You don’t have to be a financial genius to understand that you would have become a lot richer if you had held Bitcoin for the past few years.
But for many people, investing in Bitcoin can seem like a gamble. The price has gone up, but what will stop it from coming down?
The more I learned about Bitcoin, the more I came to understand that the things that bring down the price of Bitcoin are temporary problems. China can ban it (again) and Bitcoin flashes. Elon can say it’s unfriendly to the environment – Bitcoin shrugs and continues regardless. But the things that give Bitcoin its value are here to stay.
To understand how Bitcoin is changing the face of money as we know it, we need to dig a little deeper into what money is and how we use it.
Pearls, seashells, and cattle were all used as currency (in fact, the name of the purse comes from the word “cattle”), but the most well-known types of currency for many centuries and in many civilizations were the precious metals. The most valuable has always been gold, and we still value it today.
Gold won because it was the most difficult metal to produce compared to its existing stock. Whenever possible, people have always tried to find ways to just earn more of whatever was used as money, rather than earning it. We know this increase in the money supply as inflation. This brings us directly to the value proposition of Bitcoin, the hardest money ever invented. There will never be more than 21 million, based on a completely fixed supply schedule rewarding those who choose to sign up and squeeze black hole value out of everything else.
In order for something to be used as money, it must be able to do three things. We must be able to use it as a unit of account, a medium of exchange and a store of value. Simply put: we need to be able to agree on how to measure its value, we need to be able to agree on what we can buy in what quantity, and we need to be able to keep it for long periods of time without rotting. , rust, dissolve or deteriorate.
For ancient people, it is easy to see why gold and silver were attractive. The standardization of weights and measures meant that people could be sure that the gold coin from, say, Macedonia was worth the same as the gold coin of the same weight from Athens and the silver coins made up for it. made it difficult to pay small amounts with gold.
Translating this into modern times, we cannot help but think that the euro is a bad substitute for gold and silver. Above all, the euro, although it functions quite well as a unit of account and a medium of exchange, is a hopeless store of value.
Inflation is the rust that eats away at our savings if we keep them in euros. It’s tempting to look at Portugal’s comparatively low inflation rate (1.3% annual rate compared to, say, Poland at 5%) and think our savings are relatively safe. But that’s the principle of the thing. The point is, today’s $ 10,000 would earn you a lot less than $ 10,000 ten years ago. While a Bitcoin today buys you astronomically, more than a Bitcoin would have been ten years ago.
Bitcoin is a value proposition unlike any other we’ve ever seen. It’s the best store of value there is, appreciating value considerably the longer you store it. It is divisible into fractions for small payments (each Bitcoin is made up of 100 million satoshis – at the time of writing a Satoshi is worth 0.00036 euro) and, unlike gold (difficult to transport), it can be transferred in the blink of an eye. an eye. No wonder Bitcoiners call Bitcoin digital gold.
But is it for you?
We are all used to a certain degree of comfort with our finances. Have you lost your bank card? No problem. The bank will send you another one. With Bitcoin, it’s not like that. If you lose the phrase that gives you access to your funds, you have lost your funds. In this sense, Bitcoin is not for the faint of heart. If you want to enjoy the financial gain it brings, and dare I say it, participate in the innovation it brings to money, you have to make a commitment and be prepared to actively take responsibility for your finances as well.
Diversifying investments is always a good strategy, balancing high risk and low risk investments. Given the risk inherent in the euro, vulnerable as it is to inflation and the uncertainty of other traditional investments such as real estate, putting part of your fortune in Bitcoin, even if (or especially because that) you and you alone are responsible for it seems the best strategy for good long-term returns.
For expats living in Portugal, the tax implications of their investment portfolio are also a crucial consideration. Portugal welcomes those who store their wealth in Bitcoin, by imposing no capital gains tax. Reason enough to buy Bitcoin, hang on and enjoy the welcome from Portugal.
If you’re interested in learning more about the history of money and the role Bitcoin played, I highly recommend Saifedean Ammous Bitcoin Standard, an excellent and easy-to-read guide.