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What Is Bitcoin, Why Are Cryptocurrencies Everywhere & How Can We Invest in Them?

Bitcoin, BTC, ETH, Etherium, Swanbitcoin, crypto, cryptocurrencies

“To try to attack the bitcoin network, you would have to try to overpower the miners… even for a government entity, it would be incredibly daunting if not insurmountable.”

Steven Lubka

When you open your social platforms, turn on your TV, and listen to conversations with friends and leaders you admire…. The consistent topic of conversation is Bitcoin. You must have heard the words… Bitcoin, Ethereum, Crypto, Digital Currency, NFTs, and more. For the ones that know…they know. When you read people’s tweets, it seems like a foreign language to newbie listeners and admirers.

Elon Musk invested 1.6 Billion into Bitcoin, names like Mark Cuban, Kanye West, Paris Hilton, 50 Cent, Gwyneth Paltrow, and brands like Visa, Microsoft, AT&T, Mastercard, Twitch, and Overstock have all invested in cryptocurrencies. So what exactly is it? Is it something anyone who wishes to invest in could? How can we protect our assets? These are just a few eye-opening questions. Cory Klippsten, the CEO of Swan Bitcoin, and Steven Lubka will speak about and answer with Setorii Pond on this episode of OWC’s Leaders and GameChangers.

Cory Klippsten, CEO of SwanBitcoin, Bitcoin TV, and partner in Bitcoiner Ventures.

Cory Klippsten is the founder and CEO of SwanBitcoin.com. Swan is the best way to accumulate Bitcoin with automatic recurring and instant buys using your bank account or wires up to $10M. He also serves as an advisor to Unchained Capital, Bitcoin Venture Fund (TVP), and Riot Blockchain (NASDAQ: RIOT) and is a Bitcoiner Ventures partner. As an advisor, he has supported more than $250M of fundraising since 2016, and as an angel investor, has funded 20+ early-stage startups. Before startups, Klippsten worked for Google, McKinsey, Microsoft, and Morgan Stanley and earned an MBA in Finance and Entrepreneurship from the University of Chicago.

Steven Lubka – Bitcoin consultant for HNWI, entrepreneurs

Steven Lubka is a Bitcoin consultant for HNWI, entrepreneurs, and companies that are seeking to invest in Bitcoin, add Bitcoin to their balance sheet or explore using Bitcoin in their business. He has worked alongside numerous investors, VC Funds, and startups as they have successfully made the journey towards a core Bitcoin allocation. Steven has offered you to book a free thirty-minute consultation with him at calendar.x.ai/bitcoin/consultation 

Steven also manages a team of Bitcoin software developers who can enable your startup to build breakthrough products centered around the Bitcoin blockchain. You can also contact Steven at steven@siliconswamp.io to discuss any software projects you may have.


In This Episode

  • 00:32 – Setorii opens up the conversation on Bitcoin and introduces this episode’s guests, Cory Klippsten and Steven Lubka. Cory Klippsten is the founder and CEO of SwanBitcoin.com, while Steven Lubka is a Bitcoin consultant for HNWI, entrepreneurs, and companies seeking to invest in Bitcoin.
  • 2:06 – Steven explains how currency has evolved and created cryptocurrencies. 
  • 03:10 – Cory demonstrates how Bitcoin works, why it was created, and its advantages compared to traditional currencies.
  • 08:44 – Setorii asks Steven and Cory about miners and how does Bitcoin make money? 
  • 10:46 – Is Bitcoin safe? 
  • 22:12 – Is it too late to invest in Bitcoin? Cory puts his thoughts into context and briefly explains how investing in bitcoin is still a wise move.
  • 28:50 – Cory explains Bitcoin’s advantage over gold, which has the strongest tangible monetary value. 
  • 32:54 – Steven declares examples of different kinds of cryptocurrencies besides Bitcoin.
  • 41:12 – How do mergers or partnerships with institutions and credit card companies affect the future of Bitcoin?
  • 46:07 – Cory and Steven share their final thoughts about Bitcoin and how important it is to educate yourself about Bitcoin if you want to have a financial advantage in the future.

Jump to Links and Resources


Transcript

When you open your social platforms, turn on the TV, and listen to conversations with friends and leaders you admire, the consistent topic of conversation is Bitcoin. You must have heard the words Bitcoin, Ethereum, crypto, digital currency, NFTs, and more. For the ones that know, they know. When you read people’s tweets, it seems like a foreign language to a newbie listener and admirer. Elon Musk invested 1.6 billion into Bitcoin. Names like Mark Cuban, Kanye West, Paris Hilton, 50 Cent, Gwyneth Paltrow, and brands like Visa, Microsoft, AT&T, MasterCard, Twitch, Overstock have all invested in cryptocurrency. So what exactly is it? Is it something anyone who wishes to invest in it could? How can we protect our assets? These are just a few eye-opening questions. Both Cory Klippsten, the CEO of Swan Bitcoin, and Steven Lubka will explain all of these questions and more. Let’s dive in and learn what it’s like to start  swimming with the sharks.

