Misconception: Bitcoin is Too Confusing & Expensive

A step back provides perspective

If I had to guess, the perception that it’s is too confusing is the #1 inhibitor to people getting into Bitcoin. Most people in the western world are used to using one primary form of money; it’s all they’ve known. So a "digital currency" might come off as “fake internet money” initially.

“Bitcoin: A Peer-to-Peer Electronic Cash System” — Title of the original Bitcoin white paper by Satoshi Nakamoto

Bitcoin Can Be Really Simple

What I've learned is this — Bitcoin can be very complex or really simple. It depends on how you look at it and how deep you want to get. There is a very technical side to Bitcoin that is extremely important to its operation, immutability, and decentralization. However, for those who don’t want to get “into the weeds,” there is a very simple way to view Bitcoin. Over the past year, I have been on a mission to learn as much as I can, but I realize there are many technical details and inner workings that I will never fully understand. I’m ok with that. I’m not a very technical person, so anything beyond a base-level understanding of the technical aspects is something I don’t focus on. I've been pushing myself to understand them better each day, but I also respect that many people will never want to get that deep.

Put simply — Bitcoin is decentralized, digital money. It replaces the need for trusting third parties with a process of verification. The digital part trips a lot of people up initially. It certainly had me confused at first. Then the idea of money that is controlled by no one and everyone at the same time is a truly foreign concept. Upon further inspection, the vast majority of our money is already digitized, but most of us have visceral memories of how money looks and feels. There are people out there that haven't used physical cash in years and are still skeptical of the digital aspect of Bitcoin.

I truly believe the digital hurdle should be an easy one to overcome with just a bit of thought and context. Decentralization, however, is a bit trickier. The gold standard is long gone. Fiat currencies are the prevailing forms of money today and people are grounded in that comparison. I'd wager that if you asked a handful of people — "why does the dollar have value" — the primary response would be — "because the government says so." This line of thinking is what makes decentralized money so foreign. But have you ever stepped back and thought that maybe our money should be decoupled from the state? Is it possible there could be a variety of benefits to society if our money was not in any person(s) control?

“Never in the history of the world had it been possible to transfer value between distant peoples without relying on a trusted intermediary, such as a bank or government.” — Vijay Boyapati

The decentralized aspect of the Bitcoin network is what makes it a truly superior global currency to its fiat competitors. As the world has become increasingly smaller and more connected during the information age, transacting across national borders has become commonplace. Fiat currencies are restrictive to this end. Exchange rates between any two currencies are constantly in flux. There are numerous complications with sending money overseas. Billions of people all over the world don't even have access to a (relatively) reliable form of money like the U.S. Dollar, British Pound, or Japanese Yen. A decentralized money like Bitcoin solves these problems. It takes control of the money out of the hands of political elites. It makes trade between anyone in the world much more feasible. Its supply is hard-capped, making it inflation-proof. It is censorship-resistant whereas fiat currencies are easily and frequently censored. Put simply, Bitcoin is just better money.

Physical vs. Digital Worlds

The most glaringly obvious difference between Bitcoin and the U.S. Dollar is that you can hold a dollar in your hand. It has a physical touch, feel, and smell that makes it seem more "real" to us. With Bitcoin, people wonder if it is even really there. Being able to interact with something physically reinforces its existence. Bitcoin certainly is “really there." And while a bitcoin (the token) is not something we see or feel physically, that does not mean that Bitcoin has no presence in the physical world. Bitcoin’s ties to the physical world can be seen in many ways1:

  • Bitcoin is physically “mined.” No, it is not mined from the ground in the same way gold and silver are. It is mined by physical hardware conducting a series of extremely complex mathematical problems (I'll discuss in a future article why this is so important, beyond its connection to the physical world). Bitcoin mining is how new supply of bitcoin is distributed and, more importantly, miners provide security to the network.

  • Hardware "Nodes" verify the integrity of the network. Nodes keep miners, and everyone else, honest. A node is simply a small computer that downloads the history of the Bitcoin blockchain. This means that every single person who runs a node can verify transactions are legitimate. If miners or anyone else tries to double-spend their bitcoin or make any sort of illegitimate transaction, nodes will reject it.

  • The prominence of hardware "wallets." Bitcoin can be stored in a variety of ways. You can keep your bitcoin on an exchange (I don't recommend it) or you can custody it yourself. My last article described self-custody and bitcoin security in more detail, so I won't repeat myself here. One of the more secure ways to self-custody your bitcoin is to take your private key (what allows you to spend your bitcoin) offline by storing it on one of these physical devices.

  • Physical seed backups add another layer of security to your personal bitcoin stack. Seed phrases are like really long passwords that you can write down (or even try to remember) that will restore your private key if you lose your hardware wallet. The seed phrase links to your private key, which links to your bitcoin. If you lose your hardware wallet you have not "lost" your bitcoin, you just lost the device that stores your private key. Backing it up with a seed phrase (stored offline) is a best practice.

