@habits

This was a good comprehensive introduction to bitcoin and all of the various topics that it touches, from the technology of blockchain and internet protocols, to financial history, to “what is money”, to the macroeconomic and geopolitical ferment in which bitcoin was born and has since thrived.

Below are some of my favorite highlights. All copied verbatim.

Here’s the Kindle link: https://www.amazon.com/Why-Buy-Bitcoin-Investing-Tomorrow-ebook/dp/B07XG2J3S9

—

HIGHLIGHTS

This duality between the monetary (liquidity) value and the investment (capital) value, or between the monetary (liquidity) value and the consumption value, explains why money is an adjective as much as it is a noun. Just about everything is “a little bit money”

In his excellent book, The Bitcoin Standard, Austrian school economist Saifedean Ammous divides the double coincidence of wants problem into three categories: (1) location, (2) scale, and (3) time.

Promising unfunded Social Security and Medicare benefits so that millions of baby boomers can cease working at the age of 66 and live off the taxpayer for another 25 or more years in retirement is clearly unproductive.

Instead, we observe the opposite: a dramatic rise in the ratio of debt to GDP. The only thing that has kept the interest expense of this debt from crushing borrowers has been the inexorable fall in interest rates due to policies of central banks such as the Federal Reserve.

Today there is a much larger bezzle. We call it government debt. Our own governments (federal, state, and local) know they cannot satisfy the debt claims that citizens have on them. As noted earlier, in the United States the accumulated liabilities, including outstanding debt and unfunded Social Security and Medicare, exceed $210 trillion in addition to the growing commercial and consumer debts.

Goldman had acquired CDS contracts with AIG with notional values of $21 billion. AIG had effectively written insurance contracts on housing with payout values that amounted to multiples of its own equity capital. It was ludicrously undercapitalized and had the ability to pay out only a small fraction of the claims it had written. Goldman had enough debt on its own balance sheet that if AIG were to fail, so would Goldman.

I don’t believe this could have happened without the revolving door of bank executives through government, and I don’t believe it will be fixed until that problem of “regulatory capture” (industry controlling the regulators instead of the reverse) is solved.

And as long as bond markets will support the growing liabilities accrued with deficit spending, the temptation to promise short-term economic benefits to voters is too great. A member of Congress who fails to deliver the fiscal goods to voters now is unlikely to see another term in office.

The political power of the baby boomer generation, which has managed to dominate politics for decades, suck financial benefits out of the system, and leave the younger generations with the bill, has exacerbated the problem.

Globalized international trade with supply chains originating in low-labor-cost Asian countries, coupled with efficiency gains from technology, kept the prices of consumption goods in the United States and other wealthy countries from rising much over the last few decades, and in many cases reduced them.

it is instructive to look at those “consumer goods” whose prices were not kept low and instead inflated significantly in recent decades. The categories that stand out are (1) healthcare, (2) housing, and (3) education.

healthcare now accounts for approximately 18% of the total GDP in the United States. This means the U.S. spends more than double the average of the 36 countries in the OECD (the Organization for Economic Co-operation and Development—a club of 36 mostly rich nations). And what do we get for our money? The average American dies 1.7 years earlier than the average OECD citizen.

hedge fund manager Ray Dalio observes that the United States has nearly reached the point at which the top 0.1% of the U.S. population owns as much wealth as the bottom 90%

There are six obvious ways to deal with excess debt: (1) austerity, (2) mass defaults, (3) jubilee (debt cancellation), (4) redistribution, (5) financial repression, and (6) consumer price inflation.

Faced with a world drowning in debt, the Federal Reserve and the rest will likely tolerate 5%–8% consumer price inflation to reduce the “real” burden of debts if that’s what’s required to avoid austerity and mass defaults.

Digital currency pioneer Nick Szabo defines scarcity as “unforgeable costliness.” According to Szabo, this can be achieved by an object via either the “improbability of [its] history” or its “original cost.”

A government that could print $20 bills at a cost of 10 cents each could collect the difference as profit, known as “seigniorage.” […] Today, this seigniorage, which is really a stealth tax, amounts to roughly $20 billion annually for the U.S. dollar.

So, the bankers get the money first, then the business owners, and last the workers. Considering that bankers and business owners tend to be wealthier than wage-earning workers, the system creates another regressive effect.

Countries like China and Sweden have mostly done away with [physical cash] already. Interestingly, some countries have resisted the trend. Germany has maintained a high level of physical cash usage, possibly due to its bad experience with totalitarianism.

But the estimate that an additional 500 million people would by now have gained banking access if not for the Patriot Act is probably conservative. Remember that when the Patriot Act took effect in 2001, the smartphone hadn’t yet been invented, and global Internet penetration was 10%–11%.

In May 2019 The Economist reported that bank disclosures suggest that roughly 10% of employees at large banks work in compliance, and that this percentage has approximately doubled since the mid-2000s (i.e., since the period soon after the Patriot Act came into effect).

The money laundering news became truly jaw-dropping in November 2018 when major news outlets reported that roughly €200 billion (equivalent to roughly $250 billion) had been laundered through a single branch of Denmark’s largest bank, Danske Bank, over an eight-year period.

Bitcoin is the densest form of money in existence. Billions of dollars can be stored on a single piece of paper or USB-sized device.

The Bank of Japan would be a likely first-mover among developed countries, considering the fact that Japan’s government has historically been friendly to Bitcoin and also that holding a noninflationary form of money could offer an interesting way for Japan to solve its crushing debt problem.

Nobody knows how much money is held in offshore bank accounts, but reasonable estimates seem to fall into the $10–$30 trillion range.

I approximate my view of the rough “probability distribution” of outcomes for Bitcoin within the next decade as follows: one-third probability that it fails and goes to zero, one-third probability that it becomes a very niche asset and therefore doesn’t gain significant value from its current level, and one-third probability of success, approximated as the 53x outcome described earlier.

Using Judson’s estimate that three quarters of hundred-dollar bills circulate outside the United States implies over $1 trillion of hundred-dollar bills circulating in foreign countries.

As a result, BitTorrent has been attacked and pursued by governments all over the world for years. Yet experts believe that it still accounts for more than 4% of worldwide Internet traffic! BitTorrent is so hard to destroy because (1) people like to use it, and (2) it’s decentralized. Bitcoin is the same.

This dynamic became evident in South Korea in 2017 when the government attempted to crack down on Bitcoin and other cryptocurrencies. The reaction was dramatic. Hundreds of thousands of Koreans signed petitions to prevent the government from crushing their “happy dream” of cryptocurrencies.

I believe that the primary mistake people make when they dismiss or ignore Bitcoin is failing to do the work to understand it.