Letter to My Stock Broker on Why I’m Buying Bitcoin

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Here is a letter I wrote to my stock broker last summer explaining why I transferred some of my money out of my 401(k) and into a self-directed IRA so that I could buy crypto-currency. When I wrote it, bitcoin was trading around $2,500 and Ethereum was around $300. I hope to write more about self-directed IRAs as a vehicle for crypto investing later.

Hi Brent,

To start, I’m a technologist, not an economist. I think of investing in crypto-currency as investing in blockchain technology and it’s potential, much more than an investment in another form of money.

Many people compare where blockchain technology is now to where the internet was in the early 90’s. Imagine if you could have invested in “the internet” in the early 90’s. That’d be one hell of an ROI.

If you remember the early 90’s, some people had heard of the internet, but not everyone. The more technically minded folks had. More people had heard of email, the first popular application of the internet, and some used it at work. Some people thought the internet was novel and interesting. Some people doubted or didn’t even think about what the potential of the internet was. Some thought it would change the world

Today, some people have heard of blockchain technology, but not everyone. The more technically minded folks have. More people have heard of crypto-currency, the first popular application on blockchain technology, and some have bought a little crypto. Some people think it’s novel and interesting. Some people doubt or don’t even think about what the potential of blockchain technology is. Some think it will change the world.

To me, buying crypto is an investment in a blockchain technology, and I believe that in the future everyone will use blockchains every day without even knowing it, much like the internet is used today. This UBS report (UBS_Crypto_BlockChain_Report_2017) says it “is likely to have a significant impact in industries ranging from finance to manufacturing, healthcare, and utilities. We estimate that blockchain could add as much as USD 300-400bn of economic value globally by 2027.”

Each different crypto currency is a project that uses blockchain technology. There are a few big projects like Bitcoin and Ethereum, that are analogous to a technology platform. There are many smaller projects that are specific functions on the platforms. For example there is Power Ledger, which is a project working on peer-to-peer electricity selling, where all transactions are kept on a blockchain ledger. There is iExec, which is a market place for computing power that you can use to run complex algorithms on the blockchain. There is FileCoin, which you can probably guess is storing files on the blockchain. And on and on I could go.

Investing is very risky because which projects will succeed and which will fail is obviously unknown. Like the internet in the 90’s, there are a lot of problems that need to be solved before blockchains can expand the functionality they provide. And which potential solutions (i.e. which projects and related crypto-currency) will succeed is uncertain.



Ethereum & Bitcoin Education

A few months ago, I wrote a blog post about the blockchain and Bitcoin. Since then, I’ve been learning more and more about these two technologies that exist together and becoming more and more fascinated by. In this post, I’ll explain a little about the Ethereum blockchain network, the type of folks I met at a local Denver Bitcoin meet-up, and end with a brief description of the documentary movie The Rise and Rise of Bitcoin.

Whenever I come across a new technology I want to know more about, one of the first things I do is find people I know who already know something about it. Recently, I found an old acquaintance, Raine Revere, who is a programmer and is currently under contract with a cryptocurrency company called ShapeShift to build a smart contract on the Ethereum blockchain network. As I mentioned in my previous post, the blockchain concept has spread beyond Bitcoin and is finding new applications. With every new blockchain network that is created, a new type of cryptocurrency is created to incentivize people with computing power to record new blocks on the chain. Every time a new block is created, they get rewarded with newly minted coins in the cryptocurrency of that particular blockchain.

Ethereum has the ability to create “smart contracts” on its network, an interesting feature. The Bitcoin network executes bitcoin transactions (sending bitcoins from point A to point B), though it’s capability beyond that is limited. On the Ethereum network, you can create scripts that contain more advanced logic. A simple example would be that you can watch for a certain market indicator (like the DOW hitting 8,000) and then trigger the selling of an asset.

The Ethereum blockchain currency, called Ether, is the second largest in the world, with Bitcoin’s market cap exceeding it by a wide margin. As of May 12, 2016, Bitcoin’s market cap is a little over $7 billion, and Ethereum is at $822 million. You can check Coincap.io for the existing money supply and market cap for most cryptocurrencies.

This friend of mine who is writing a new smart contract introduced me to the Colorado Bitcoin Society Meetup. This is a meet up of people who have an interest in Bitcoin. I went to my first meet up at Southern Hospitality in Denver this past Monday. It is no coincidence that the restaurant accepts Bitcoin payment, as the manager is an avid bitcoin enthusiast and investor, I’m told. Most people there are not just interested in Bitcoin, they are passionate about it. Quite a few categorized themselves as Libertarians, and when we did introductions around the room many people expressed their opinion that Bitcoin is an avenue to remove oneself from the government and the centralized Federal Reserve. This is a common theme among bitcoin enthusiasts, you hear terms like “the separation of money and state”. It’s quite an interesting group.

At the meet up, I was told about a documentary called The Rise and Rise of Bitcoin. It is a very well done movie detailing the origins of bitcoin and telling the story through the rise, the fall in value, and then the second rise of bitcoin. It does not require any technical expertise to be able to completely understand and enjoy the movie. It does a good job of introducing the technology at a high level, discussing the potential social and economic impacts of bitcoin, weaving in the story of a few bitcoin startups, and telling the personal story of an early bitcoin miner. It is available on Amazon Prime, and can be found on iTunes.

In future posts, my plan is to share more of the things I’ve learned, and give some details on my small adventures into the world of Bitcoin.