072 | Should I Buy Bitcoin | Myles Wakeham

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072 _ Bitcoin _ What Am I Missing _ Myles Wakeham

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Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

Myles Wakeham tells us how he discovered Bitcoin, how and why cryptocurrencies have to value, and gives us a nuanced perspective of where cryptocurrency might go in the future.

  • Myles is a software developer.
  • How did Myles come to invest in Bitcoin?
  • Myles spent years figuring ways to pay his Bangladeshi software developer, until mid 2011, when his contractor discovered Bitcoin as a more effective method of payment.
  • How is Bitcoin an alternative to PayPal, and has it helped Myles support the growing digital economy in less developed regions?
  • Bitcoin value fluctuates pretty drastically – how does Myles pay his contractors a consistent amount?
  • What is Coinbase, how secure is it, and how does it work?
  • How is Bitcoin similar to the ways people used to trade virtual goods within video games?
  • Bitcoin was originally developed as a way to operate outside the banking system after the global financial crisis in 2008.
  • Myles purchased Bitcoin early (in 2011) and left it in a “savings account”. What’s happened to the value since then, and how does Myles feel about Bitcoin’s place within global investments and conversation?
  • Does Bitcoin have a place in the future economy?
  • What are the limitations of a Bitcoin economy?
  • What gives cryptocurrency value?
  • How does the growth of Bitcoin parallel the California Gold Rush of 1849?
  • What causes intangible things to have value, and when else have we seen that?
  • What are the tax implications of Bitcoin, and how have things changed since the start of 2018?
  • How should people make sense of the huge number of cryptocurrencies?
  • Myles suggests that only a few current cryptocurrencies have actual value.
  • What is Blockchain, and what it its relation to cryptocurrencies?
  • Is it possible to invest in the Blockchain?
  • Is it possible for cryptocurrencies to maintain their decentralization?
  • Myles suggests that governments that allow, monitor and encourage development of cryptocurrencies is a global benefit, and government’s that oppose cryptocurrencies are shutting themselves off from digital development in the world.
  • Is Bitcoin fading in comparison to other cryptocurrencies?
  • What cryptocurriency(s) does Myles have his eye on for the future?

 

Links from this episode:

Bitcoin

Coinbase

Mr. Money Mustache: Why Bitcoin is Stupid

The Starfish and the Spider book

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14 thoughts on “072 | Should I Buy Bitcoin | Myles Wakeham”

  1. Ok so Fi community help me out…..I hear “NO don’t buy it” or “YES BUY IT”.

    To my fellow FIREs – What if I have some? As of today my BITCOIN and LITECOIN that total about $1,000 (nothing huge).
    What would you suggest I do?
    NO debt (except house)
    Just saving along at 50%

    Ready AIM FIRE – I appreciate your collective advice

    • Do not buy it unless you do not care about your money. If you are a true FI follower you will only want to look at conservative investments. This is not conservative – your money would do better in paying down your mortgage. After that maybe you want to speculate but you could get better odds at a casino.

  2. 34:58 – Bitcoin’s value comes from a few things.
    It is the first instance of digital scarcity (all previous versions of digital scarcity depended on a central authority to be the creator. So if the creator decided to increase supply 1million fold, they could. Thus it’s scarcity was dependent on the whims of a select few)
    It is a bearer instrument. Whomever posses the private keys posses the bitcoin. If I have a private key associated with 2 BTC on my laptop and you steal my laptop, then you are now the owner of that 2 BTC. There is no one to appeal that loss to. It’s as gone as if you took a stack of unmarked dollar bills in my sock drawer.
    It is a network to facilitate the transfer of said bearer ownership in a secure, fault-tolerant, censorship-resistant way.

    Bitcoin’s bootstrapped fundamental value came from these properties, as I see it. This is why Silk Road was the first killer app for Bitcoin. It still retains all the above properties, but nowadays it is evolving into a decentralized settlement layer of some kind.
    And peppered through its history, there are these manic bubbles of speculation like we just saw in 2017.
    Leave your emotions, FOMO and “revulsion of whichever annoying representatives of Bitcoin you have met” at the door, and learn more about the game-theory-stable network-based technology that is Bitcoin.

      • Its first killer app was a drug selling site IMO. But how does that inform whether or not Bitcoin is an investment? You are letting your personal sense of morality cloud your judgement of what does and doesn’t have (potentially) favorable returns. What if illegal, immoral, and dangerous things give the BEST returns?
        Now, you might say “It’s not an investment I am going to participate in” and that is fine. But it is not evicted from the category of “investments” due to your subjective morals.