I want to thank everybody for joining us on this episode of OWC’s Leaders & Game Changers. Thank you so much, Steven and Cory, for joining us today.

CK: Absolutely. Happy to be here.

SL: Yeah, it’s great to see you.

Thank you. I love to be able to just dive right in. Can you both tell me and tell the listeners how we got here today? We’ve got gold. We have money. How did we get to cryptocurrency today?

SL: The reason that I would say, new money only evolves because there’s a problem with the previous form of money. I think this is important to understand. We have Bitcoin today because there is an issue in our government currencies; we’ll probably call them fiat currencies today. Government currency emerged as a response to gold; paper currency emerged as a response because gold is hard to transact with, it’s hard to move, it’s hard to store. Bitcoin has emerged as a response to government currencies because they lose all of their value over time and are subject to centralization, manipulation, and risk by government entities; even if they’re trying their best in good faith, it still poses this risk.

For people wondering, how does Bitcoin work? What is it? It’s in the air. It’s going from trusting something tangible, holding something like paper, to trusting someone. Cory, can you explain a little bit more about how Bitcoin works?

CK: I think one place to start here is understanding the problem that it solves. In 1982, there was a paper in computer science about something called the Byzantine Generals Problem. The problem set out is that it’s difficult on a computer network to know that a message is sent from one part of the network to somewhere else on the network and know that the message got there completely intact and unaltered. And that nobody else has a copy of it. If you think about that, if you could take something and send it over the internet, and know that nobody else had a copy of it and that it wasn’t changed, then you could move from just sending information or sending copies of information like we do with email, and be able to send value over the internet. For the next 36 years, from 1982 until 2008, a lot of really smart people, mostly cryptographers, cranked away on this problem. 

If you want to start investing in Bitcoin, the first thing you need to do is understand the problem that it solves. Click To Tweet

Finally, through an incredible bit of combinatorial creativity, somebody created this genius system that’s made up of four or five different elements that solve the Byzantine Generals Problem. Everything that we’ve seen from the launch of that network was described in the Bitcoin white paper that was released on Halloween of 2008 and then launched on January 3 of 2009. The next 12 years is just the world waking up to the fact that this problem was solved. Everything about having the ability to send value over the internet losslessly and with mathematically proven immutability of that message is just 8 billion people waking up to the fact that this was invented. So that’s probably a good thing. And then maybe Steven can jump into, what’s in that innovation? Like, what was required to make that possible?

SL: To have a truly digital money, a lot of people might think, “Well, our money is digital today. We have digital dollars.” They’re not digital in the same way. Bitcoin’s sole existence is purely digital, like a distributed unit of energy or information. To do that, Satoshi, the creator of the Bitcoin network, had to invent digital scarcity. If you think about it, digital things aren’t very scarce. Would you ever pay somebody for an mp3 file? I doubt anybody has ever done it. You wouldn’t buy a copy of a song because you know that anybody can make infinite copies of that for no cost. To have truly digital money, we had to invent scarcity, that there’s a limited number, whether that numbers x or that numbers y. 

On the Bitcoin network, you can have total confidence that there are only so many units because if that were to be breached, then money would have no value. How that problem was solved was through a network that is distributed and decentralized. You’ll hear this decentralization all the time. In reference to Bitcoin, it’s what gives it its value. When you go into a bank, when you go into Chase or Bank of America, there’s just a spreadsheet on the backend, there’s just a ledger, and the bank controls that ledger. They’re moving balances from account A to account B. If they have a problem with their system, or someone puts in the wrong number, and their checks and balances fail, that’s it; there’s no other validation. With Bitcoin, you have tens of thousands, to 50,000, all of these nodes, all of these participants all over the world that are essentially agreeing on a state. It’s how much balance everyone has and where it is. 

Because we are in the Bitcoin network, we’re focused on calling this consensus, this agreement between all participants. We’re able to confirm that we’re all working on the same state of the network; we’re all agreeing on the same transactions. Bitcoin secures that through something called “proof of work.” If you’ve ever heard of Bitcoin mining, Bitcoin mining is run something called proof of work, and this is where the miners compete to solve, let’s just say calculations at this point. And the winner publishes the next update to the network; it takes energy, it takes a hardware commitment. Because of that energy cost, people are putting resources; they’re putting real value into securing the network and updating it. This whole system of agreement between the nodes, between the miners, not only creates scarcity but it creates a settlement system and creates the whole magic of Bitcoin.

New money only evolves when there is a problem with the current form of money.
New money only evolves when there is a problem with the current form of money.

Most people are lost in trying to understand what it is? How does mining work? What are these people doing? People don’t realize that miners, the people that are helping transfer Bitcoins, are getting paid a little bit to be able to do this work, correct? 

