Section 13: Crypto

Personal Finance Learning Guide

<aside> 🗒️ In this section: We cover the basics of crypto, analyze the two most popular cryptocurrencies and provide a "verdict" (this is not investment advice) on how to incorporate crypto in your portfolio. 📈

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What is Crypto?

<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/324a3b0c-dfdf-49cb-ae8b-18efdc864561/yawn.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/324a3b0c-dfdf-49cb-ae8b-18efdc864561/yawn.png" width="40px" /> TLDR: Crypto is short for cryptocurrency, which is a form of digital payment for goods and services.

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There are hundreds of different cryptocurrencies, each with their own set of rules for how their currency or money (tokens/coins) is structured, issued/created, and maintained. These rules are governed by code that typically never changes and is transparent to everyone. This makes crypto unique compared to other assets which either have no rules (gold, silver, etc) or rules that are managed by a centralized authority run by humans (government, companies, etc).

In this section, we'll cover the two most popular cryptocurrencies: bitcoin and ethereum.

Bitcoin ($BTC)

<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/324a3b0c-dfdf-49cb-ae8b-18efdc864561/yawn.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/324a3b0c-dfdf-49cb-ae8b-18efdc864561/yawn.png" width="40px" /> TLDR: Bitcoin is the OG ("original gangsta") of crypto and was the very first cryptocurrency invented in 2009. The creator of Bitcoin is unknown and is only know by the alias "Satoshi Nakamoto". It is the most popular and valuable cryptocurrency today.

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To learn more about how Bitcoin works, check out this article and Youtube video.

What makes Bitcoin Valuable?

Bitcoin has three key properties which have historically made it valuable:

Fixed Supply - Unlike most currencies (US Dollars, Euros, etc) which can create more currency if their governments choose (see below), the code that backs Bitcoin enforces that there will only be 21 million bitcoins ever made. High demand on a fixed supply will make the price go up.

https://twitter.com/APompliano/status/1346842024155230211?s=20

Born in the digital age - Unlike gold or other assets that are deemed valuable, bitcoin was born in the age of the internet. You can buy/sell/exchange it 24/7 and you can transfer large sums of $$ in minutes.
Uncensorable - This is a fancy way of saying that no centralized authority or government can freeze/block your bitcoin spending. While this sounds like it would only help criminals, it is a powerful concept for money to be free of government control, which has never existed in modern times.

Why Invest in Bitcoin?

Price - The price of bitcoin, which started at 1 cent per coin in 2009, is now over $32,000 per coin (as of January 4th, 2021). In other words, if you had bought only $1 worth of bitcoin in 2009, it would be worth ~$3.2 million dollars today 🤯! It's clear that there is tremendous value here.
Future Potential - Bitcoin is often referred to as "digital gold" given the properties above. This is not investment advice, but to give you an idea of the potential upside of this investment: if you imagine a world where bitcoin becomes as valuable as gold is today, each coin would be worth ~$500,000. Many smart technologies and investors think bitcoin has even higher potential over time than just being "digital gold" (see below or listen to Chamath or listen to super-duper 12 year old investor Zach Cox (00:30 mark) ):

https://twitter.com/balajis/status/1345743019543121920

This is 🔥 on the potential of $BTC. Must-read!

Also, check out amazing