9 Lessons From Falling Down The Bitcoin Rabbit Hole
We’re all mad here
I finally found it. My Bitcoin bible.
Gigi’s “21 Lessons: What I’ve Learned from Falling Down the Bitcoin Rabbit Hole” is the best book I’ve read in 2021.
It focuses on the physics, history, mathematics and philosophy of Bitcoin, all while briefly contextualizing it through the lens of Alice in Wonderland.
It tickles the brain of Bitcoin beginners and veterans alike and sufficiently compartmentalizes many difficult concepts. I can’t recommend it enough.
I’m not one for long introductions so let’s jump into — or rather fall down into — Gigi’s most important lessons from his acclaimed book.
1. The Power of Free Speech
I’ve had friends too scared to drop a single dollar into Bitcoin out of fear that the government will crack down on it like the Thought Police from 1984.
As Gigi points out, however, Bitcoin is an idea. And as long as there’s free speech somewhere in the world, cryptocurrency’s future is certain.
“Every aspect of Bitcoin is text…. The ledger is text. Transactions are text. Public and private keys are text. Every aspect of Bitcoin is text, and thus equivalent to speech.” — Gigi
2. How Bitcoin Removes Financial Ignorance
Learning about Bitcoin is a lesson in cryptography, philosophy, economics, history, tech, and personal finance, among others. The price of financial education will always be more valuable than any cryptocurrency, even Ethereum.
When Satoshi Nakamoto created Bitcoin he inadvertently bolstered the financial literacy of a new population of investors, internet dwellers, and cyberpunks.
Basically anyone who watches Star Trek made money in Bitcoin.
This is why “the rabbit hole” aptly describes Bitcoin. Understanding its basic concepts is relatively easy, but the opportunity to learn even more is always there.
3. Why You’re Always Losing to Inflation
“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”
The Queen of Hearts told that to Alice. She’s right.
All things trend toward disorder as defined in the laws of thermodynamics. It’s straight entropy, meaning if you’re not getting better you’re getting worse.
More specifically, the second law of thermodynamics states that “as one goes forward in time, the net entropy (degree of disorder) of any isolated or closed system will always increase (or at least stay the same).”
Staying ahead of the inflationary curve is like sprinting on a treadmill to grab a delicious cupcake with sprinkles. Unfortunately the cupcake is always just out of reach.
There is no winning in this game. You can only hope to keep running more and not fall off the ride.
“I do not think it is an exaggeration to say history is largely a history of inflation, and usually of inflation engineered by governments for the gain of governments.” — Freidrich Hayek, Good Money
Bitcoin is a new kind of deflationary asset. It’s the best of its kind.
Only 21 million Bitcoins will ever be produced solidifying it as the scariest asset on planet Earth. And as Gigi consistently points out: If you’re reading this, it’s still early to invest.
4. The Paradox of Value
Although water is more useful than gold, it’s gold that commands a higher price on the market. As Plato elaborates in the Euthydemus, this is the “paradox of value.”
“For it is rare, Euthydemus, that is precious, while water is cheapest, though, best…”
Value is paradoxical in nature. Some of us can’t even figure out how much we should resell our old junk for on eBay.
Certainly we are a goofy species that can misattribute value to anything (just look at 17th-century tulipmania when a single bulb could sell for 10x the annual income of a skilled crafts worker).
Bitcoin, however, isn’t just better than tulips, it’s the best tool for value ever invented.
It can be traded instantly across borders, it’s protected by cryptographic security, it’s weightless, deflationary and doesn’t require any permission from a third party. A baby could theoretically become a Bitcoin millionaire.
5. Fractional Reserve Insanity
Why is financial education crap in American public schools? Seriously, why? It’s because the game was rigged from the start.
Most American’s barely have anything in their savings let alone something as trivial as a 401(k).
Even so, Mom and dad’s 401(k) with a diversified portfolio is not nearly enough to cut in in today’s economy. Benefits like this are a middle-class trap. You’re a wage slave. Congrats!
Financial literacy is the best avenue towards wealth. Take the practice of fractional reserve banking, for instance, which means banks can lend upwards of 90% of your money after it’s deposited.
So for every $100 you deposit, $90 is being lent through a loan so banks can make more money.
Fractional reserve banking should be called counterfeiting money. That’s what banks do so that they can make more from your deposits. The fact that they do this and still pay you less than 1% in interest is absolutely ridiculous.