SL: Yes. 

How does Bitcoin make money?

SL: Bitcoin doesn’t need to make money; miners need to make money. Miners make money through something called the block reward, which is the issuance of either newly minted Bitcoin. Now that stops at a certain point. No more Bitcoin will be created at a certain point, but they’re either rewarded through newly issued Bitcoin or transaction fees because there’s a small fee to transact on the network. So the miners are paid. And this is important because it secures the network. It’s what ensures that, even if you’re a government, it is an astronomical task to attack the Bitcoin network. You would have to try to overpower the miners. Even for a government entity, it would be incredibly daunting, if not insurmountable.

Because miners are all over the world, correct?

SL: You’d have to be more than 51% or even a little bit more of the total power, which means producing dedicated hardware, manufacturing countless computer chips that you just can’t produce easily, using hundreds of millions of dollars of electricity a day. It’s costly, but that’s what gives it security. So the miners get paid. That’s a security feature. But Bitcoin doesn’t need to make money because Bitcoin isn’t a corporation. It’s a distributed network. That freedom from the need to earn revenue is part of its core value proposition.

One of the questions that I hear all the time and something you referenced, is Bitcoin safe? This is the question everybody says, especially for newbie investors. Is Bitcoin safe in both of your opinions? How can one be vulnerable? Why is a company, for example, like Swan Bitcoin, great for customers looking to buy and invest in cryptocurrencies?

CK: Bitcoin network has never been hacked. That’s the first thing that people should know. Plenty of people have relied on shady third parties to guard their Bitcoin, whether it be exchanged like Mt. Gox in the early days or exchanges that were shady for anyone paying attention in recent times, like Quadriga, up in Canada, which pulled the rug last year and left with people’s Bitcoin. But the reputable companies out there, they’re fine. It’s a difficult problem to store Bitcoin securely, but it’s not quite the nuclear football. So it is possible for companies to do a really good job, whether it’s coin base or whether it’s fire blocks, which is the custodian that’s one Bitcoin uses. 

There’s a lot of good custodians out there that aren’t going to lose people’s Bitcoin because we’re 12 years in, and people have kind of figured it out. That said, you’d be missing out on the real innovation here, which is that with Bitcoin, you can be your own bank. At a company like Swan, which I run, our key performance indicator around storing Bitcoin, we want 100% of Bitcoin to be taken off the platform into self custody. We’re always educating people on how to take self custody, how to use your own wallet, how to sign up for multi-signature providers, like Casa or Unchained, and not just leave it with a custodian. I’ll let Steven elaborate a little bit more on some of the nuances there. 

SL: Yeah, for the self custody aspect, which just means, you are controlling your Bitcoin yourself 100%. It’s one of the most important aspects. While I never recommend to anybody or any of my clients to immediately take self custody, when you’re not familiar with it. For newcomers in the space, using a trusted custodian like Swan, that’s probably the right first step almost all of the time, unless they’re a highly technical user. It is not that self custody is highly technical, just that those with technical backgrounds will feel more comfortable at the gate. But it’s such a powerful component of the Bitcoin network; if you think about all other financial assets outside of cash or a gold bar, you never have direct control over it. Your bank account balance, you never actually control. Your stock, certificates, bonds, those are always with brokerages and custodians. 

Bitcoin is unique in many ways. It’s both digital, and you’re able to take full custody of it. What that looks like for the average user is something called a hardware wallet. A hardware wallet is a device; it’s a physical, usually a USB or wireless device. People think, “Oh, I’m gonna put my Bitcoins on that.” That’s not accurate. The Bitcoins never actually go into the device; the device is a tool for managing something called a private key. If you’re new to Bitcoin, you can think of this private key like your Bitcoin password. It’s very sensitive. It essentially is your coins, it’s the physical manifestation, a hexadecimal code like A7B3. The device secures it so that you can plug it into a computer, send and receive Bitcoins securely in a way that protects you even from almost all security threats. The end result is you have your house, your apartment, you’ve invested in Bitcoin. 

You can take that Bitcoin completely off the exchange, completely off the custodian; you control it. That means you can’t get locked out of your account; the exchange can’t tell you what to do, if they want to send, if they want to charge you extra fees, if they go down, if they have maintenance, if the platform fails, none of that. You have your Bitcoin directly in the palm of your hand, you plug it into your device, and you can send unlimited values zipping over an internet connection, anywhere in the world in 10 minutes, you can take any amount of money and directly convey it to the other side of the planet. It’s incredible monetary technology. It’s the biggest monetary innovation in the last 80-100 years. When you’re working with your own coins in your custody, you’re making direct Bitcoin transactions. Everyone, when they do it for the first time, they feel like, “Wow, this is the future.”

