200 billion in forged money is circulating right now.
d. Human error. This is a CRITICAL problem. There are so many opportunities for human error. When you transfer money, they can send to the wrong account. Or a bank’s software can be hacked and you lose all of your money.
Or, most importantly, the Federal Reserve in the US can decide to print another trillion (Like 2009) and, without your permission, the value of your dollar has gone down.
In the US we’ve been lucky. But all of South America hasn’t been so lucky (all of their currencies crashed in the 80s. Most of Asia wasn’t so lucky in the 90s (their currencies wiped them out). Russia in 1997 was wiped out.
e. What is backing paper money? Only our trust. I don’t want to be a conspiracy theorist. But the reality is: a dollar is a piece of paper. Just like gold is just a rock.
How do they make us trust that the money has value?
They put “In God We Trust” on it. They put George Washington. They put the signature of the Secretary of Treasury (pretending it’s a contract.).
And, for the weirdos, they even put a pyramid with an eye on it.
And that’s supposed to be why we trust it. I don’t trust it.
Bitcoin solves the problems above.
- Privacy. I can send you a Bitcoin and nobody knows who is sending it, who is receiving it, and no government institutions are aware of it.
- Fees. Some bitcoin transactions have small fees. But it’s nothing like the fees of going through six banks in the transaction described above.
- Forgery. The software guarantees that Bitcoins can’t be forged.
- Human error. There is no printing of money. There is a fixed supply of 21,000,000 coins.
- What’s backing it? There’s about 1000 man-years of science backing Bitcoin.
The underlying technology of Bitcoin which involves heavy amounts of cryptography, financial know-how, and basics of contract law, plus the “blockchain” have 100s of use-cases that we have only just begun to play with.
EVEN IF Bitcoin is never used as a coin (although note: it’s being used every day as money) there are 100s or 1000s of other uses for Bitcoin that have nothing to do with the basic money use.
I won’t get into the weeds here: but suffice to say that ALL of contract law can be (and will be) eventually replaced by Bitcoin.
And ALL of logistics will be replaced by Bitcoin (e.g. UPS is replacing all of their internal logistics (tracking millions of packages every day going from millions of locations to millions of other locations) by Bitcoin technology.
There’s nothing behind paper money or gold like this.
Now…Bitcoin has problems also.
Hence the need for other cryptocurrencies. But that’s ok and not the topic for here. Suffice to say, Bitcoin solves all the basic problems of paper money, which solves the problems of gold, which solves the problems of barter.
Well, what should I do now?
Don’t listen to me.
- Get an account on Coinbase (or wherever). Buy $10 worth of Bitcoin just to taste and feel it.
- Then read. Read a lot.
Here’s some books not about Bitcoin that are worth reading:
Sapiens by Yuval Hurari
The Evolution of Everything by Matt Ridley
The Ascent of Money by Niall Ferguson.
Antifragile by Nassim Taleb
There’s a lot of discussion of cryptocurrencies on Reddit and Twitter. DO NOT read those. Most of those discussions are filled with trolls although there are some decent sources there.
Blogs / Sites: start with Coindesk and CoinTelegraph. You’ll find the rest as you read more.