Bitcoin - the new gold money E-Book

Maximilian Erlmeier

• Herausgeber: Books on Demand
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 143

Veröffentlichungsjahr: 2021

Beschreibung

Bitcoin and the Blockchain: A technology of the future or more appearance than reality? This book dispels preconceptions and offers an easy-to-understand yet well-founded introduction to the subject. It teaches the most important basics about Bitcoin and shows why Bitcoin is not just "digital gold" but heralds a digital revolution. Author Maximilian Erlmeier, himself an entrepreneur and crypto investor, provides valuable advice on what is needed to avoid missing out on the next technical revolution. Without getting lost in technical details, he explains why Bitcoin has the potential to change society and the global distribution of wealth from the get-go.

Leseprobe

For my grandchildren Lilith and Elias

Table of Contents

Money Rules the World

Gold as an Incorruptible Money Anchor

Conclusion: Our monetary and financial system is sick

Problem and Solution: The Next Big Revolution?

Satoshi Nakamoto and the triumph of Bitcoin

The Value of the Bitcoin

The Digital Gold

Bitcoin versus Gold

"Bitcoin handles it!" - What makes the cryptocurrency unique

Big Ideas - Powerful Enemies

The Crucial Questions

Knowledge, Facts & Figures

The Triumph of Distributed Ledger Technologies

Basic Terms - in a Nutshell.

Blockchain yay, Bitcoin nay?

Bitcoin is not an anonymous digital currency

Is Bitcoin, proof of work and energy consumption, an insoluble problem?

Conclusion

Satoshi Nakamoto's White Paper - The Solution to the Core Issues of a Sound Financial Economy.

Blockchain Technology: The "New Internet"

Blockchain Technology: a Game Changer

The Gartner Hype Cycle

Ethereum and Other Crypto Projects

Vitalik Buterin - Another Blockchain Genius

What is Ethereum?

Smart Contracts and their application

Proof of Stake

Initial Coin Offerings - New Coins at the Push of a Button....

Decentralized Finance (DeFi)

Non Fungible Token (NFT)

Security Token Offerings (STOs)

Conclusion to the First Part: On the Way to the Revolution

Bitcoin and Crypto Investments: The Big Opportunity

Speculation or Investment?

Investment 1x1

Anticyclical Investing

Cost-Dollar-Average: The Bitcoin Savings Plan

Bitcoin Cycles: a Guarantee for Price?

Cycle Theory: the Stock-to-Flow Model

Crypto Lending: Interest on Cryptocurrencies

What is the Bitcoin worth?

Speculative Bubbles in the Crypto Market

Financial Freedom

Getting started: What you need

Online wallet: The "Hot" Variant

Cold Wallet: The Secure Variant

For Professionals: Paper Wallet

Risks and Opportunities

The Bitcoin Ban

Energy Consumption and Environmental Awareness

Quantum Computers

Volatility

Crypto Competition

No Government and Institutional Oversight

Inflation Protection and Reserve Currency

Digital scarcity

The New Gold Anchor

My Investments

Of Greed and Steady Hands - What I Have Learned

My Prediction: Bitcoin Quo Vadis?

Epilogue: Social Impact and Humane Market Economy

"Inflation Is an Evil" - How the Humane Market Economy and Bitcoin Go Together

Acknowledgements

Bitcoin: A Peer-to-Peer Electronic Cash System

Sources

Foreword

On January 03, 2009, the time had come. A new technology saw the light of day: a digital, decentralized monetary system. But what has it meant for society? And why is it so important not to have missed the boat here? These are the questions this book will explore.

However, one thing in advance: this book does not aim to lecture while getting bogged down in technical details. The goal is to help you make up your own mind. Is there any truth to this Bitcoin and blockchain revolution? Or are we, as star investor Warren Buffett once said, just dealing with "rat poison" after all?

On this reading tour, we will together explore whether Bitcoin and blockchain technology have the potential to make entire economic sectors and operations better, faster, more efficient as well as cheaper. We will also take a look at Ethereum - the second largest cryptocurrency after Bitcoin. We will then weigh in on whether it makes sense to enter these areas as an investor. Maybe we'll discover the new Amazon or Google together - in the sense of an investment?

One thing is certain: blockchain technology already enables the global exchange of money, value and contracts. Nothing new, you think? Yes, it is, because with blockchain technology, this exchange works without being dependent on third parties and intermediaries. People can benefit from this on many levels; from private individuals to large companies.

Reason enough to dive into this area in simple and understandable language. Without bells and whistles, but not without loss of information.

Due to its decentralization, it can give people back some of their freedom and self-determination: from corporations, states and banks. An opportunity that should be seized.

This book is intended to help all those who want to use this opportunity as an investment. With practical tips for entering the world of cryptocurrencies and the necessary background knowledge to not be left behind in the next technological revolution.