Transfer it for when you’re talking about transferring it to a wallet; it’s maybe not in, for example, Swan Bitcoin. Everybody says the first time you transfer it; it’s like it’s in the air. It’s probably the most kind of gasping for your breath.

CK: You only have to wait a few seconds before you can see the transaction in progress. And then you’re kind of just waiting for a number of confirmations before it shows up at the destination. But yeah, I was lucky that the group I was around when I started getting into Bitcoin in 2017 was just part of what we all did. So I played with it a ton for the first year. And that helped my understanding of what it was immensely, the fact that I was whipping transactions all over the world and kind of playing with the technology. So we do try to encourage people to get to that stage. I think it goes in concert. So there’s the technology that enables the value. It’s the technology that makes it valuable. 

But one of the misconceptions that a lot of people have when they get into it because that tech is so cool is that it’s mostly about technology. And the fact is if you were kind of weighing them in a pie that added up to 100, about 85-90% of what’s important is that its money. And that is the best money we ever had. And like 10-15% of it is kind of is the tech piece, but the real innovation here is we have good money as humans for the first time in 300,000 years. We went from having, let’s call it, God’s money in gold, which was good at storing value across time and terrible at sort of sending value across space. Then we had government money, which was good at sending value across space, which is fiat money, currency, digital dollars, but terrible about storing value across time; it loses the value. Now we have Bitcoin, the people’s money, which is perfect at storing value across time and sending it across space.

SL: I want to speak to that point because I don’t think we’ve explained why Bitcoin is so good. It’s maintaining value across time. That’s due to the fact that there’s a limited quantity; there’s absolute scarcity. There will be 21 million Bitcoins; there are like 19 million in existence right now. There will never be more. I’ll make a statement here. It’s not like it’s completely finite. If it had a fixed half a percent inflation rate, it would accomplish the same thing because the real value is that those rules are unchangeable. You have complete confidence in this monetary policy; there’s not a currency board, there’s no Federal Reserve that can change that the next time the economy does a thing. So that’s scarcity; that finite quality to the asset allows it to preserve value across time, meaning you’re not losing purchasing power on your Bitcoin, which is happening every day on your government currency. 

If you’re living in the US, it’s happening. It’s not as bad as some other places. If you’re living in another country, you already know what I’m talking about. Talk to Bitcoiners, if you’re interested in this point, if you come from maybe an economics background. Talk to people in other countries; whether you’re on the dollar or whether you’re on the Argentinian peso, you have a problem that your value in your bank account is melting every day. It’s not just your savings because maybe you own stocks, maybe you own real estate, and those you feel like you’re going up. What about your salary? If you make $70,000 a year, and you don’t get a raise every time there’s currency issuance, which is constant, your salary is getting diluted. It’s not just your savings. It’s all of your dollar-denominated income. 

So Bitcoin provides an alternative for people, where you don’t have to be forced to choose between a melting balance of dollars in your bank account that is effectively inflating 10-15% a year, depending on what you’re looking at. If all you want in life is bread, then maybe you’re not having too much inflation. But if you want to buy a house, good luck, unless you’re making 15% more money each year. If you want a college education, if you want health care, these things are going up rapidly. They’re going up faster than people’s ability to increase their income. Bitcoin provides this alternative where you can divert; you can go on a Bitcoin standard and say, “Bitcoin is where I store my value. All the money I’ve earned. All the hard work I’ve done, I’m going to store it in Bitcoin.” It preserves its value across time; you increase its purchasing power. There’s volatility; it’ll go up and down, it’ll swing. It’s a new monetary instrument; it’s going to be volatile. But anyone that’s ever bought Bitcoin pretty much is up as long as they held it right now. 99.99% of Bitcoin buyers.

Swan is the best way to accumulate Bitcoin with automatic recurring and instant buys using your bank account or wires up to $10 million dollars. Click To Tweet

Just a few weeks ago, we all know that Elon Musk invested 1.5 billion in Bitcoin. That snowballed the rest of the industry to pay more attention to it and start investing. So that being said, the price has continued to go up and up. A lot of people say, “Well, I already missed it. It is too late to invest now.” But what people don’t know is it’s not too late. Can you both explain why that is the case?

CK: I can put it in context a little bit. Going back to that homosapiens being around for 300,000 years, we’ve had good money now for 12 out of 300,000 years, and we’ve had more than 1% of people on earth owning even the tiniest little sliver of a Bitcoin for the last two years. Two out of 300,000, I think it’s 0.000067% of human history. It’s so early that you’d have to like 8x the number of people that own Bitcoin today to cross the chasm in sort of VC tech-speak of going into being part of the mainstream, getting 16% of people into a new technology that would be like 8x from here, just the number of people. Usually, the number of people joining the Bitcoin network and getting involved has an exponential effect on the price, not just a linear effect. If everybody gets into Bitcoin, ten times more people, the price will go up a lot more than ten times. 

