What the crystal ball revealed eight years ago… is equally relevant today
20th April 2022 |
In early 2014, I was invited to Sydney for an investment conference.
The host had been a long-time reader of my work and was intrigued by bitcoin.
Around this time, bitcoin had briefly entered the mainstream media due to some pretty wild price swings in 2013.
At one stage (for the first time) the price of one bitcoin was higher than the price of one ounce of gold. This is what really caught people’s eyes.
But then it headed lower, and lower and lower, and there was a lot of misinformation around about bitcoin.
However, my writing on the topic didn’t waiver. I had a lot to say. At this investment conference, I was given the floor to explain to people my views.
Today, below, you’ll find the (slightly edited) speech I wrote for that conference. Be sure to remember that when you read it, I was saying all this in 2014.
I’m sending it out to you today, for two reasons.
- Over the last eight years since this presentation, the world has become a very different place – and what bitcoin has become is now bigger and more important than ever.
- This speech should highlight why I am a long-term bull for bitcoin. Changes in the last eight years make me even more excited and confident of the future of bitcoin and crypto than I was back in 2014.
The bottom line is that it remains really important to have bitcoin as a core part of your investment strategy.
Sydney, Australia, 2014
The very first time I came across bitcoin was in 2010. That was after hearing it mentioned on some internet forums about a guy who bought a pizza with them. Back then it was unknown except for its existence as a payment method across the deep web.
Anyway, it was interesting enough to me in the fact bitcoin was a currency that existed online and was anonymous. That was very appealing.
So I knew about it. It was on my radar, yet I didn’t fully take the time to delve right into it there and then.
Also, back then, whole bitcoin were worth cents.
Then, in January 2011, a blogger for the website Gawker, Adrian Chen, wrote “The Underground Website Where You Can Buy Any Drug Imaginable”.
The article was about the Silk Road.
This was a deep-web website where you could primarily buy drugs. But the interesting part about Chen’s article was how you pay for it all… bitcoin. It was anonymous, untraceable and existed purely online.
This caught the attention of mainstream media. It got global coverage. And I decided it was a good time to dig a bit deeper.
I looked into becoming a bitcoin miner (which I’ll explain shortly). Soon enough I’d discovered everything about it, how to get it, what to do with it, and how it works. Importantly I’d figured out that bitcoin was far bigger than just an anonymous digital currency.
I could effectively become my own Royal Mint – I could “create” my own wealth from nothing. I could be a money tree.
The timing of it all, with most of the world still reeling from the impact of the global financial crisis, meant perhaps that we really were at the start of something far bigger.
Now at this time around Chen’s article, one bitcoin was worth 30 US cents. By 7 June (five months) later bitcoin reached a high of $31.91… a gain of over 10,500%.
The more the price rose, the more fringe media coverage it got. As the coverage grew… the higher the price leapt. It was a self-fulfilling prophecy.
Soon enough, pure hysteria kicked in. But as hard as it ran, the harder it fell.
By 16 November (another five months later) bitcoin retreated to $1.99. That was enough volatility to rip apart the most hardened of traders and investors.
Two years after Chen’s article hit the internet, bitcoin hadn’t received much more press. Silk Road was still operating, and the price of bitcoin had achieved some form of stability.
It didn’t crash back to 30 cents, I liked that. By this stage I hadn’t become a full-blown bitcoin miner for two simple facts… it was too difficult and time consuming for me to figure out and it was going to add quite a chunk to my energy bills.
After running the numbers at the price it was at the time, it didn’t make economic sense. So, it was thrown into the “Too Hard Basket”. Instead, I just bought a couple of bitcoins to see what it was all about.
And to be honest with you, back then, around 2011, it was still difficult to get my head around. As I said, it’s one of the main reasons I didn’t mine it. I couldn’t quite summon the time and effort required to hook everything up to mine some.
Also, using it online wasn’t that easy either. The number of merchants that accepted bitcoin was growing, but I didn’t need or want hemp plants or an AK-47 assault rifle.
But I did have some. By January 2013 bitcoin had started to slowly become more popular, recognised and accepted, albeit it was still very much a fringe idea.
In this period of low limelight and “normality” the price of bitcoin slowly crept up to about $13.50.
Then, in 2013, bitcoin’s price went absolutely nuts.
