Understanding Bitcoin During 2019 Bear Market: A Little Knowledge in a Lot of Areas
The widely-followed and respected bitcoin analyst and financial economics student Misir Mahmudov has said “most educated people fail to appreciate bitcoin because they only specialize in one field,” then goes on to argue that true understanding is really grasped if you can understand basic computer science and economics concepts.
Most educated people fail to appreciate Bitcoin because they only specialize in 1 field.
To truly understand Bitcoin you must have some grasp of:
– Game Theory
– Central Banking
– Global Macro
– Dist. Systems
— Misir Mahmudov (@misir_mahmudov) March 4, 2019
Then he goes on to suggested that learning about central banking, psychology, distributed systems, cryptography, and game theory would help to broaden your appreciation and understanding of bitcoin and what its aim is. It would be impossible for most people to be a master in multiple subjects but with personal learning and undergraduate degrees (for those who choose to get an education), you can opt to study further in a like subject.
As a whitepaper published in November 2008 by an anonymous creator(s) Satoshi Nakamoto, Bitcoin eventually became the first multi-billion dollar experiment in monetary theory that applied techniques from modern cryptography. It opened up a new digital avenue of computer tech degree possibilities. But for the rest of us educated types, a basic understanding is helped by knowing a bit about several things.
Importance of Purchasing Power And Deflationary Assets
As paper money that can be printed without limit by central banks, fiat currencies are inflationary. But Bitcoin has been written as a deflationary digital currency with coded in rules preventing it from ever having more than 21 million total bitcoins (part of why most people own very small pieces of one coin rather than multiple coins each).
There are various problems that can arise from fiat-based currency systems and doing some basic research into its purchasing power ranges can go a long way in helping one understand the value and appeal of digital currency with set rules. Mismanagement of a nation’s money system is surprisingly common and can result in massive economic dives, loss of monetary value, and irreparably hurt the average person in that country as a result of the ensuing hyperinflation.
For those of you who do not know, hyperinflation is what has caused basic goods and services to be nearly unattainable in far too many developing nations. Zimbabwe and Venezuela are great places to start when looking to understand further about this.
Needed Backgrounding For The Arguments About Bitcoin
To begin with, Bitcoin is the first deflationary asset adopted on a large scale. It’s concept on scarcity and how it relates to its long-term SoV (store of value) has been articulated really well by Vijay Boyapati, the former Google engineer, claiming on Twitter its use is not as a MoE (medium of exchange) because the cost of using Bitcoin is larger than the cost of not doing so (unless you factor in a need in illegal market trades).
Bitcoin has never been useful as a MoE because the opportunity cost of using it as such is huge. The only people who can stomach that cost are people for whom the transaction cost of not using Bitcoin is even bigger than the opportunity cost (i.e., illicit market trades)
— Vijay Boyapati (@real_vijay) September 26, 2018
Then there are prominent economists Dr. Saifedean Ammous and NYU professor Dr. Nouriel Roubini, the latter of which argues cryptocurrencies will never be successful long term and the first convinced Bitcoin’s decentralized value transfer system is a far superior form of money. Looking into them will help build your understanding of what is happening in the digital currency world, but trying to familiarize yourself with more basic economic theories will help with analyzing their arguments and which parts you do or do not agree with even further.
It’s easy to see why the psychological matters with a new way of doing just about anything. People are not going to trust in and feel comfortable using something if they do not understand it. Bitcoin cannot be widely accepted until widely understood. The more confident the public becomes with its concepts, the more likely they will be to at least try it and ultimately discern its usability within their day-to-day lives.
As citizen’s begin to lose trust in national currency and financial system’s with social media able to shine a light on corruption in a way we have never experienced before, the trust of the ruled will become increasingly difficult to re-obtain. Before now, trust could be taken for granted. Digital currencies are a mode of “banking” meant to minimize a need for trust because intermediaries are not required for settling transactions. Bitcoin’s peer-to-peer transaction system recorded on a ledger confirmed by those using it erases a lot of need for trust. This idea is challenging for people at first but becoming comfortable with understanding how that is possible might make digital currencies like Bitcoin front runners for the disillusioned average citizen to put their money in instead of using traditional banking or at least using it for all of their cash.
Although he has a background mostly in mathematics and computer science, Boyapati has made some really great and thorough arguments for why Bitcoin could evolve into a legitimate currency and a globally recognized asset, explaining his thoughts with many different and understandable scenarios and claiming Bitcoin may have to be effective as a Sov, MoE, and a unit of account.
Comfortable Not Using An Intermediary
A big hurdle in becoming comfortable with using block-chain based currencies is understanding the transparency of transactions. Simply put, it is a data structure allowing multiple parties to engage in transactions without a mediator. A transaction is made, recorded in the block “chain” as a link, then those with large amounts of mined bitcoin are given access to seeing this transaction and verifying it happened and what it did. The longer explanations are better and can be profound in understand how Bitcoin works.
Web 3.0, Crypto Concepts, And The Future
We are currently all using Web 2.0 (you may have noticed a transition in how websites looked and their usability around the early 00s, that was the transition from Web 1) but there are theories on this new technology leading to the creation of an even better-theorized version of the internet: Web 3.0.
As challenging as crypto-related concepts are to understand at first, as most people who know a lot now can attest to, the careful review of the design of blockchain and its function naturally leads to an easier grasp of decentralized digital currencies like Bitcoin and how they can be reliable. Crypto-currency technology is expected to only improve from here. We see blockchain improving previously unimagined areas of technology in business and increasing use of the internet for learning and engaging in business activities by world populations. It’s quite possible that the new and evolving set of protocols used to power internet of the future will involve blockchain tech or that this new version of the internet will be rife with widely accepted coins and tokens of digital currency.
Hopefully, an understanding of this new market and its tech will be made easier by learning a little of these subjects.