Another way to look at it is, we think about the roles of money. Money is used for its store of value, which is storing value, a medium of exchange, which is paying for things, and a unit of account, which can price goods and services in that money. And usually, this is a progression, this is your store of value first, and then you become a medium of exchange. And we’ll see that a lot more with Bitcoin as the price rises and volatility decreases. The volatility of Bitcoin keeps decreasing over time. So those swings become less wild and less frequent. And then finally, sometimes, I think it’s about 15 years away. People could say sooner or later,  Bitcoin will be used as a unit of account, where we’ll be able to price goods and services around the world, and most people will be able to price most goods and services around the world in Bitcoin. When we say, “Is it too early?” We’re not pricing everything in Bitcoin. And we have between 1% and 2% of people even owning the tiniest little bit in probably like 100 or 150,000 people globally that have a decent chunk of their portfolio in Bitcoin. So you tell me, is that too late?

I understand it isn’t. Because I understand the mathematics behind it, and you see all the graphs, but obviously, for newbies that are looking to say, and I hear it all the time, like, “Oh, it’s just too late. It’s so high now.” But everybody I talked to even encouraged people, “Just buy $100 or $200. Buy it on the dip.” You hear that a lot.

SL: What’s happening for those people is also something we call unit bias. $50,000 is a lot of money for almost everybody. That seems like, “Oh, it’s so expensive.” But that’s for almost an arbitrary amount of Bitcoin. We call it one Bitcoin, which makes people think like, “Oh, this is the smallest unit.” But it’s not. One Bitcoin is made up of 100 million satoshis, and these are these smaller units of Bitcoin. The one Bitcoin doesn’t even really exist on the chain. It’s just an amount of satoshis. So people look at that amount; they think it’s so high because it’s a high number. But it’s not. 

With all this latest growth, Bitcoin has recently crossed up to a $1 trillion asset bucket as a global form of money, as a global store of value. It’s tiny. You can evaluate this by looking at the market cap, the market cap of Bitcoin when I say it’s almost at a trillion dollars, what I mean, if you take all the Bitcoins that exist. You multiply the number of Bitcoin by the price; you arrive at this concept called the market cap; people use that. If you think, “Oh, Apple’s worth $2 trillion or $1.8 trillion.” The way they arrive at that valuation, it’s the same thing. It’s the market cap. When you look at Bitcoin, ignore the 50,000 number. People have thought it was too late since it was ten bucks. There’s an army of people who have thought it was too late; you’re not too late.

"Bitcoin is a techno tour de force." – Bill Gates
“Bitcoin is a techno tour de force.” – Bill Gates

CK: There’s a famous tweet in 2011 or 2012; it’s this guy lamenting that he sold his Bitcoin at 30 cents after buying it at six cents because now the price was $8. But what did he not do? He didn’t go back out and buy a bunch of Bitcoin at $8. That’s what it’s like for people that you know may have bought at 5,000 and then sold at 20,000. And now it’s 50,000. And they’re like, “Oh, it ran away from me.” Well, they’re never going to be a Bitcoiner. You got to be careful of that. I think the solution to all of this is just automatic recurring purchases or automatic dollar-cost averaging; it’s just setting up a recurring purchase every day, every week, or every month and letting a platform Cash App, Swan, Coinbase, whatever. Our fees are lower than everybody else, and we’re just a better company. 

Do it somewhere; just set it and forget it. It’s funny; many of the people who have been around the longest are the ones that are the most devoted DCAers. People that have been in Bitcoin since 2010, 2012, 2015 realized that you shouldn’t be there looking at charts in the dark, ignoring your kids with the green lights of the exchange on your eyes trying to see if your limit order hit, or trying even to identify what a dip is. What is the dip? Buy the dip. Who knows? I don’t know. Is it still going down? Are you going to catch a knife? Is it going to go back up tomorrow? Stop trying to time it and just decide that you’re going to allocate some of your value you’ve created or created on an ongoing basis. Pay yourself in Bitcoin, match some percentage of your paycheck according to your pay cycle every week or every month and just purchase a fixed dollar amount of Bitcoin over time.

I’ve done that. I set it up on Swan. Cory, last week, you shared the Bitcoin’s addressable market is between 200 and 400 trillion in today’s dollars. Do you think Bitcoin should be worth the same as gold?

CK: The gold market cap is about $12 trillion. If you think of what I was talking about, the functions of money. Gold is not used as a medium of exchange or a unit of account. It’s only a store of value, and it’s one of many competing stores of value. It’s 12 trillion dollars, and Bitcoin is not only a likely future medium of exchange and unit of account; it’s also much better at doing gold’s job than gold. It’s a much better store of value than gold as it can’t be confiscated, like gold can. It’s not heavy like gold is, and it can be sent anywhere around the world near-instantly and near for free, unlike gold. It’s just better at doing that job, and it’s scarce. Gold has inflation because you can mine more of it. Even just looking at that store value market, which is the $200 to $400 trillion number, you’re looking at 12 trillion dollars and gold, $90 trillion of money, the dollars, the yen, the pounds, the euros, the yuan out there. You’re looking at decent slices of other markets that are not just for productive use or cash flows; a lot of it is stored value. 

