I don’t remember when I first became aware of bitcoin. I do recall that I have always had a favorable view of it; that is, I had a favorable view of the concept of a cryptocurrency at least in the sense of competing currencies following Hayek (and Rothbard). Nonetheless, I never acted on this view until a few months ago. Herein I discuss my experience very much as a neophyte, and what this perhaps typical experience portends for the future of bitcoin and Bitcoin.The words bitcoin and Bitcoin are used as follows: When the B is capitalized, it represents the overarching concept of Bitcoin: The technology, the community, the protocol, and the software. When the b is not capitalized, it is describing the unit of currency.
It was not the astounding rise in the price of bitcoin that attracted my interest, but more so the principled arguments about Bitcoin that I heard from proponents. The advantages include privacy, a method to hold wealth outside of a national setting, limited inflation, and wealth secured in the cloud away from private and public theft. I do not recall exactly what initiated the email conversation, but a correspondent made some good arguments about why bitcoin and ethereum among the dozens of other cryptocurrencies available today were worth buying. After a few minutes of internet research I decided to buy a bit of each on the large exchange called Coinbase. To sign up required more security than I had ever experienced online, including pictures of my identity card and a picture of myself. And then when buying it is necessary to have a photo of a handwritten page with the current date. For different reasons regarding the quality of the images, my purchase was not approved. If I recall correctly, it was 5 or 6 attempts before I finally succeeded. But then my bank account was not approved. This was the last straw and I gave up.
Many weeks after my Coinbase attempt I viewed a Jordan Peterson podcast with several proponents of bitcoin. A few days later Karen Wong of the Meaning Code podcast interviewed someone regarding bitcoin from Unchained Capital that inspired me to try to buy bitcoin again.
Unchained Capital is a service provider for, “Collaborative custody gives Bitcoin holders greater transparency and security when they use a financial services provider. Participants share in key management of a multisignature quorum designed for each product with keys always being cold-stored.” This small sample of their vocabulary sent me to the internet for more research. For example, this is a concise, if still obscure to me, summary of the Bitcoin system I found here:
Ownership of bitcoin is established through digital keys, bitcoin addresses, and digital signatures. The digital keys are not actually stored in the network, but are instead created and stored by users in a file, or simple database, called a wallet. The digital keys in a user’s wallet are completely independent of the bitcoin protocol and can be generated and managed by the user’s wallet software without reference to the blockchain or access to the Internet. Keys enable many of the interesting properties of bitcoin, including de-centralized trust and control, ownership attestation, and the cryptographic-proof security model.
Every bitcoin transaction requires a valid signature to be included in the blockchain, which can only be generated with valid digital keys; therefore, anyone with a copy of those keys has control of the bitcoin in that account. Keys come in pairs consisting of a private (secret) key and a public key. Think of the public key as similar to a bank account number and the private key as similar to the secret PIN, or signature on a check that provides control over the account. These digital keys are very rarely seen by the users of bitcoin. For the most part, they are stored inside the wallet file and managed by the bitcoin wallet software.
In the payment portion of a bitcoin transaction, the recipient’s public key is represented by its digital fingerprint, called a bitcoin address, which is used in the same way as the beneficiary name on a check (i.e., “Pay to the order of”). In most cases, a bitcoin address is generated from and corresponds to a public key. However, not all bitcoin addresses represent public keys; they can also represent other beneficiaries such as scripts, as we will see later in this chapter. This way, bitcoin addresses abstract the recipient of funds, making transaction destinations flexible, similar to paper checks: a single payment instrument that can be used to pay into people’s accounts, pay into company accounts, pay for bills, or pay to cash. The bitcoin address is the only representation of the keys that users will routinely see, because this is the part they need to share with the world.
I had a conversation with a consultant from Unchained Capital. He was very knowledgeable and helpful but I also became aware of the more complicated multisignature system they employ. In this presentation on multisig the speaker from Unchained Capital testified that it took him two years of study to really understand the subject! Their services are relatively expensive, at least for the small purchases I had in mind. So at this time I am on hold to buy bitcoin.
My experience gives me a general sense of why bitcoin may not be a widespread future currency. This is not the view of many. Jeff Deist recently interviewed Robert Murphy where they touched on bitcoin. Murphy had written a book (with coauthor Silas Barta) on bitcoin several years ago. The upshot of his view is as follows; “I’m not saying bitcoin is going to still be the primary cryptocurrency, but I do think people will hold it, whereas probably back when we wrote that guide I would not have been so comfortable saying that. I’ve seen enough now with the explosion of market caps and various types of cryptos to think that it is here to stay. It’s not that crypto’s going to disappear in ten years and people are going to look at that as a fad. That’s my view at the moment, and probably I’m more comfortable saying that now than I would have been back in 2015.” But Murphy also noted that he “did a lot of research.” So I see my difficulty as emblematic of cryptocurrencies and in a way similar to when I first thought of buying gold 25 years ago, it was not obvious how to do so. I finally ended up ordering a few krugerrands from the late Burt Blumert’s Camino Coin, sending my check and receiving my coins via snail mail across the country. It worked, but it was not very practical.
The other big risk to bitcoin and other cryptocurrencies (and all personal wealth for that matter) is government action. They could always outlaw it as I believe the Chinese government has done. In a recent podcast Robert Barnes expressed the opinion that the Democrats new rule added to their budget bill to monitor all internet transactions over $600 is to target bitcoin. Then there is competition from other cryptocurrencies, with the gorilla coming into the room of fedcoin.
So, I still want to buy some bitcoin, but now you understand it is not simple for me.