        Now, I do think “speculative asset” is a better description than “investment” but that’s more semantics than substance.

        • Rubbish. If you have worked hard to earn your money, you would respect it more to put it into something that can’t disappear if your computer’s hard drive fails. This is a gamble pure and simple. The fact that a small percentage of people in the early days made a lot of money from it does not predict future behavior. I think you are living in a fantasy if you don’t understand that the house always wins here, and the house in this case are governments that have guns and armies and banks. Pick your battles – bitcoin and the other digital currencies cannot win this.

          • I posit that we have a shared value that emotions and investing do not mix, which is one of many reasons why you should own a passive, index-based portfolio.

            One point of my previous comment was to highlight the fact that the following is an invalid argument: “I think Bitcoin is immoral, therefore Bitcoin is a bad investment.” The conclusion does not logically follow from the premise. Either premise and/or conclusion may be true, but they are not logically connected.

            It would benefit you to disambiguate your feelings towards whether Bitcoin is “good” from whether and why it might succeed or fail. Because if your only critique of Bitcoin is that it is unethical, then when Hyperledger, Eris, and any other “Blockchain 2.0” come by with the sales pitch “It’s like Bitcoin but imbued with virtue!” you’re at risk of being scammed by their stupid project.

            My original post was an attempt to explain why Bitcoin has monetary value. It is a descriptive statement to say “Much of Bitcoin’s initial value stemmed from facilitating drug purchases on the Silk Road.” You may argue that I am factually wrong, but don’t interpret normative judgement in what I said.

            For the record, I agree with Gerald’s previous comment that Bitcoin has no place in an FI portfolio. You seem to have interpreted my position to be to the contrary.

        • “What if illegal, immoral and dangerous things give the BEST returns?”

          If you believe this, then you are part of the problem. Checking your ethics & morality at the door because its just “business” is the reason the world is in the state that it is and that good people have to do extraordinary things to just thrive and survive in the 21st century. And if you really believe that, then you may as well make your fortune as a drug cartel or Mafia boss. I mean you are advocating the life of crime as being a viable investment strategy? Please.

          I sense you are young and haven’t been around in business very long because this attitude never wins out in the long run.

          • I don’t believe that.
            …well I am actually agnostic on whether that is true. I don’t have any special knowledge of how lucrative crimes is compared to legitimate businesses…
            But I would certainly say “Illegal/immoral/dangerous things do not give the best RISK-ADJUSTED returns”

  3. Very enjoyable and thought provoking episode. Myles definitely knows this topic well and I do not get to hear anyone talk about this from actual experience much. Lots of people have a position but no actual experience to back it up but this guy seems to know Bitcoin from living through its ups and downs. So thank you for this; it is very important.

    I believe that this might be interesting technology but I do not believe it is an investment. I watched the BTC charts this morning drop about $500 in 1 hour and realize this is not a store of value. I do not believe any retailer will accept it for payment if the price fluctuates that much. If that is the case then I think that it’s life is limited. Just like the Tulip bubble in my own country’s history. Unless some big player like Amazon start to accept it for payment I believe it has a limited future.

    It is also interesting to note that nerds in the tech industry often have embraced it as their currency and that’s fine if you want to use it for video games or things like that but nerds do not typically run the world’s economies, banking systems or equities markets. So I would not take advice from the nerds that want to embrace this.

    Thank you once again for this great episode. It was very enjoyable.

  4. This podcast is very interesting and educative. I feel like I finally understand crypto currencies, and I choose to stay away from them.

    Using a currency as an investment does seem like something new, but it is actually not; I moved to USA from Mexico little over three years ago and while I was there I was using a currency as an investment: the US Dollar.

    OK, let me elaborate, historically the Mexican peso loses value against the US dollar overtime, so buying dollars is a simple way to invest, even if you keep your dollars under the mattress lol. But what I did is to invest in a special type of life insurance called “dotal” which will render a small return rate (about 3% APY) after the 5th year, the term is 15 years, after which I will receive a lump sum consisting of contributions plus earnings.

    0% for the first 5 years and then 3% doesn’t sound very exciting right? Well, just to give you an idea, the first year I contributed to this investment the value ratio was 11 pesos for each dollar, at the close of last year I paid my 2018 contributions at 18.5 pesos per dollar, this means my first contribution has grown more that 40% in value! Not bad at all.

    However, now that I live in the US and with the rates of return indexed funds can give that investment is no longer attractive and I am considering to take my money out and putting it into an indexed fund.

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