Why Bitcoin Will Not Make You Wealthy?
Why Buying Bitcoin Will Not Make You Wealthy?
So you wanted to become wealthy and you bought bitcoin? You may have made a fortune. Or you may have not. You gambled and you may have lost your investment. Regardless of the outcome, you must decide what you want – a some of money or wealth and financial freedom.
First of all, I will go on record and admit that I refuse to gamble. I refuse to buy lottery tickets. I believe luck is focused work. Are you with me? Yes, I am talking about control over the outcome of your investment.
So you heard that Bitcoin is the next big thing and you need to buy it. Wait, but you have no control over what happens to it on the future. You would, if you designed it. But you didn’t. If you want to guarantee success, you need to invest in what you can control. Typically it is not a stock or another fad as Bitcoin.
It is you. You must invest in yourself and build a business. You can control the outcome of such a venture and build wealth successfully.
What Do We Know About Bitcoin?
Blockchain technology was publicly introduced in a succinct white paper by the mysterious Satoshi Nakamoto released on November 1st of 2008. However, deeper research led me to learn that in 1996 the National Security Association in collaboration with the Massachusetts Institute of Technology already developed blockchain, or ledger distributed, technology. The design intent of the project was to implement a traceable digital ledger that can be easily controlled by a small group of entities. Decentralization and virtual untraceability is an illusion and a publicity stunt.
Miners control a network of computers that runs the Bitcoin algorithm and that produces a block of code refered as Bitcoin or satoshi for Bitcoin fractions. The miners control the outcome of mining. Thus, we cannot say that Bitcoin is decentralized. Neither is it private. Do you put information on the Internet and expect no one to find it? Of course, not. You understand that once it is out, it is nol longer private to some degree. The same applies to a transaction recorded on a public ledger. What logical sense does the claim of privacy make in the case of Bitcoin. None.
Why So Many People Fell For Bitcoin?
Bitcoin extends a tremendous freedom proposition for which many libertarians fell for. It is virtually untraceable, decentralized, unique and limited in quantity, or is it? If something is written in a ledger, it can be traced. If somebody created it, they have centralized power over his creation. With respect to uniqueness, do not forget, many, many, many other cryptocurrencies emulating Bitcoin and multiple Bitcoin forks. You can yell at the top of your lungs that Bitcoin is different except it is not because you are not using good ol’ logic. The blockchain technology behind Bitcoin has social value given it is implemented wisely. However, it has been used as a pawn in a ridiculous speculation scheme thus far.
Since 2008 the origins of bitcoin heated up public debates. Probably, because people want change and want to believe digital cryptocurrency will give them the privacy when they exchange money they long.
I reject this believe and lay out proof through further research. Central banks have been using blockchain technology for decades to reduce costs of interbank transfers.
Distributed ledger technology reduces risk by solving the problem of double-spending; a transaction cannot be reversed without both parties consent unlike credit card transactions.
For instance, financial institutions have been actively using the Ripple blockchain protocol to minimize costs and increase money transfer speed and thus transaction efficiency.
Essentially, the distributed ledger protocol reduces operational costs and improves profit margins which will continue to attract venture and institutional capital into the blockchain market.
That is why , controlled by a network of banks blockchain technology will not give you privacy you are looking for.
The Scarcity Claim
Also, people believe that Bitcoin is scarce. By way of ostensible scarcity Bitcoin represents exceptional value. Therefore, people have been banking on the perceived scarcity to make a fortune in the near future. Since the algorithm limits the quantity of Bitcoin units and stops it at 21,000,000 units, people perceive Bitcoin as scarce. The idea of Bitcoin uniqueness contributes to its perceived scarcity.
Scarcity indicates high value. By contrast, unlimited money printing makes fiat currency worthless overtime. The Bitcoin scarcity argument uses fiat currency printing to emphasize Bitcoin’s outstanding value.
