Since deciding to write more blog posts again, I’ve drafted and thrown away a few different versions of this blog post. Originally, I was going to try to explain how Bitcoin works, or motivate to others why they should care about it. But the reality is that there is already much better material out there than I can produce. So instead, I’ve decided to make this much more personal: my own journey, why I ultimately changed my opinion and decided to embrace Bitcoin, and then answer some questions and comments I’ve received from others.

If you really do want to learn the best arguments in favor of Bitcoin (as opposed to “price goes up” style arguments), here is my list of top resources. I’ll try to keep this list up to date over time:

• The Bullish Case for Bitcoin (article)
• The Bitcoin Standard (long form book)

OK, without further ado, my path to Bitcoin!

Before Bitcoin

My worldview is highly impactful on this discussion, so I need to get the cliffnotes of my outlook clarified. I come from a financially conservative background. I grew up believing that dollars were king, fixed income savings were good, and the stock market was little more than a casino. I ran most of my financial investments like that for most of my life, either investing in property (i.e., the house I own, not extra investment properties) or keeping cash, US treasuries, and Certificates of Deposit (CDs). When I went truly crazy, I would occasionally invest in the S&P 500 index, the least gambly of gambling. (I’ve commented on that previously.)

I studied actuarial science in school, and worked as an actuary for a few years before moving to Israel. Being an actuary definitely put me in the world of finance, but on a much more theoretical as opposed to practical side. As a small example, I learned all the financial mathematics involved in pricing of options, but never learned any real-life strategy for trading options. And that suited me just fine: options are even more risky than normal stock market gambling!

What that theoretical background gave me was two relevant bodies of knowledge: statistics for risk analysis, and economics. Overall I loved my economics courses. The simple concepts of scarcity and competition fit so perfectly with human psychology and perfectly describe so much of the world around us. (Side note: I don’t just mean in financial matters, I strongly recommend everyone learns the basics of economics to better understand the world at large.)

One minor note about studying economics. My courses were roughly broken down into micro and macro economics. Microeconomics clicked with me from day 1. Things like “price caps lead to shortages” are so simple to understand and evidently true that I can explain them to my 7 year old without a problem.

It was macroeconomics that I couldn’t understand. Why did all the rules of microeconomics–intervention prevents free markets from discovering equilibrium–go out the door when you went to the macro level? Why was it that the government needed to intervene by printing money and spurring the market into action by increasing spending?

I was just a math student larping as an economist, not a true economist, so I incorrectly assumed that this was all just beyond my feeble understanding. And I happily lived my life for about 15 years as an actuary/programmer who enjoyed some economics and lived a fiscally conservative lifestyle.

First hints of Bitcoin

I heard about Bitcoin relatively early in its existence. My wife and I even discussed buying some when it was still under a dollar. To our chagrin, we didn’t. This fit in nicely with my “avoid casinos” approach. Bitcoin was simply a get-rich-quick scam, a Ponzi scheme, fake internet money, you name it. To be completely fair, I didn’t fully come to those conclusions at the time, but it was more-or-less what I thought.

What’s amazing is that I had just lived through the Great Financial Crisis of 2008. I was painfully aware of what a financial disaster we had. I had already graduated at the time, but I was still close to many friends from UCLA, many in economics and financial majors. I remember discussing how ridiculous “too big to fail” was. The phrase I learned much later, Privatizing Profits and Socializing Losses, was exactly how we all felt, and I knew it was setting up incorrect incentive structures. But I didn’t spend enough time to recognize that there was any connection between that disaster and this new Bitcoin fake money scam.

I spent close to 7 years having virtually nothing to do with blockchain and cryptocurrency. At some point around 2016, through my work in the Haskell space, I ended up consulting on a few blockchain projects, including building blockchains for others. I also ended up on a lot of sales calls as a sales engineer.

I won’t call out any specific projects. But suffice it to say that I walked away completely believing that all of “crypto” was a scam. And to quote a phrase from Jewish literature, אוי לרשע אוי לשכנו (woe to the evil one, woe to his neighbor). I must have opened up a Binance account at some point in this, and probably bought some crypto to get a feel for how it all worked. But I had no interest in being part of the space. Blockchain seemed like a cool technology on its own early in its hype cycle. But cryptocurrency itself wasn’t for me.

COVID-19, money printer goes brrrr

When COVID-19 began kicking off, many of us saw the huge amount of money printing, paired with forced lack of productivity due to various COVID restrictions. The combination meant that, simultaneously, true productivity in the economy slowed down (meaning: less goods) and more money was chasing those goods. A lot more money. Money printer goes brrr.

As much as I’d buried my head in the sand during the 2008 financial crisis, things were different this time.

1. I was older (and hopefully more mature), more financially aware, and had more money at risk.
2. In 2008, I was a young, newly married man dealing with his first job and learning how to raise my first child. I didn’t have a lot of free thought cycles around. While I wasn’t exactly lounging around in 2020, I had more time available to think about the problem.
3. Thanks to developments at work, I ended up working in the cryptocurrency space again.