If you look at real estate, you go down to Manhattan Beach; 90% of those homes on the strand are vacant. It’s just Russian dudes and Chinese families parking money; they’re storing value in those homes. Downtown Vancouver, what is that? You’ve got real estate in the US about 2x over its traditional sort of trend line right now; it suggests that a lot of global real estate, both commercial and residential, is not for productive use; it’s actually for store value. And we know that’s true. The tax incentives are to use real estate as a store of value. It’s the majority of Americans; it’s their primary savings vehicle; it’s like their home. This is also true of bonds and stocks. What is happening with bonds, it’s a $100 trillion market; 30% of it is negative-yielding in real terms. They’re just like putting this money into these bonds; they’re paying somebody to store their value, essentially. Stocks, you had Apple run-up 2x in market cap in a year, without increasing their dividends or profits. It didn’t suddenly become so much more valuable as a company. It was just people saying like, “You know what, I have a great flow theory; I’m going to store some value in here and hope that somebody will buy it back from me for more later.” 

That’s sort of how people have been using the Fang stocks and Tesla for a while now. It’s kind of storing value in these big tech stocks. Bonds is one that Michael Saylor from MicroStrategy, who’s kind of burst on the scene in the last year buying Bitcoin for his company’s balance sheet, I think over $2 billion of purchases now. He makes the point that from 2010 to 2020, the yield on sort of the 10-year bond, that’s the staple of high net worth, individuals retirement portfolios dropped from 5% to 0.5%. If you want 50 grand a year, in a risk-free cash flow, you went from needing a million bucks for that 50 grand a year to needing $10 million to get 50 grand a year from the money that you earned over time. How many times do you have to make $10 million to be able to afford a decent retirement for a couple and maybe still buy some nice stuff for your kids. $50 million for a risk-free retirement. Otherwise, you’re pushed out on the risk curve, and you’ve got to take gambles on tech stocks, and you’ve got to do risky private equity investments and all these different things. It’s all because we don’t have good money. We didn’t have good money until Bitcoin.

Speaking of Bitcoin, this has been the focus of our conversation, but there’s a lot of other coins, and people are trying to understand the difference between Ethereum. What is Ethereum and Bitcoin Cash? Could you explain the differences and what they’re used for between all these coins? Bitcoin is kind of the foundation. But I would love if you could both break it down for people to understand different coins, there are too many to list. But maybe the top three, how they’re applied, and why there are so many different coins now in the market?

SL: There have been, I think it’s like 8000 cryptocurrencies that have been created since Bitcoin. One way you can look at this as there have been 8000 attempts to compete with Bitcoin, all of which have essentially failed in Bitcoin terms. None of them have succeeded in replacing Bitcoin at doing what Bitcoin is doing. If you price them in how much Bitcoin they’re worth, they pretty much all trend down against Bitcoin except for some periods where they spike in the short term. If I were just to address all those 8000 coins, I would tell you the vast majority of it is dead technology or a scam of some kind. Of the other coins that don’t fall into it, you need to understand these are highly speculative technology bets. What I mean by that, as people say speculative in regards to Bitcoin a lot, but the speculation they mean is people are speculating on the price. With these other coins, people are speculating that the technology will work. That the technology will succeed because it isn’t proven yet. 

Bitcoin from the day it launched, essentially, it’s almost unchanged. There are key growth and evolution to the network. Bitcoin does evolve and change, but the core technology was there from day one. And it has served its purpose successfully. It can be global base money the way it is today. It can be a global store of value the way it is today. Other coins, and I’ll just speak to like Ethereum, that’s the second biggest one. Ethereum has a roadmap. Ethereum has a series of technology, updates, protocol overhaul with which the goal of the developers is, once we do this, Ethereum will then be able to address its purpose and its goal. Now, I would caution new investors. That’s an open-ended question. We don’t know if the answer to that will be yes or no, if it will work or if it won’t work. I have my interpretations of where the issues are and the challenges that I would have to see solved to change my view on it. Honestly, I hope they do succeed at creating a fully decentralized, secure computing platform. I hope that does happen. I have a lot of reservations, whether that will be possible, given the current technology. But for a new investor, I think what is just important to look at is that Bitcoin is a proven product; it’s a finished product. These are other things are like betting on a startup or something like that. There are different risk profiles.

But Ethereum, as we know, is used to be able to purchase different coins or to be able to create NFTs, for example. Can you both explain what NFTs are? There’s a lot of talk of this now. We just had like a record-breaking music artist put his whole album up. And 3LAU, I think his name is, and he just got it for $11.6 million for NFT of his album, and Grimes, Elon Musk’s girlfriend, got 6 million for her NFT. Do you mind explaining a little bit about Ethereum and how it works and also the excitement of NFTs, and what NFTs are?