This was really caused by two things: the imminent failure of banks in Cyprus; and the mainstream media.
All of a sudden. BANG! Bitcoin on 9 April 2013 was worth about $250.
It then fell back to around $100, but it was too late. Every man and his dog figured that they’d be able to make a quick buck on bitcoin.
And some did. But anyone who says they intentionally owned bitcoin from 1 US cent and held it all the way to its peak of $1,240 late in 2013 is probably lying to you.
Why? Because that’s a return of about 12.4 million per cent. Honestly, not many would hold past 1,000% (if you make it THAT far) or at the very latest 10,000%
But really who intentionally holds any asset all the way to 12.4 million per cent without flinching?
So now bitcoin is on the lips of everyone and worth more than an ounce of gold…
How does a virtual currency become more valuable than gold?
To many, it was all a big scam, a Ponzi. And recently on live TV it was put to me that, “this sounds like a bunch of kids in their bedrooms playing games,” and that, “bitcoin is just bubblegum wrappers, it’s worthless.”
That was a common point to make at the time, but wrong. And here’s why…
The technology of bitcoin
Let me tell you how bitcoin actually exists. By that I mean the technology behind it.
When a mysterious programmer, Satoshi Nakamoto, launched mysterious algorithm on the internet. Now Satoshi may or may not be a real person, for no one really knows.
It’s suspected a group of cryptography experts created this mathematical phenomenon. Could it also be the NSA for all we know…?
This algorithm is deeply rooted in cryptography. And the purpose of this algorithm is for the creation of… bitcoin.
Technically the algorithm is a SHA-256 hash algorithm. Now I’m no cryptography expert or mathematician, but what I know for sure is the algorithm is obviously solvable, but it is hard.
And in order to solve this algorithm, you need some serious computing power. A pen and paper won’t suffice. But not just any old computer will do either.
You need graphics processing units (GPUs) – and lots of them. By running specific “mining” programs you use the computer to solve the algorithm. If you’re the first one to solve the algorithm, you post it to a publicly accessible blockchain.
The bitcoin community will verify this is the correct addition (i.e. answer to the algorithm) to the blockchain and you receive a “block” of bitcoins to your encrypted “wallet”.
The whole system relies on users and the community to keep the system legitimate. The whole thing is a big peer-to-peer network, and one that’s self-regulating.
In the early stages of bitcoin, the block reward was 50 coins. Subsequently, and after every 210,000 blocks, the block reward halves. As of January 2014, the block reward is 25 coins.
The people that solve this algorithm and receive coins are “miners”. The best analogy as to what bitcoin mining is, is a digital form of mining for gold. It’s easy to see the similarities. And that’s where the confusion ensues.
As more miners join the party, the difficulty of solving the algorithm gets harder.
To solve the algorithm you need sheer computing power. The thirst for speed and computer power has sprouted a market for specific bitcoin mining machines. These machines are application-specific integrated circuits or ASICs.
With ASICs in play, and costing a fortune (anywhere from a few hundred to $7-10,000), the humble home miner with a computer and even several GPUs doesn’t stand a chase.
The best comparison is like trying to find gold with a pan and sieve, then having Barrick Gold and Newmont mining pull up with giant excavators, trucks and mining rigs and dig a Super Pit right next to you.
Anyway, in the early days, anyone had a half decent chance of mining a block.
Back then AMD’s ATI graphics cards were the go-to piece of mining GPU kit as they were able to create a faster “hash rate” than other known GPUs. The faster the hash rate, the more likely you are to solve the algorithm.
Around this time bitcoin was relatively unknown to most people. So, the difficulty in finding a block was low. But over time the difficulty increases with more users, and with the design of the algorithm.
Also, the bitcoin design dictates there’s a set number of bitcoins that can ever exist. All in all, only 20,999,999.9769 BTC will ever be in circulation.
However, bitcoin coin is also divisible by 10 to the power of 8. That means the smallest denomination (for now) of BTC is 0.00000001. That’s known as one “satoshi”.
In the year 2140, miners will find the final block of bitcoins and all satoshis will be in circulation. So we’ve got a while to go and many more bitcoins to appear.
It also means that bitcoin has a good 126 years to become a globally recognised, and accepted, currency.