The debate between Keynesian and Austrian economics was previously only theoretical.
Now, however, it’s in practice. Fractional reserve central banking (Keynesian) vs. Bitcoin (Austrian). It’s a better fight than Jake Paul versus Ben Askren.
And this isn’t to say that interest and lending are bad. Interest is fine. Lending is fine. But constantly creating money out of thin air creates a whole host of problems.
If the economy hits a breaking point as it did in 2008 — or like it’s predicted to do so again — hyperinflation will destroy every dollar you own.
“…you do not really understand the concept of banking. All the banks are broke. Bank Santander, Deutsche Bank, Royal Bank of Scotland — they’re all broke! And why are they broke? It isn’t an act of God. It isn’t some sort of tsunami.
They’re broke because we have a system called ‘fractional reserve banking’ which means that banks can lend money they don’t actually have! It’s a criminal scandal and it’s been going on for too long.” — Godfrey Bloom
6. Sound Money Always Wins
History teaches us that two things happen to countries that allow the money printer to go wild: 1) Hyperinflation 2) A new currency usurps it (Cryptocurrency or Chinese currency perhaps).
Relying on the U.S. dollar implies you trust that the Federal Reserve and central banks will not devalue your currency.
Clearly, as seen with fractional reserve banking and the 2008 housing crisis, the central banks don’t care about you.
So what about the Fed? Well, in response to COVID-19 the Fed instituted a policy of unlimited quantitative easing, in effect injecting trillions of dollars into the economy. They’re using every tactic to kick the can down the road, in turn, creating a financial bubble of massive proportions.
Hyperinflation is here, you just haven’t realized it yet.
Gigi points out about Bitcoin, “Satoshi showed us something novel: no matter how hard you dig for this digital gold, at a certain point you won’t be able to get more Bitcoin out of it.
For the first time in history we have a monetary good which, no matter how hard you try, you won’t be able to produce more of.”
7. Strength in Numbers
Bitcoin is protected by the SHA-256 hash function. As Gigi illuminates this means Bitcoin is protected by large numbers that are virtually impossible to guess.
Sha-256 might sound small, but in actuality, it equates to —
115 quattuorvigintillion 792 trevigintillion 89 duovigintillion 237 unvigintillion 316 vigintillion 195 novemdecillion 423 octodecillion 570 septendecillion 985 sexdecillion 8 quindecillion 687 quattuordecillion 907 tredecillion 853 duodecillion 269 undecillion 984 decillion 665 nonillion 640 octillion 564 septillion 39 sextillion 457 quintillion 584 quadrillion 7 trillion 913 billion 129 million 639 thousand 936.
I didn’t even know most of these numbers existed.
Renowned security technologist and author Bruce Schneier extrapolates that even if we built an optimal computer that uses a Dyson sphere — a hypothetical megastructure built around the sun for energy — and let it run for 100 billion billion years, we’d only have a 25% chance to crack a 256-bit code. My inner nerd loves this shit.
8. Don’t Trust. Verify
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Satoshi said that. Bless that man, or time-traveling martian, whatever he may be.
Bitcoin doesn’t rely on trust, it relies on verification. The blockchain with the most proof of work is verified by miners who are incentivized to act justly in Bitcoin’s network.
While the system isn’t completely trustless as we rely on the developer's code, SHA-256 security and the miners to continue to work for their incentives, Bitcoin is still the most trustless financial system to date. It’s the best we have without creating an entire system ourselves.
“If you wish to make an apple pie from scratch you must first invest the universe.” — Carl Sagan
9. Metaphors For Bitcoin’s Future
Technology is exponential.
In 1995 about 15% of Americans used the internet, according to Pew Research. I’m sure you don’t need the figures for today to understand how much that has changed in less than 25 years.
In a 2003 TED talk Jeff Bezos compared the web’s future to the ubiquitousness of electricity. He was dead on the money. If only I knew he was a genius back then and wasn’t six years old with no financial intelligence.
Bitcoin will follow this parabolic trend as well. We’ve already seen it drastically shoot up in price and adoption over its brief lifespan. Although less than 2% of the world owns Bitcoin, it’s sure to see an exponential increase within the decade.
By 2030 the future for cryptocurrency will have been decided. Right now, as Gigi reminds us it’s still early, but who knows how long that will last.
Gigi’s blog or picking up his book. Both will change your life. And thanks for reading this story sirs and madams.