SL: Ethereum essentially runs on a similar architecture to Bitcoin. It’s a decentralized computing system that uses proof of work. However, it has something called smart contracts. And this is like the ability to do computation. It’s more programmable in a certain sense. 

CK: I do want to step in. Yeah, Bitcoin has had smart contracts since the very beginning. A smart contract is very simple. It just means if this, then that, that’s all it is. If this happens, then I’m going to do this other thing. It’s just like computer languages and writing programs. What Ethereum did is they created a programming language that’s very similar to JavaScript, which is kind of like, if you’re an 18-year-old drop out. You’re going to go to the general assembly and get a certificate; you’re probably going to learn JavaScript. That’s basically what they’ve done with solidity; they’ve made it simple for low-skilled people to be able to code. When you think about the number of developers building on Ethereum, it’s large in number, but it’s not a large number of high-quality developers. The highest quality developers are working on Bitcoin. 

At the end of the day, if you’re going to have a smart contract, that will secure some kind of information or something that you want to have happened. We’re talking about in the future, like watching these things develop. You’re going to do anything important or anything valuable on the most secure network, and the one that doesn’t have a roadmap where you’re going to have to rip everything out and do it all over again, and then watch it for a few years to be able to see if it works again. There has never been a case that anything has successfully, despite the efforts of hundreds of millions of venture capital and billions of dollars worth of retail investment in these network tokens, these want to be Bitcoins or whatever, Ethereum competitors or Ethereum itself. 

Nobody else has a copy of your bitcoin transaction. You could take something and send it over the Internet. Click To Tweet

There has never been an instance where someone has secured unique ownership, called an offline asset, a piece of art, even a digital piece of art using a blockchain. Unless it’s the native asset of the blockchain itself, you still need trust outside of the network and legal system and trust between people to assign that. So really, what NFTs are, it’s the same thing as a signature by the creator. Will this album be worth $11 million in the future? No. Because you can always make a copy of it, whoever has it can make a copy of it and sell it to a bunch of different people. Maybe that’s like a rights play, and they bought it. But that’s not different from buying the masters as people have done with all kinds of artists over the years. It wasn’t any different than Martin Shkreli, the Pharma Bro, buying the single copy of the Wu-Tang album a few years ago. It’s the same thing.

I’ve learned that it’s about the community, and it’s about helping each other. There’s good that comes to it.

CK: We’re like that, too. In the summer of 2019, another massive, mostly scams and maybe some interesting tech that becomes part of Bitcoin in the future, or translates into being some part of like fintech or digital securities or something in the centralized world. But at the end of the day, we haven’t seen anything come to fruition and be valuable and useful and have any sort of longevity whatsoever with any of these new narratives that come every two years with Ethereum and have their day in the sun. All you’re seeing is the P phase of a P and D, a pump and dump cycle. And I guarantee you that these things that are being sold for millions of dollars will not be worth that in a few years.

Crypto partnerships are happening, if they haven’t already happened already, with Visa, MasterCard, PayPal. It’s making it easier for people to use Bitcoin and cryptocurrencies. What does it mean to cryptocurrencies now, the institutions and credit card companies are kind of coming around and starting to accept it or already are accepting it? 

SL: You could say the maturity of Bitcoin. The tech has been pretty mature for a long time now, more the maturity of the ecosystem. If I were to compare 2017 to now, Bitcoin is pretty much the same. There are more miners, there’s more hash power, there are more companies, it’s grown a lot, but the tech is pretty much the same. But what has changed dramatically, the level of institutional products and services, custody providers, all of these components that come in that make it possible. In 2017, if you were Tesla, if you were MicroStrategy, there wasn’t the infrastructure that would allow you to convert your entire balance sheet or 10% of your cash to Bitcoin in a way that would probably be approved by the SEC, that would pass your board, that was accounting standards. There are all of these different things.

 It’s grown tremendously to the order of billions and billions of dollars of not price but infrastructure. We’ve seen that change in a huge way. Bitcoins have been the best money globally since it was invented, and we’ve just kind of seen the world realize that in slow motion. Institutions do not make Bitcoin, they are not what validates Bitcoin, but they’re important proof of the value of Bitcoin. They are adopting it now because the tools are there for them to do so. There’s a catalyst kind of going on with the current macro environment. It is proof of the power and the value of what Bitcoin brings to the table. So they’re very important. We’re going to see these integrations; companies are going to plug into the Bitcoin network. Visa is going to plug into the Bitcoin network. MasterCard is going to plug into the Bitcoin network. It’s going to be different; they’re going to have the centralized service they’re doing on top of it. That’s fine. It doesn’t replace the core layer by any stretch of the imagination, but they’re going to build on top of it. And that’s going to be okay; it’s going to be inevitable.