Where to from here?
Today (in 2014), bitcoin is far more than just a digital currency. It is far more than a cryptocurrency. Bitcoin is the beginning of an entirely new parallel economic financial system.
When the universe was created billions of years ago, it all started with the Big Bang.
Well, I’m telling you now that bitcoin is the Big Bang of what I call the Cryptoconomy.
This is just the beginning to a far bigger system than you probably realise.
And that leads me as to what this all means for you, for me and for the world.
Looking forward 10, 20, 30 years’ time, you will see a different world. The cryptoconomy will be a thriving and globally connected system of cryptocurrencies. Like bitcoin, these cryptocurrencies will be capable of use as a medium of exchange over the internet.
The cryptoconomy will create new jobs and new industry. It will foster innovation and will lead to a more stable system than the one we have now.
Already, bitcoin is now bigger than “virtual money” used to buy drugs online.
Just before I left London to come here and speak to you in Sydney, a bitcoin ATM was installed.
You can go and buy bitcoins or get cash for the ones you own. And just a couple of days ago, I saw an article saying over 140 bitcoin ATMs would be rolled out across Australia… by March.
Here’s a real-world example for you.
Recently I got home after work on a Friday. I couldn’t be bothered making dinner. We decided to order in. I jumped on to takeaway.com and put in an order for my local pizza joint, Pineapple. On checkout, I chose to pay with bitcoin.
I paid with 0.05 of a bitcoin.
Using bitcoin in this way is easier than ever before. In fact, in 2013 I had a small side business selling accessories for iPads, iPhones and Android devices. Within a few minutes I’d set up my website to accept bitcoin for payment.
The point to this all is bitcoin’s intention is not as a way to get rich quick. It’s not designed to be a “gold standard” online.
It’s supposed to be a simple unit of exchange over the internet. It’s designed to be frictionless; it’s supposed to have minimal transaction fees. It’s supposed to be a global, connected and alternative financial system to what we use today.
Yesterday morning in Melbourne, I went to withdraw money from an ATM from my bank. It was out of order. But it’d cost me $2 to take money out elsewhere from one of the ATMs from another bank. So I thought: “I’ll just pay by card.” I went to Brumby’s Bakery and then found out I couldn’t buy anything because there was a $10 minimum amount when paying by card!
Bitcoin does away with all that. I store it on my digital wallet on my phone, I’ll walk straight past the ATM (still running Windows XP) and I’ll step into the bakery and just tap my phone to the NFC card reader. Bitcoin is transacted: the blockchain confirms the transaction instantaneously. That’s it.
There is no bank and no merchant terminal fees. There are easy and frictionless payments. And I will be able to do it across the world. There will be no conversion fees and no extra hidden charges.
It’s the world’s first truly global currency in a modern society.
So, I want to finish up with one more key point… before I am hopefully barraged with questions.
Bitcoin is just the beginning. Two years back it was a lone star. It was maybe one of a dozen examples of cryptocurrencies.
A few months back there were about 86 different kinds of cryptocurrencies. A few weeks back there were about 126. Today there are over 180.
It’s a contentious subject as to whether these cryptocurrencies are scams and based on fraudulent behavior.
To that I say, yes, some are and will be worthless and will cease to exist in the coming 12 months. Some, however, will stand the test of time.
There are and will be cowboys in this space that will try to flog you the latest thing with bitcoin and related technology and investment opportunities. It’s the nature of the beast when you see insane prices movements and wild speculation that’s been all too rife in recent times.
Regulators also want a slice of the action. This is because this is far bigger than they imagined. It’s a threat to not just government but the entire banking system. The infrastructure that’s being built ranges from exchanges, to ATMs, to companies selling mining rigs. It’s creating its own economy online and offline.
This is a threat to the status quo of traditional finance. So some rocky roads are ahead of us.
But as I said earlier, this is just the beginning. I like to call it the Big Bang moment of the cryptoconomy. And entirely new parallel financial system, that allows global finance to be easy, and seamless, the way it should be.
It’ll take some time to get to the final destination.
Bitcoin is here to stay, forever. It will exist longer than any of us are alive and in my view will be the centre of a whole universe – the cryptoconomy.
Thank you.
Sam Volkering
Editor, Sam Volkering’s Crypto Network