Especially, because with new and complex technologies, the "Golden Investor Rule" applies more than ever: NEVER invest in businesses of which you do not at least understand the basic concepts. Everybody has to make up his or her own mind about the chances involved before he or she makes an investment!

And by the way: because we are dealing with such a new and everchanging technology, the electronic version of this book will be updated regularly. Furthermore, since a lot of technical terms, articles and reports are in English, you will find both languages in this book.

But for now, enjoy your reading!

Yours

Maximilian Erlmeier

1. Money Rules the World

Whether you have it or not, you can't get around it: money. It is the glue that holds the world together. However, this cement is neither fair nor particularly reliable. While the rich and powerful divide the fortune and the world-wide wealth among themselves, a majority of the people gets only a very small piece of the cake! The unequal distribution of the world-wide prosperity inevitably leads to poverty and exploitation of many in favor of the luxury and wealth of a few.

The numbers speak for themselves: in a 2017 study, it was found that approximately 1 percent of the world's population owns roughly half of the world's wealth, while the poorer half owns only 1 percent of that wealth. This means that a few people have more money in their hands than they can spend in their entire lives.

In September 2021, for example, Jeff Bezos, founder of Amazon, is considered the richest man in the world with an estimated fortune of $189.2 billion. He employs 18,000 workers in Germany alone. And they earn between 11.30 and 12.70 euros gross per hour as a starting salary. An average worker would therefore have to work 1.7 million years without interruption or sleep to reach the fortune of his or her top boss.

This small glimpse into the pockets of the richest man in the world shows the absurdity of the monetary system well: the money of this world is unfairly distributed.

But this is not only due to the profit maximization of the rich and beautiful. It also has a good deal to do with the fact that very few people still have an overview of how money is created and distributed in the first place, who has power over it and how decisions are made.

This is because the central banks of this world, in cooperation with the states, can print money almost unhindered and thus increase the amount of money in circulation relatively arbitrarily.

The same applies to the banks, which can create money out of thin air by granting loans. This, in turn, results in money losing more and more of its value through inflation. The consequences are well known: prices rise, but wages often do not increase to the same extent.

The fatal consequences of such a monetary policy can be seen in South America’s Venezuela. There, the inflation rate in 2020 was 2,355 percent. In August 2021, the country's monetary guardians decided to delete six zeros from all prices, as the many zeros made accounting in that country massively more difficult.

The economic consequences of this high inflation are fatal. As the Venezuelan Bolívar continues to be devalued, people cannot be sure that their money will still be worth at the end of the day what it may have been in the morning.

Inflation is so strong in Venezuela that money loses value so quickly that by the end of the week it may be worth only a fraction of what it was at the beginning of the week.

Saving money has become impossible, and life is getting harder with every new day. Food, gasoline and affordable medicine have become increasingly rare. In their desperation, people are once again resorting to barter, because here they find more security than with the failed state currency. Those who are able to, secure their few possessions or even assets abroad before they are no longer worth anything. Some Venezuelans have already discovered the "digital gold" called Bitcoin for themselves. Although the cryptocurrency itself is not yet stable in value, for many it is more attractive than the Bolívar.

But before we explore why Bitcoin is becoming the increasingly attractive money alternative in Venezuela, we need to ask: How could it have come this far?

Money - The Core Element of a Functioning Society

So let's dive into the history of money to understand what slips through our fingers every day and what we actually use to pay for our sandwiches, coffee and pleasures.

The oldest precursors of money go back to the oldest history of mankind. Our ancestors already used various goods - such as shells, teeth or even cloth - to exchange them for other goods. As early as 20,000 years ago, Western Europeans are said to have paid with small stone axes to buy some meat from other tribes.

Nearly 4,000 years ago, people in Africa began using cowrie snail shells as a medium of exchange. According to tradition, "cowrie money" was used and recognized halfway around the world. As a result, people gave it the most important function of money: it could store value. Because people trusted that for a certain number of the shells they could get a certain amount of a commodity. Thus, cowrie money fulfilled the important monetary function as a "store of value."

In addition, they were forgery-proof - only the shells collected in the Maldives and around the Gulf of Thailand were recognized as cowrie. They were also used as a unit of account; one received a certain amount of goods for a certain amount of shells.

Cowrie money is considered one of the first forms of money. The shells of cowries already fulfilled important characteristics: they were used as an account unit, served as a store of value, and were relatively counterfeit-proof.

Nevertheless, the decorative shells were not a rare commodity, for those who collected them also found them. Thus, cowrie money met the same fate that would befall the Venezuelan Bolívar centuries later.

Over time, people collected so many shells that inflation set in. The cowrie money became more and more worthless, since it was not really scarce anymore, at least, after the transport possibilities had become better and, thus, the small shells could spread all over the world. Eventually, people stopped using the shells as currency in South Asia in the 19th century, and in West Africa at the beginning of the 20th century.

