Baron's Crypto Trading Journal

[Baron]

But in reality aren't bitcoins are a reward for guessing the solution to a problem.

Yes, but again, when you say "guessing the solution" it almost implies that to solve the required problem, just have your computer throw out some guesses and you'll be rewarded in no time. That's just not the case.

Here's an easy way to imagine what it takes. If I ask you, "I have a one-letter word in my mind, and if you guess it, I will give you a reward." In the English language, there's only a couple of guesses, such as "a" and the letter "i" that can actually be one-letter words.

But what if I said, I have a 7-letter word in my mind, can you guess what it is? Because if so, I will give you a reward for doing that.

It would take you a long, long time to guess (or mine) that word because the number of choices is way more than a one-letter word. You would literally have to guess millions of times to eventually stumble across the right word. And then what if I said the solution would be a mix of letters and numbers? Clearly, that just made it even harder. But what if you were persistent and eventually guessed that mixed combo of 7 characters made up of numbers and letters? You would definitely expect your reward to be more than just solving a simple problem like guessing a one-letter word.

So the reason why the solution to that problem is significant is that it takes "energy and time" to solve the problem.

And that's really all that money is, which is an exchange of value for someone else's time and energy. Do you want to build your own pickup truck, lawnmower, and yard rake from scratch to take care of your lawn? Or do you just want to pay the landscaping company the money to just use their people and equipment to take care of it all?

Since bitcoin has a predefined amount that can ever be created, and since the creation process takes significant time and effort to create just one, it gives Bitcoin value just like the mining process gives gold value. Somewhere on this earth there are people that have to get off their asses and buy the necessary equipment, hire the right people, and secure the right land leases, and then actually DO THE WORK of stripping and sifting the land in order to mine just a single ounce of gold. Likewise, in order to mine bitcoin, you have to invest in the right equipment, pay for the energy used by that equipment, hire the right people to manage that equipment, and then properly use that equipment to DO THE WORK required to create a new bitcoin. And that's why gold and bitcoin are backed by the same thing.... Proof of Work, because neither are going to happen otherwise without the work required for the mining process.

So in summary, this creating bitcoin "out of thin air" statement you've made is like saying you can sit on your couch tonight and rub your fingers together to quickly create an ounce of gold. You and I both know that's never going to happen. In reality, significant time and effort will always be required to mine both gold and Bitcoin, hence the term "Time is Money".

 

[deaddog]

So in summary, this creating bitcoin "out of thin air" statement you've made is like saying you can sit on your couch tonight and rub your fingers together to quickly create an ounce of gold. You and I both know that's never going to happen. In reality, significant time and effort will always be required to mine both gold and Bitcoin, hence the term "Time is Money".

I'm sorry but we have a misunderstanding. When I said created out of thin air I didn't mean that no effort was required to mine a coin. I'm well aware of the computing power and electricity require for bitcoin mining. What I was referring to to was that prior to 2008 there were no bitcoins. Someone and that person or persons is apparently anonymous, invented or created a digital currency and now there are 19 million bitcoins in the system somewhere. Eventually there will be 21 million.

What I don't understand is how they are valued. I understand the supply and demand that drives the trading but I don't understand the underlying value.

Now I understand that the objective of mining is to see who gets to validate the next transaction for or in the blockchain. For that the miners are rewarded with bitcoin. What happens when all 21 million are finally mined? Who will validate the transaction when that happens? Now I don't know who is validating transactions now or how they are being paid. I obviously need to study it a little more.

I like the concept of being able to move money around without the hassle you run into today. I have a hell of a time getting money into the US when I head there for the winter. 10 days minimum for a cheque from a Canadian bank to clear. Hopefully the threat of crypto will get the existing institutions to pull their heads out of their ass and see that there is a need to be met. Possibly bitcoin is the answer but the volatility doesn't make for something that will be easily accepted.

I'm used to currency fluctuation. The Canadian dollar moves between 60 cents and a buck and a bit depending on the Canadian economy. Until someone can explain to me why bitcoin is priced where it is then I'll look at it as something to trade rather than something to invest in.

 

[virtusa]

Comparing stocks with BTC is idiot.
If you have stocks and nobody wants to buy them anymore you liquidate the assets and recover your money.
If you have BTC and nobody wants to buy them anymore you cannot liquidate the assets and recover your money as there is only thin air.

A ponzi works as long as you can pass the hot potato to someone else. You should avoid that you have the potato in your hands when the music stops to play. Because your hands will be burned.
Madoff did it for decades before he got caught.

 

[virtusa]

I like the concept of being able to move money around without the hassle you run into today. I have a hell of a time getting money into the US when I head there for the winter. 10 days minimum for a cheque from a Canadian bank to clear. Hopefully the threat of crypto will get the existing institutions to pull their heads out of their ass and see that there is a need to be met. Possibly bitcoin is the answer but the volatility doesn't make for something that will be easily accepted.