CK: They already weren’t sending treasury notes and T bonds, and even like dollar bills around. They were already sending just digital ledger transactions. Whether it’s a B or $1 sign or a Y, or a pound sign on their internal ledgers, it doesn’t matter. They’re just going to have to settle up when they get out of balance, and they have to send a bunch of money to some other financial institution, and then they’ll send Bitcoin every once in a while.

"Bitcoin is a remarkable cryptographic achievement, and the ability to create something that is not duplicable in the digital world has enormous value." – Eric Schmidt (Google CEO)
“Bitcoin is a remarkable cryptographic achievement, and the ability to create something that is not duplicable in the digital world has enormous value.” – Eric Schmidt (Google CEO)

A lot of people are curious about taxes and Bitcoin, and all these investments. Can you both share a little bit about government? Do you have to pay taxes or not on your investment?

CK: I can hit the headline just for the US anyway; it’s just considered a capital asset just like stocks, bonds, and pretty much anything else that you would buy. If you buy Bitcoin, and then you sell it within a year, then you’re going to be paying short-term capital gains tax. If you hold it for more than a year, it’ll be long-term capital gains tax. Many people spread misinformation in the 2017-2018 timeframe that if you exchange it for another cryptocurrency, it would be a kind exchange. That’s not true. If you sell Bitcoin for Tether or you sell Ethereum for some other currency or whatever, anytime, you exit a position that’s taxable.

SL: Okay, not so when you move it and swap it to another coin or asset, but not when you move. So you can move Bitcoin around as much as you want. There’s no tax burden there. But as soon as you use it to pay for something, you’re now liable for your gains or your loss.

Cory, can you share what Bitcoiner Ventures is? Why it’s good for Bitcoin companies?

CK: It can be hard to find enough people that know enough about Bitcoin to fund some of these companies. And now it’s also fun for people to want to support the ecosystem by investing in Bitcoin startups. So we started an angel list syndicate a little over a year ago to invest in Bitcoin startups. So you can go to BitcoinerVentures.com and find out about that. The partners are all pretty well-known people in the space, and we don’t take any fees, and we take no carry no profits. So it’s really, all four of us have to agree to do the deal on the same terms as part of the syndicate for us to do a deal. We invested in unchained capital last year; we’re in the middle of our second investment right now. And we have another one lined up for a couple of months from now, after that. But yeah, it’s pretty exciting.

Is there anything else that the two of you would like to share with the audience? Anything about yourself or anything about just cryptocurrency, in general, that maybe I didn’t ask a touch on?

CK: The amount of value that someone is willing to store in the Bitcoin protocol, like how much Bitcoin you’re willing to buy, is directly correlated to your understanding of Bitcoin. As you’re thinking of investing, you need to educate yourself about Bitcoin because otherwise, you will do what 96% of people do, which is buy high and sell low. Unlike stocks, where you diversify, you have a better Sharpe Ratio, you increase your risk-reward, your risk-adjusted return; it’s the opposite. Every other crypto out there that’s not Bitcoin is higher risk, and on average lower return than Bitcoin. But read up on Bitcoin, read Yan Pritzker’s book, Inventing Bitcoin, we give it away for free. That’s swanBitcoin.com/freebook.

Thank you so much, Steven; this was just so eye-opening. I know that so many people will be inspired by this and fueled to know that they can still dive into it, and it’s not too late. Thank you both for all of the time that you gave today. And if we could do a follow-up in the future to kind of dive more into the depths of it. That would be amazing. Thank you so much, Steven. And thank you, Cory, for joining me on this episode of OWC’s Leaders & Game Changers. Bye.



Checklist 

  1. Diversify your investments. There are many ways to invest your money. Find out which strategies best suit your financial goals, and start one step at a time.
  2. Thoroughly research before investing. Don’t just rely on what’s trending online. Inquire, research, or consult with financial advisors who can help you evaluate your assets. 
  3. Know that investments are considered a risk. Not all transactions end up successful. Make sure there is a fallback plan when things go awry.
  4. Don’t rely too much on trends. Sometimes new, shiny things can become too good to be true. 
  5. Set clear goals, so you have a guide on how to achieve them. Divide them into weekly, monthly, and bi-annual tasks and set realistic timelines. 
  6. Don’t put all your eggs in one basket. Stay secured financially through multiple income streams. This way, when one investment goes south, you have a backup. 
  7. Be on the lookout for what is yet to come. Learn how to analyze today’s trends and behavior and make sound decisions for tomorrow.
  8. Focus more on the market cap rather than today’s value of bitcoin. Sometimes the value may be high but it can be highly volatile and fluctuating. 
  9. Choose the best investment app. Make sure it is something easy to understand and maintainable. 
  10. Check out Swan to start your Bitcoin journey.

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Episode 12