From Shells to Coins - Money is Refined

Coin money had meanwhile become more practical: in the 7th century B.C. in Asia Minor, Ionians and Lydians began to press an alloy of gold and silver in the form of lumps, decorating them with images. The first coins made of pure gold or silver were created in the middle of the 6th century under King Croesus of Lydia. Subsequently, it became all confusing, with all sorts of kings starting to mint their own coins.

The Specter of Inflation

The first paper money finally emerged in tenth-century China. In the Sichuan region, people had previously used coins made of iron. But these were too heavy and too costly to produce; the metal and labor were more expensive than the exchange value. Moreover, in 933, a siege led to a scarcity of coins, so that some merchants decided to issue paper money. Subsequently, the city took over regulating the issuance of paper money until finally, in 1016, the Chinese State took over the issue of banknotes. Thereby, the first nationalization of paper money was accomplished. However, it did not take long for rulers to take advantage of paper money. Various emperors printed money again and again at will, without taking care to maintain its purchasing power. By increasing the money supply in this way, they devalued purchasing power, and massive inflation occurred over and again.

Gold as an Incorruptible Money Anchor

Yet, during the Second World War, a total of 44 nations, including China, Soviet Russia and Great Britain began to work under the auspices of the USA on a system aimed at creating an international monetary order with the U.S. dollar as the reserve currency.

With he so-called Bretton Woods Agreement, the "gold standard" was finally adopted. It was thereby established that each ounce of gold was worth 35 U.S. dollars. This meant that all currencies could take their cue from the U.S. dollar and be confident that something was actually deposited for the paper on which seemingly arbitrary numbers were printed: gold!

This gave an invaluable security: It should no longer be possible to print unlimited money without being oriented to a fixed deposited value, namely that of gold. This is hard to mine, limited, scarce and difficult to manipulate - important characteristics for a monetary anchor!

The Bretton Woods Agreement established gold as a monetary anchor to create a uniform "gold standard."

The Federal Reserve Bank, the central bank of the United States, solemnly promised to buy gold at the specified price in any amount. In return, the other member states pledged to keep fluctuations in their currencies low.

To oversee the whole thing, the countries set up the International Monetary Fund (IMF), among others. Together with the International Bank for Reconstruction and Development (IBRD), the organizations were to ensure that the agreed rules were adhered to.

At first, the idea seemed ingenious: the precious metal gold became the incorruptible monetary anchor on which the world's most important currencies were based, with the U.S. dollar leading the way as the world's reserve currency. However, the book you are reading right now might never have been necessary, if the idea had lasted. The outcome was forseeable: The Bretton Woods Agreement failed and the gold standard crumbled to dust.

The End of "Gold Money”

By 1969 it became clear that this system was no longer working. At that point, France wanted to exchange its U.S. dollars into gold, but the United States did not have enough gold on hand to keep its promise. So two years later, the United States cancelled its commitment, and the system collapsed. By 1973, Bretton Woods was completely discontinured. Henceforth, there were to be no more fixed exchange rates and so there was no longer a guarantee to be able to exchange one's money at hedged prices.

In the course of these events, gold was to acquire a new function in the global financial market. The precious metal became a new asset class that brought with it important functions. Among other things, it was supposed to protect against inflation and serve to build up wealth. Gold proved to be particularly stable against the U.S. dollar. While inflation in the USA rose to unimagined heights in the following years, the reserve currency gradually became worthless.

The price of an ounce of gold, on the other hand, rose to over 500 percent of its previous value between the years 1970 and 1979.

After the price of gold was no longer pegged to the U.S. dollar, it became more valuable against the U.S. dollar over time. The precious metal became an asset class in its own right.

For many people, this brought with it the realization that you can solve problems with the money press. The U.S. had tried - uncontrolled printing of new bills was supposed to give the economy a decent boost. But inflation rose and gold, which in contrast cannot be multiplied infinitely, became more and more valuable.

Trust - the Hardest Currency in the World

For those who have read these pages carefully so far, it will have dawned on you: The basis of money is trust. 4,000 years ago, people trusted that they would get a meal for a handful of shells. Later, this promise of being able to exchange money for something was scribbled on paper and weighed in gold with the U.S. dollar.

We trust that the bill or coin we hold in our hand has value in return. If we want to exchange it, we get something in return. We can use it to go to the bakery for a cup of coffee or to a restaurant for a meal. We can buy services or even a car with it.

The problem is that trust in money and the institutions that are responsible for it has been disappointed time and again, and gradually gets squandered.

Let's recall the year 2008. The USA was facing an economic catastrophe. The real estate bubble - triggered by bad loans - burst. This was followed by one bank crash after the next. The money that the banks had lent so generously in the previous period could no longer be repaid. The financial crisis finally culminated in the investment bank Lehman Brothers filing for bankruptcy on September 15, 2008.