The problem is that the US and apparently Canada are still using a prehistorical payment system.
In Europe cheques are not used or don't even exist anymore in most countries. You can go in any European country and pay or withdraw money with your own bank card. All transactions in Euro are totally free of costs. Almost all shops, Mc Donalds, Kentucky Fried Chicken, Starbucks, Apple stores... accept any European bankcard as INSTANT payment, without any cost.

We don't need BTC at all. BTC only makes things more complicated and you never know how much money you still have due to the volatility.

We move around without all the hassle you have,without needing BTC.

 

[Baron]

What I don't understand is how they are valued.

It's the easiest calculation in the world. Think of the Bitcoin system as a global savings account that anyone on the planet can securely deposit money into. The value of one Bitcoin equals the sum of all deposits divided by the number of Bitcoins in circulation. That's it.

There will ever only be 21 million made but estimates are looking like it's really going to end up being 14 - 15 million because the remainder will end up being lost forever due to certain bitcoin holders forgetting their private keys or dying suddenly without leaving anyone access to their keys. In fact, a lot of that remainder has already been lost just from stories we've heard about people with significant bitcoin holdings dying suddenly. And that's one of the reasons why Bitcoin is deflationary by nature.

Let's pretend that the entire system stopped allowing deposits and withdrawals for a few years. Your Bitcoins would still go up in value over that time period because people are still going to lose their keys, die unexpectedly, etc. which will have the effect of making your bitcoins more scarce and therefore be worth more. And since nobody can increase the supply by saying "let's create some more Bitcoins to replace all those that were lost", the money supply can't be tampered with.

So unlike fiat currency, there's no Central Bank required to constantly monitor and modify the money supply by printing more currency, raising interest rates, etc. The supply of BTC is hard coded and deflation is part of the system design.

 

[Baron]

Now I understand that the objective of mining is to see who gets to validate the next transaction for or in the blockchain. For that the miners are rewarded with bitcoin. What happens when all 21 million are finally mined? Who will validate the transaction when that happens? Now I don't know who is validating transactions now or how they are being paid. I obviously need to study it a little more.

Although the miners won't be rewarded with bitcoin once all 21 million are mined, they will still be incentivized and rewarded with transaction fees by validating transactions on the blockchain. But since the last Bitcoin won't be mined until the year 2140, that's not even something to be concerned with anytime soon. We'll all be dead before that even becomes a reality.

 

[Baron]

Comparing stocks with BTC is idiot.
If you have stocks and nobody wants to buy them anymore you liquidate the assets and recover your money.
If you have BTC and nobody wants to buy them anymore you cannot liquidate the assets and recover your money as there is only thin air.

A ponzi works as long as you can pass the hot potato to someone else. You should avoid that you have the potato in your hands when the music stops to play. Because your hands will be burned.
Madoff did it for decades before he got caught.

Your analogies are awful and are in no way realistic. Bitcoin is a distributed system. That's why it's trustworthy. There's no Madoff or Wizard of Oz behind the curtain that can screw everybody over. The code of the Bitcoin network is open source. Anybody with programming skill can read the code and validate what I'm saying. Your lack of knowledge in this area is considerable and you need to study this stuff A LOT more.

 

[Baron]

The problem is that the US and apparently Canada are still using a prehistorical payment system.
In Europe cheques are not used or don't even exist anymore in most countries. You can go in any European country and pay or withdraw money with your own bank card...

We don't need BTC at all. BTC only makes things more complicated and you never know how much money you still have due to the volatility...

We move around without all the hassle you have,without needing BTC.

If anything you said was true, there would be virtually no uptake in Bitcoin usage by Europeans. But on the contrary, the adoption of Bitcoin in Europe has exploded to the upside over the last few years.

 

[ph1l]

Since bitcoin has a predefined amount that can ever be created, and since the creation process takes significant time and effort to create just one, it gives Bitcoin value just like the mining process gives gold value.

Difficulty of computing does not automatically mean something is valuable. Bitcoin and gold are considered valuable for the same reason:

 

[Sprout]

Difficulty of computing does not automatically mean something is valuable. Bitcoin and gold are considered valuable for the same reason:
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You have a valid point. The use of precious metals emerging as sound money was due to the free market consensus and the very desired characteristic of using something durable.

The market is a social construct.

It could be argued that BTC meme'd itself into existence; imagination -> reality. The emergence of MemeFi and the shitcoin casino are attempts to co-opt this dynamic. The narrative to describe this emerging phenomenon has also evolved; MoE -> UoA -> SoV.

BTC has emerged through free market dynamics with the BTC pizza day transaction setting the initial value. It has been going through price discovery ever since. Many compare it's invention on par with that of the printing press which, even a decade after it's invention, the impact it had on the development of civilization wasn't fully understood.

We are in a similar period of rapid technological advancement and BTC is just entering adolescence.