Laurence Newman is the co-founder of Coinmama, a bitcoin exchange.
Since that time last year, the number of Bitcoin wallets has grown by a whopping 8 million, with that growth accounting for over 20% of all 38 million existing Bitcoin wallets. This adoption trend shows no signs of slowing down as our newsfeeds continue to be filled with stories of institutional investors and Fortune 500 CEOs diving into Bitcoin. Both the statistics and the stories suggest that Bitcoin is crossing the threshold from the early adopter stage to mass use. Despite the record high prices and rising sentiment, many people are unaware of the true privilege of holding Bitcoin and the correct course of action.
Getting started with Bitcoin is one thing, but staying long-term is a whole other ball game. Going back to basics to understand the true nature of Bitcoin and how to keep it safe could mean the difference between financial freedom and failure – not just for newcomers, but for everyone.
The money that is holding you back
To understand the privilege of holding Bitcoin, we must first understand the other options available to citizens looking to store their wealth or move money.
Gold was mankind’s first good for millennia. The famous metal was not only a symbol of wealth and status, it also served as the basis for entire monetary systems. Even the end of the gold standard could not stop gold from growing. Gold has done a great job in the past at maintaining wealth over time, although its price has decreased slightly this year. However, when it comes to transferring money through space, gold fails miserably. It’s physically heavy, which makes it a significant job to carry around as currency.
Fiat currencies occupy the other side of the spectrum from gold. Thanks to emerging fintech and digital banking solutions, fiat currencies are well equipped to transfer value quickly across space. Although the fiat-based economy tends to be constrained by physical boundaries and a complex network of intermediaries, it is still a functional option for sending and receiving money.
Maintaining wealth in fiat currencies, however, is a different story. Since they are no longer pegged to gold, fiat currencies are now solely controlled by the central banks that print them. Printing money has become the proverbial ax that central banks use whenever a crisis occurs. For example, since the beginning of the COVID-19 pandemic, the Federal Reserve has printed over $ 3 trillion, nearly doubling the supply of US dollars in a single year. With an unlimited supply of money chasing a finite pool of goods and services, the result is almost always inflation. The fiat currency is losing purchasing power by the minute, and the cash held in a checking or savings account cannot earn interest at today’s inflation rates.
In addition, the fiat currency lacks the characteristics of real bearer wealth. Fiat assets are subject to government seizure and transfers are restricted to recipients recognized by the bank. Just ask the customers of Laiki Bank, the second largest bank in Cyprus at the time, whose account balance was reduced during the 2013 eurozone crisis. Over 3.4 billion euros were withdrawn from customer accounts, even by some customers who had taken out insurance.
Holding the real thing and holding it right
Where fiat and gold fail, bitcoin succeeds. Not only has Bitcoin been the top performing commodity of the last decade, exhibiting an unmatched ability to maintain wealth over time, but it is also gaining traction as a payment system. Bitcoin, unencumbered by borders of any kind, is emerging as a fast and global option for transferring money across space.
The rise of Bitcoin has sparked a boom in assets that are deceptively similar to reality but do not allow the financial freedom inherent in Bitcoin. PayPal’s decision to allow Bitcoin purchases, while exciting, had one notable caveat: users who buy Bitcoin through PayPal cannot withdraw it into self-custody. This inability to control your Bitcoin runs counter to the values of financial self-sovereignty that Bitcoin should enable.
Some fintech platforms have moved even further away from the actual Bitcoin. A growing number of retail investors could come across platforms claiming to allow them to buy Bitcoin, if not necessarily. Instead, such platforms make it easier to trade CFDs (Contracts for Difference), which are synthetic assets that mirror the price of Bitcoin. Although CFDs might be suitable for short-term traders, those looking to collect and hold Bitcoin will be disappointed to find that they do not own real Bitcoin.
Aside from the fact that it exists outside of government controlled monetary systems, one of the biggest differences between Bitcoin and everything else in the world of money is that it is both an active and a monetary transaction protocol. Just as Bitcoin meets the basic definition of money, it also meets the definition of a payment processor. As a monetary network, Bitcoin handles transactions between parties by relaying value from one to another and recording all transactions in a distributed public ledger.
To become a top notch Bitcoin citizen, you need to have your own wallet that contains your own private keys and keep that wallet safe. Only when you buy real bitcoin, not CFDs, and keep it in a secure wallet, can you keep track of your account balance in the open bitcoin ledger.
Take your money back
Once you venture into the world of getting and holding Bitcoin, you will become your own banker. This may seem scary, but the banks find it more scary than you do. In fact, the biggest banks and the best-known voices in the industry recognize that their self-banker disintermediation is in full swing.
When you own Bitcoin, you have a store of value that can be used relatively quickly as a medium of exchange, and you also have the option of exchanging that value. You can’t hold your Bitcoin in hand, but since we left gold doubloons behind in the 17th century, the only thing we could ever hold was a government-issued promissory note. The development of credit cards and digital payment processors like Venmo and PayPal has further decoupled money from physical currency. Bitcoin takes us deeper into financial freedom by decoupling a store of value and its exchanges from central banks and financial institutions. This opens up enormous opportunities and power to people around the world who, by foregoing cash, gain something far more valuable and powerful.
This is a guest post by Laurence Newman. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.