I wanted to provide a brief description of what each of the above is and the function it fills to Bitcoin, but the primary point I wanted to make here is Bitcoin actually has a substantial physical presence, despite the token itself being entirely digital.

I’ve been careful to use the phrase “physical world” and not “real world” that I’ve heard skeptics throw around. Using the phrase “real world” implies that not just Bitcoin, but anything digital, is not real. We should all know by now that this isn’t the case. The digital world is very real. Our society becomes more and more digitized every day. Think of all the things that were once physical, but are now digital:

  • Records and CDs have become MP3 files

  • Paperback books can be read on a kindle or listened to via audiobooks

  • I'm writing this article on a website, not with a typewriter or pen and paper

“The secret of change is to focus all of your energy not on fighting the old, but on building the new.” Socrates

New digital things that have always been physical are often are met with initial skepticism. But when hasn’t the internet won? Only a small percentage of money in the world is held in physical cash today. Yes, you can still carry physical cash around, but you don’t need to (and many don’t). The method of exchanging dollars (or any fiat currency) has mostly become "ledgerized." Often, when you send a payment to someone else, no actual money is moved. Ledgers just get updated to reflect the new balance of each account. Even the Federal Reserve leverages a digital ledger. I’d imagine when most people think of money printing they picture a big machine churning out sheets of paper dollars. Do you really think when the Fed physically prints trillions of dollars today? No. They are simply pushing a button on a computer screen. They are updating the digital ledger. Yet, few people ever wonder if those are "fake dollars" the way they wonder if bitcoin is "fake internet money."

Final point on this — Central Bank Digital Currencies are looking like the future of fiat currencies. China has already begun to utilize its Digital Yuan2. There are a number of concerns with CBDCs such as much easier censorship, spending timestamps, invasion of privacy, greater control of the flow of goods and services, and more. If Bitcoin is a tool for freedom, CBDCs are a tool for suppressing civil liberties, an authoritarian's dream. A deeper dive into CBDCs warrants its own piece, but the point I want to make here regarding these digital fiats is that when this becomes the standard for government-controlled currencies, money will be entirely digitized anyway. Physical coins3 and paper currencies will one day be extinct and that day is right around the corner.

Bitcoin is Not Too Expensive

Bitcoin has been labeled too expensive very often over the past few years:

  • When it ran up to $20k in 2019

  • When it was sitting around $30k in the summer of 2020

  • When it hit $64k this past April

  • And again, now, sitting around $45k

Many investors, especially those only planning to put a few hundred or a few thousand dollars toward "crypto," see those big price tags and think “that’s not for me.” They see something like Dogecoin sitting at 30 cents/token and think of it as a more affordable investment with greater upside. An oversimplified view might lead one to think — "if Dogecoin goes as high as Bitcoin one day, I'll be rich!" Dogecoin's prominence on the trading app Robinhood perfectly illustrates how Bitcoin suffers from unit bias4. There’s a psychological barrier to only owning a fraction of something.

Looking at a company like Amazon serves as a good comparison. Amazon’s stock price was around $500/share in the summer of 2015, around $750 a year later, $1800 a couple of years after that, and now nearing $3500. There are very few companies that have given investors anywhere near those types of returns over the past few years.

Still, many likely passed in favor of a small stock with a lower price/share in hopes of finding the next Amazon. It’s not coincidental that Amazon has provided such strong returns. Over longer periods of time, Amazon has provided better returns to its shareholders compared to other companies because it has outperformed most companies incredibly. Similar to Amazon, over longer periods of time, Bitcoin has outperformed its competitors (the dollar, gold, altcoins) incredibly.

“Unsound money just isn’t us, and hyperinflation is something only “other people” sometimes have, right? Indeed, outside of our incredible country, the world has experienced an astonishing 56 hyperinflations in the last ~100 years. This means that in some country, somewhere “over there”, every other year, an innocent population lost their life savings, and certainly their dignity, simply because they stored it in the wrong vessel.” — Ross Stevens in the 2020 Stone Ridge Shareholder Letter

The Amazon example is an important one to point out because, until recently, you actually couldn’t buy a fraction of a stock. I’m sure many smaller investors literally could not afford to buy any Amazon shares prior to the existence of fractional shares. The difference between Amazon and Bitcoin, however, is that bitcoin has always been divisible into much smaller increments.

One thing many people don’t realize is — bitcoin is nearly infinitely divisible. Yes, one whole bitcoin may cost you $45k, but you can invest and save in BTC in much, much smaller increments. Many in the Bitcoin community are clamoring to make sats the standard. One sat is one one-millionth of a bitcoin. If places like Robinhood, Coinbase, and other large exchanges priced bitcoin, by default, in sats, I wonder how many new entrants we would have put $25, $100, or $1000 into it. They would be getting exposure to the best performing asset of the past decade. And psychologically, wouldn’t buying 100,000 sats sound more appealing to investors than buying .1 bitcoin?