Putting these things together, I paid attention, did some level of research, and decided inflation terrified me. I could easily see the value of all my savings go down dramatically. After some soul searching, I decided it was time to start abandoning my highly-risk-averse savings strategy, and begin embracing a more diversified investment strategy. This meant dividing among:

• Cash, CDs, and treasury bonds. Higher interest rates certainly made this pretty attractive to myself at the time.
• Buying into the S&P 500 index. While I still had my original financial outlook of the stock market being little more than a gamble, I also understood risk and empirical data, and investing in the index would–on average and assuming markets continued operating the same way as the past–continue to go up. Hopefully somewhere in line with the officially reported inflation numbers, if you believe those.
• And the scariest and riskiest of all: crypto.

I want to be clear that this was not a purchase of me saying “I’m a total believer in crypto, this thing is going to skyrocket.” It was simple risk hedging. I was afraid of the fiat currency system, i.e. dollars, losing a huge amount of their value. That made stock investments far less risky in comparison. But my faith in the stock market wasn’t exactly stalwart. With all the financial system changes coming as a result of COVID-19 restrictions and money printing, I was looking for any kind of safety net.

I invested in crypto like I would invest in stocks: I chose a basket of the top performers at the time, diversified my money into them, and hoped for the best.

Terra collapse

This is a side note almost not worth including, but some people may be comforted by this part of the story.

The work I’d been doing in crypto at the time had been on the Terra blockchain. For those who aren’t aware, Terra had a systemic collapse in May 2022 due to the depegging of the TerraUSD (a.k.a. UST) stablecoin. Or, as the jokes correctly put it, not-so-stablecoin.

I lost a significant amount of money on that. With my fiscally conservative background, this was essentially a worst-case-scenario making all of my greatest fears of risky investment come true.

At this point, however, I had learned enough about the crypto boom/bust cycles. Miriam (my wife) and I spent a lot of time discussing, and decided we’d ride out the bear market, not simply run away screaming.

The point of the inclusion of this here: I basically went through the worst possible financial outcome I could imagine. And it wasn’t nearly as bad as I thought it would be. I lost money. That’s never fun. But the true moral of the story I’m telling is that everything in the financial world is a massive jumble of different risks these days. There isn’t a single safe haven, at least not like gold was in the 1800s.

The important part for everyone: don’t fall into the sunk cost fallacy! If you’ve taken losses on an investment, try to stay calm, look at it rationally, and make the best decision you possibly can with current knowledge and no emotional input.

The Bitcoin maxi path

I’m almost embarrassed by this next sentence. Despite working in the crypto space off-and-on for about 8 years now, and despite spending 3 years full-time working on crypto and Decentralized Finance products, I only recently understood the connection between the beginning of this story (the Great Financial Crisis of 2008) and Bitcoin.

You see, I shouldn’t have stuck my head in the sand back then. Had I had more time and more curiosity, I could have discovered a few truths. Firstly, Bitcoin is directly targeted at addressing the unsound system that led to the Great Recession. Secondly, Bitcoin and crypto–at least in general–are very different beasts. My guess is that, like me, most people are more afraid of Bitcoin because they have it mentally associated with the rest of the crypto world and all the fun casino-like-games it contains. And finally, I discovered that I knew both more and less about economics than I thought I did.

You’ll see people in the Bitcoin world talk about “doing your 100 hours” before you understand Bitcoin. I think I’ve only completed that in the past few months. It’s from watching a lot of random YouTube videos, chatting with people on X and Reddit, reading blog posts, and most powerfully and most recently: reading The Bitcoin Standard. I haven’t even finished it yet, I’m looking forward to the rest. But already, it’s snapped a lot of my economics understanding into focus.

In particular, it’s given me a much better understanding of the concept of money than I ever received in my university economics courses. (Or I’m simply listening better this time around.) It’s also helped me understand why macroeconomics never clicked with me. Anyone who’s read the book will know that it’s not exactly gentle in its treatment of Keynesian and Monetarist economic theories. Getting a clear breakdown of the different schools of thought, how they compare to Austrian economics, and the author’s very opinionated views on them, has been one of the most intellectually stimulating things I’ve done since learning monads and the borrow checker.

Side note: I wish more texts included the authors’ direct and unapologetic opinions like this. If someone has a similarly direct take-down of the arguments in The Bitcoin Standard, I would love to read it, please pass it along.

Putting that all together: a monetary system which allows for no inflation and grants no party central control is far more powerful than I originally understood. My opinion evolved somewhat slowly from “magical internet money” to “potentially good risk hedge in a balanced portfolio.” It went really quickly from that to “oh, I get it, this is the hardest money that exists, it will store value for the foreseeable future.”

I no longer look at my investment in Bitcoin as a risk. I’ve switched worldviews completely. Every other asset I hold is the risk. I can be hurt significantly by this of course. If Bitcoin has another bear market and I need to buy groceries, I’ll be taking a huge loss on the Bitcoin I need to liquidate. (I discuss how I address this in my buying Bitcoin or selling dollars post.)

Aren’t I scared?

Yes. I think we’re living in some of the scariest financial times of our lives. But my viewpoint now is that everything is risky, there’s no escaping it. There isn’t a safe-haven in dollars and potentially big gains in other assets. Everything is on a precipice right now. And my honest belief is that, for the long haul, Bitcoin is the least risky of all potentially stores of value.