Gold backing makes the case for Bitcoin and other cryptocurrencies. Fiat currency was backed by gold before 1971, when the Federal Reserve removed the dollar from the gold standard. Before 1971 the amount of printed fiat currency equaled the amount of available gold. After the gold standard was removed, the Federal Reserve created unlimited amounts of money further devaluing the currency. But wait. Bitcoin printing seems to be limited by the algorithm. Therefore, we do need gold to insure miners do not generate more blocks than the algorithm permits. Or maybe we do not need Bitcoin? Maybe Bitcoin is just another distraction? Gold is the best monetary tender. What is wrong with gold? Furthermore, gold has versatile industrial uses.
Will Blockchain Technology Render Gold Obsolete?
Despite the insane popularity of cryptocurrency none of them can render precious metals obsolete. The main advantage of precious metals is materiality and their fungibility.
You can travel abroad and easily exchange gold and silver. Cryptocurrency is unlikely to change the fungibility of precious metals.
Moreover, cryptocurrency will never compete with the industrial use of nor become a substitute for gold and silver.
Regardless of further advancements in blockchain technology, cryptocurrency will not replace gold and silver.
Downsides of Blockchain Applications
Blockchain applications are not flawless as any computer program.
Since people make mistakes and people write blockchain code, the quality of smart contracts depends on their designer’s aptitude.
For instance, to stop an attack, the base code of the blockchain must be re-written with permission of its participants.
The condition contradicts the immutability principle and violates the tenets of decentralization. Blockchain is not decentralized.
The Intrinsic Value Conundrum
Intrinsic value does not depend on extraneous factors or perception. It resides in the commodity or product. Bitcoin does not have intrinsic value.
On the contrary, gold and silver can be used in a range of industries.
To object Mr. Buffet, who states that gold does not have intrinsic value, gold does have intrinsic value. It has many industrial uses in electronics, jewelry, medicine. However, gold has lower cash flow potential unlike that of a business unless you can rent it at interest.
Under economic growth, a business presents a better opportunity, of course, from a cash flow standpoint.
However, gold and silver provide a safe haven in any economic conditions.
In any case gold and silver are my first asset preservation choices. Bitcoin does not begin to rival them.
Furthermore, Bitcoin mining requires a lot of computing power which is directly associated with energy and money expenditures which exceed gold mining costs.
Precious metals, on the other hand, will always provide the best investment opportunity in any economic situation including the looming currency collapse.
Don’t Invest in What You Don’t Understand
First of all, we have to emphasize that Mr. Buffett have no interest and no faith in blockchain technology.
However, we are only to apply Buffett’s philosophical asset trading principles to investing in block chain technology. Buffett’s trading ideology stems from value investing popularized by his Columbia mentor Benjamin Graham.
Since value is a highly ephemeral and abstract construct, value investing depends on how we derive value.
The first and foremost investment principle of Warren Buffett lies in the notion that we must understand the concepts behind the assets we invest in.
We must define intrinsic value. The main reason Mr. Buffett does not invest in technology, including blockchain technology, is because it contradicts his value investing philosophy.
Blockchain technology does not have intrinsic value, the main premise of value investing. It also wastes a lot of energy. Bitcoin consumes a lot of energy and, unlike gold, does not have any value besides monetary exchange.
How to Control Your Investments
Wealth is a function of your mindset which enables people with money to come up with streams of income that sustains them for life. How? They think in terms of assets. In fact, they cover their liabilities with the cash flow from the assets they own.
An asset creates cash flow. A business is an asset. The wealthy always work for themselves: they invest in their own businesses and take full responsibility for the outcome of the venture. That is how they gain control of their investments.
Building business is risky, it is less risky though then buying bitcoin and hoping you hit a jackpot by making millions.
The wealthy build brands. They sell and seduce consumers with their value propositions. Consumers stick to their comfort zones, they have to have time to chill while the precious time is running out. Then they have to scramble for money until they die.
If you want to guarantee a successful outcome of an investment endeavor, invest in yourself. Build a business. I personally do not avoid risk but I prefer a degree of certainty in the outcome of my investment venture. Therefore, to have that certain success in the future, I design it. I design it with laser sharp focus, perseverance, and work. That is why I always achieve success and get what I want.
Until next time.