Unit bias affects Bitcoin in others ways aside from deterring new entrants. It affects adoption in terms of its use as a Medium of Exchange, which is among the largest criticisms of Bitcoin at the moment. Not knowing much about Bitcoin you might think, well what am I going to do with this thing? How can anybody spend something worth $45k/coin? There’s no way anybody is spending their bitcoin!

A sats standard would help combat this stigma. Spending a few hundred sats to buy a coffee seems to be more palatable (and less confusing) than spending .00001 BTC. Bitcoin might still be foreign to most and adoption still has a long way to go, but a sats standard certainly makes the math easier.

Bitcoin's critics claiming that nobody spends their bitcoin could be ignorance, or it could intentionally malicious to spite Bitcoin. Regardless of their intention, these statements are categorically false. People absolutely are spending their bitcoin5. Looking at the 30-day average, that puts us at about 250,000 transactions per day and roughly $3.4 billion6 worth of USD every day on the Bitcoin network. Just because you can't use bitcoin today to buy a cup of coffee, a house, or a car, does not mean that there are no people spending their bitcoin around the globe.

Bitcoin is being used every day, all over the world. My favorite examples of this are ones you won't hear about in the news. I haven't seen The Wall Street Journal, The New York Times, or any other major publication balance out their hit pieces on Bitcoin with any examples of its use as a freedom tool in less fortunate countries. That does not mean these examples don't exist. They do exist, and they are plentiful. I strongly encourage you to read any (preferably all) article out of Alex Gladstein's catalog in Bitcoin Magazine. These pieces detail examples of Bitcoin bringing financial freedom to disenfranchised people in poor and/or authoritarian countries. These stories profile individuals, groups, businesses, and non-profits from Afghanistan, Sudan, Ethiopia, Nigeria, Palestine, Cuba, and El Salvador — all plugging in and using the world’s first open monetary network.

If Bitcoin was too expensive and only had use as a store of value, or was only for western elites, how could all of these examples exist? How could repressed people all over the world use it for remittances, to circumvent censorship, and to contribute to philanthropic efforts where they need it most? By now, if I've done my job, you know the answer to those questions.

“Try living on the Sudanese pound for 3 months and get back to me how Bitcoin is useless.” — Alex Gladstein

One Final Thought

My friend, James, and I recently decided to co-author a separate newsletter dedicated to advocating for the world’s most misunderstood dogs, pit bulls. As owners and advocates, we felt compelled to do more to help out.

Please check out our initial article, Not Every Dog Gets a Second Chance. We started Pit Bull Partners to do our part in spreading awareness about their mistreatment, the grave consequences, and to shine a light on some amazing people in the animal welfare community.

Wrapping Up

And that wraps up the discussion around Bitcoin’s complexity and price. Thanks so much for tuning in.

Remember to subscribe if you don't want to miss out on future newsletters. You can check out the Why We Bitcoin archive for previous posts and follow me on Twitter for more takes on all things Bitcoin.

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Continue to scroll down if you’re interested in content that has helped me learn about this topic and for a brief preview of future topics.


3 Things to Read:

Unchained Capital: Bitcoin is Common Sense by Parker Lewis

Misconceptions About Bitcoin by Lyn Alden

The Bullish Case for Bitcoin by Vijay Boyapati

3 Things to Listen to:

Microstrategy.com: Bitcoin Macro Strategy with Michael Saylor and Ross Stevens

Bitcoin Audible: Why Bitcoin, The Full Series Audiobook [Tomer Strolight]

What Bitcoin Did: Lightning Series: Why Bitcoin is Global Money with Jack Mallers

Now that I’ve wrapped up my misconceptions about Bitcoin series, I can write a bit more freely in the future. I wanted to start with some common misconceptions about Bitcoin to hold myself accountable to understand them better before I try to refute them. The next Bitcoin topic I’ll cover will be whatever is top of mind over the next couple of weeks.

1
As an aside, this is another issue I have with Proof of Stake validation that many Altcoins employ. Proof of Stake, while consuming less energy, raises many concerns. Aside from further centralizing control to a select group of wealthy crypto elites, PoS has the potential to remove any link these alternative cryptocurrencies have to the physical world because, in PoS, there would be far fewer miners and nodes.
2
https://www.wired.co.uk/article/digital-yuan-china-bitcoin-libra
3
Aside from gold. I’d imagine gold will always be around to some degree, despite Bitcoin being a superior store of value
4
https://money.com/cryptocurrency-dogecoin-bitcoin-unit-bias/
5
Yes, a large percentage of bitcoin holders are long-term holders NOT spending their bitcoin, but that does not mean there isn’t a large sum of transactions and value worth of BTC being spent/used every day.
6
Data as of 9/19/21