Am I right? We’ll know in 20 years.

My recommendation to others

This is my personal journey. This story shouldn’t convince anyone to do anything with their money. I haven’t presented any true arguments in favor of Bitcoin here, just some comments and references to larger ideas.

If you take anything away from this, I hope it’s this: there’s some guy out there who’s really scared of risky investments, has at least some formal training in economics and finance, wanted nothing to do with Bitcoin, and then decided he was completely wrong and embraced it.

I hope that motivates those of you who are opposed to Bitcoin to do a bit more research. Challenge the ideas you read. Challenge the ideas you already hold. Ask questions. Get in debates. Treat this seriously. Because whichever way you decide, for or against Bitcoin, will likely have a major impact on the rest of your life.

Random Q&A

I received some questions previously on my Bitcoin vs gold blog post, and haven’t had a chance to answer them in another post. Instead of a dedicated post for that, this seems like a good time to address that.

Bitcoin was originally marketed as anonymous. Nowadays we consider it pseudonymous at best. Do you believe this is an important feature for money? Do you believe it is actually *desirable*?

Yes, I do. The economy works best by all people being completely free to make whatever financial decisions they believe are best for themselves. Having non-anonymous financial transactions will add friction to that system. Each time I make a purchase, I’ll wonder if others will judge me unfavorably for it.

Having the Bitcoin chain work as it does today with all transactions being publicly visible is great for transparency. Publicly held companies publishing their wallet addresses is great too. But there needs to be some room for truly anonymous interactions. And I believe we’ll see that space expand over time as Bitcoin moves from “great speculative asset” to “money.” The Lightning Network already does a pretty great job at this.

If anonymity is important, why not some more modern cryptocurrency?

Because it isn’t needed. Bitcoin has one thing few other cryptocurrencies have, and one thing none of them have:

1. Bitcoin is a scarce resource. If you look at the tokenomics of most other cryptocurrencies, they are massively complex and usually inflationary in some way. None of those can ever act as a true store of value over time.
2. Bitcoin is first. That’s obviously not entirely true; there are plenty of other attempts at digital money that predate it, arguably the modern dollar is also a “digital asset,” etc. But for this new class of “algorithmically scarce, decentralized, digital money,” Bitcoin is the first on the scene. As a result, it has major network effects, and will be essentially impossible to dethrone until someone comes up with a fundamentally better approach. No one has so far.

How would/should society be organized in a world where a lot of modern taxation would likely(?) be very hard due to completely unobservable cash flows? Currently I think a lot of this relies on cash being local, and the sources and sinks of it being relatively traceable.

Exposing my politics a bit more, I’m totally in favor of a society based far less on taxing the populace.

That said, I don’t think Bitcoin will fundamentally change this. People who have wanted to evade taxes have found ways in the past, and the government has always found ways to increase its surveillance apparatus to keep up with them. It’s an arms race that will continue.

If we get to a point where all money is Bitcoin and everyone transacts daily in Lightning wallets, I have no doubt that the local supermarket will fully comply with all reporting rules to the government on purchases, property purchases will require justification of where your funds came from, and other such things that will ensure the majority of financial transactions stay in the legal, taxable world.

Modern economic theory indeed often aims at a ~2% annual inflation (not more, not less), as an incentive to keep investing in ways that presumably benefit the society instead of sitting on money. Deflation is considered dangerous for the same reason. It seems to me, perhaps naively, that zero inflation would make investment a zero sum game, which seemingly removes a lot of the incentives. What do you think of this?

I’m still coming to terms on inflation vs deflation. Until recently, I had naively assumed that everyone believed deflation was awesome because all of society benefits from getting more stuff, and inflation was the penalty for letting the government print money. Apparently that is far from the modern well-accepted outlook.

I may be making a mistake in my interpretation, but based on what I’ve read in The Bitcoin Standard, here’s an answer that I hope is accurate. Whenever you have money, you can do one of two things with it: use it for immediate consumption, or defer its usage to later. The real interest rate (nominal interest - inflation rate) gives an indication of how much you’ll be rewarded for deferring usage of your money till later.

With deflation (i.e., negative inflation), you end up with a high real interest. This means “if you hold off on consumption you’ll get even more stuff in the future.” This incentivizes a low time preference: I don’t value immediate consumption very much versus later consumption.

Coming back to your question: the “sitting on money” idea comes directly from Keynesian economics, where the focus is on spending, consumerism, and short term money flows. An Austrian approach is completely different. Sitting on money means that I allow productive capability today to be put into capital goods, things which will increase production in the future, thus making more stuff available in the future at lower prices, thus further fueling deflation.

Note that another way of looking at interest rates is the cost of capital. It’s a price just like any other price in the economy. If you have the government set the price of apples, you’ll either have shortages or surpluses. So what happens to capital when the central bank gets to set the price of capital by controlling interest rates?

There’s a lot more to this topic, and I’m pretty fresh to it, so I’ll call it there. I’d definitely recommend The Bitcoin Standard for more on the topic.