Table of Contents
Preface
The world’s first cryptocurrency, Bitcoin, just turned 10. In that time, its price shot up from almost nothing to a staggering $20,000 before cooling off to around $6,500 today. A ride like that was never going to be quiet, the drama and controversy were inevitable.
Origins of Bitcoin
Some people think the whole story started with the Bitcoin white paper, the document that outlined the system’s high-level design. A working prototype followed shortly after, as open‑source software anyone with a PC could run. You don’t even need a conventional internet connection to join the Bitcoin network, you can use a satellite dish or any other data‑link to reach other nodes.
I think understanding Bitcoin’s origins helps us see its original purpose and future potential. Unfortunately, no one knows for sure where it came from. Even the real name of its creator (or creators) is a complete mystery.
There are plenty of wild theories: some accuse it of being a CIA pet project, others argue it was backed by drug cartels, its sole purpose to make life easier for criminals.
That’s not a lot to go on. But here’s the thing about open‑source software: it isn’t static. Most of the people directing the project today are public figures, you can look up their backgrounds. I won’t name names, but here are the common traits I’ve seen among developers who’ve worked on Bitcoin from the early days:
- They aren’t filthy rich, which often surprises outsiders.
- They are highly competent and take pride in that.
- They value their privacy far more than the average person.
- Many of them are cypherpunks (here’s a quick overview of cypherpunk ideas).
If you dig a little deeper, it’s clear Bitcoin wasn’t the first attempt to create a digital currency or “digital gold”, but all the earlier ones failed. It’s important to understand that Bitcoin didn’t come out of nowhere. Its design is actually an attempt to fix the problems that killed its predecessors.
What About Other Coins?
The early days are long gone. Now there are thousands of crypto assets, and the biggest coins and tokens are usually listed on Coinmarketcap.
Almost all of them inherited a big chunk of Bitcoin’s DNA, but each project is unique in some way. This brings us to one of the most important properties of crypto assets: their price movements are highly correlated, leaving very little room for actual diversification.
Some might argue every coin is fundamentally different, but the market doesn’t seem to agree. Don’t fool yourself into thinking you can significantly cut your investment risk just by spreading your money across a few coins or tokens. Bitcoin is by far the most stable crypto asset and adding other assets will likely increase the risk in your portfolio.
Believe it or not, some crypto assets have made even more money than Bitcoin, though they’ve also been more volatile. So, buying a few altcoins can make sense. Just watch out for con artists: there are thousands of Ponzi schemes masquerading as promising crypto projects.
Should I Invest in Bitcoin?
I think it mostly depends on why you’re investing. There are three widely known motivations that drive investment activity:
- Money
- Status
- Fun
Investing for Money
Does it make sense to invest in Bitcoin or other crypto assets from a financial perspective? I’d say yes. It’s a rare case where the upside is practically limitless, while the downside is capped, you can’t lose more than you put in.
The best most companies can hope for is to become a monopoly, but even then they can’t extract unlimited value. Demand is finite, and competition is always ready to move in and drive profits down.
Bitcoin, however, can theoretically have unlimited value growth, it could even become the definition of value. There’s a hard limit on the number of bitcoins, but no limit on the goods and services our society produces. That output has grown at about 3% a year since the Industrial Revolution. So, it’s not unreasonable to expect an unlimited growth trajectory for any widely adopted, scarce store of value.
Satoshi Nakamoto, the mysterious creator(s) of Bitcoin, expected it to become “huge” or vanish completely. There’s a lot of space between those extremes, though. Personally, I lean toward that “all or nothing” view, but it’s also possible it ends up as a niche product, finds a stable price, and hits a growth ceiling down the road.
Investing for Status
Will Bitcoin satisfy an investor looking for social status? I’m not so sure. A lot of people in crypto don’t like to talk about this. I guess there’s a social stigma, and it’s not hard to see why. How many can prove they got their crypto legitimately? Then there’s plain envy. If your investment does well, a lot of people will call you a lucky gambler. If you lose money, they’ll think you were naive or stupid. Either way, negativity seems hard to avoid.
On the other hand, plenty of people genuinely support the crypto movement and its core ideas. Still, let’s just say the status impact of crypto investing is, at the very least, controversial.
Investing for Fun
I think fun is the biggest reason to invest in cryptocurrencies. If you’re hooked on adrenaline and drama, this is the perfect community to dive into. The crypto market is the digital wild west, packed with all sorts of characters, each with their own agenda.
Sure, there are plenty of honest people, but even they have their egos tied up in the debate. And then there’s a whole legion of con artists and criminals who thrive in this space. Your job is to figure out who’s who and put your money where your mouth is. One thing you’re guaranteed to get if you invest in crypto is a good rollercoaster ride.
Conclusion
Crypto assets can be a good option for almost any investor, but they’re especially suited for fun‑loving types with high risk tolerance. While they can bring huge returns, they’re also far more volatile than most stocks or bonds.
Because of that extreme volatility, I think most investors shouldn’t have a large crypto allocation. The exact percentage depends on many factors, but aiming for 1% to 10% of your portfolio in crypto assets could be a sensible long‑term strategy.