finance

Easy Comes Easy Goes: Don't invest in Bitcoin

Lucas Schiavini

Aug 21, 2020 — 7 min read

Every once in a while people come across “THE BEST INVESTMENT OF YOUR LIFETIME”. Let me tell you, bitcoin isn’t it.

First things first
I’ma say all the words inside my head
I’m fired up and tired of the way that things have been, oh ooh

– Imagine Dragons: Believer

So what is bitcoin? Bitcoin is the new flashy electronic coin that everybody is trying to get you to believe is never going to fall. But do you really know how it works?

Do you know what is BlockChain technology? Don’t worry if you don’t, you’ll leave this post knowing if this investment is for you or if you should put your money somewhere else.

So, let’s begin with why bitcoin exists and what made it possible. More importantly, why it is already changing your life.

The BlockChain technology

The new kind of currency… the cryptocurrency…

See, there is a new kind of technology called BlockChain. So how does it work?

Imagine that you have a friend called Jim and another called, I don’t know, Melissa.

Now you have watched a movie called The American Penis Story. Now, you have bought this movie in a proper store. So how can you “lend” this amazing and interesting drama to your friends? Imagine that you take piracy seriously and you can’t have the slightest chance that the movie will be copied.

So you, the genius you are, create a method so that the movie deletes itself every time you copy it to a pen-drive, external hard drive or even in an email. That way you know for sure Jim won’t share your movie with Melissa and make some money out of it(who wouldn’t buy a digital copy of a movie called that am I right?????).

But, Jim is a smart guy, and he hired a hacker so that he can copy the movie as many times as he wants. And worst of all, you won’t know about it. So your honor is hurt and you won’t even know about it!!!!

Now what can you do to prevent this from happening again? You could create a network of people that know Jim and get them to tell you if he shared the movie with them at the same time.

But then, if at least one of these people is dishonest, your whole plan will fail.

You get what I’m saying? Just hold on for a bit longer(see what I did there? bit hehehe).

Well, you hire a computer hacker to build a system that tells you if the movie is copied and even better, prevents the movie to exist in more than one place at a time. How would this system work?

These are all Jim’s friends, those assh#les

Well, imagine that each person connected to a computer is a node(one point in the network). Each node communicates to the whole network, so what one person knows or does, is seen and known by everybody simultaneously.

So imagine Jim copied his version of The American Penis Story to Melissa, at the same time, every one of his friends will know that the movie is with Melissa and if he still has a copy.

In this way, if he tries to sell the movie to any of his friends, everyone will know he is selling a copy and the movie will be worth nothing, $0, nada, compreende?

Now imagine instead of a movie he has money, and he tries to multiply that money, you get that his money will be worth nothing right?

That is BlockChain technology in a nutshell, it is a way for computers in a network to know the real value of a digital commodity, in this post’s case, Bitcoin.

Now let’s get to Bitcoin now…

Bitcoin, The Rise of Cryptocurrencies…

No… there isn’t a physical coin that looks like that…

So what is Bitcoin? How does it compare to The American Penis Story the movie??

Well, remember your old math classes? When you learned to sum, subtract, multiply, divide? Remember how much you hated that? Well, imagine someone created a code that does all your math homework for you, and then… he encrypts it so you won’t be allowed to access it.

And worst of all, in order to access it you need to decode it!!! (A little bit far fetched but that’s the kind of person I am).

Well this homework is very very valuable to you, and to any other lazy kid in your school. So decoding it becomes, suddenly, very, very valuable.

Now imagine that there is another code that can decode plenty of difficult codes like the “solve my homework” kind of thing. See, now the value isn’t in the “solve my homework” anymore, it’s in decoding hard problems.

So the algorithm that solves your lazy @ss problems can solve many more. That algorithm has great value. Now, if you can get the results of the algorithm, and even the computational power behind the results wouldn’t you pay a lot for it?

Now combine this information and the BlockChain that you just learned. You can trade the algorithm results(how many problems it solved) with another person, that is the Bitcoin. Bitcoin uses an algorithm and computers on a network that share the results(how many problems it solved).

Now, it doesn’t matter which problem the Bitcoin algorithm/code solves, it’s a form of decryption that you’ll probably study if you take any classes on Computer Engineering or if you are so curious to look it up on the internet, it’s called SHA-256.

Now, I’ll enter in details about SHA-256 and hash algorithms in another blog post, in this one all you need to know is that it’s a security algorithm that prevents data leak and stuff like that.

So…. Bitcoin algorithm solves SHA-256 and takes all his value from it. In this way, you can use Bitcoin as money the same way you use Dollars that had it’s value due to gold in the banks. The theory of where money get it’s value from I’ll enter in details in yet another blog post.

FINALLY, Bitcoin is the commodity, you can trade it with the BlockChain technology that tells everyone trading bitcoins where the money is going and ensures no money gets duplicated, which keeps the value.

In order to trade bitcoin you have to open your computer to a network that is peer-to-peer(person to person) with no centralized entity. See the beauty in that? You get to trade things(in this case money, but you can also use BlockChain to trade contracts like Kickstarter) without having to trust anyone, you can trade it with people you don’t even know!!!!!!

That is why Bitcoin was largely used to buy drugs on the deepweb markets, it is also untraceable.

Come on get to the point already!!!!!

I’m cat tired right now…

Well, if you are still here, check this out… Bitcoin is awesome, it made BlockChain famous and still brings lots of positive attention to it. There are startups developing new tech regarding smart contracts, and others working at network security that uses many of security hash algorithms(SHA) to solve problems.

But….

BUT…

But Bitcoin attracted lots of positive attention to many people, manly new investors, naive investors… See, I’m explaining how Bitcoin works here, and many of you might not even knew all of this existed at this moment. But the media is selling bitcoin as the greatest invention of our century, it will change how money works and bla bla bla.

It’s all true, but the moment people who don’t even know where the value of a commodity comes from starts to invest in it… it welll…. becomes a bubble. That is the definition of a bubble, the market value is greater than the actual value of a commodity traded, it could be stock options, lemonade stamps, t-shirts.

The moment people who don’t know jack shit about what is going on start to get on board just cuz the “price never drops”, you are in for a giant bubble burst. We had one in the 99s (dot com bubble) and another at 2008(Housing market) because people didn’t know how to accurately measure the value of what they were investing in…

But… but… How can I know if the market value of something is bigger than the value of the thing itself???

That’s gotta be the biggest headline evar…. Well, you can’t know, you really can’t.

BUT… you can kind of predict(every prediction is 50% chance to be right, no one can see the future) if something is gonna burst by how fast it grows.

So up until this moment, I tried to be objective, bellow is my personal take on the subject of Bitcoin:

I see many stupid people getting on board to buy because it’s better than live off the interest of the banks, they don’t even take into account the risky business they are getting into. I mean, it is extremely volatile.

You can lose all your money overnight, because while the BlockChain technology is awesome, many other cryptocoins use it, so Bitcoin could lose all it’s value due to government regulations and the value go all to Ethereum or other cryptocurrency.

So as always, if you are going to invest, and you really think it’s a good idea, there is only one rule to investment: “Only invest what you can surely lose”.