Bitcoin Q&A – Questions and observations from a friend, answered by me! (PART 2 of 2)

00:01 Sorry about that. It was raining hard
00:03 enough that I was afraid I was going to
00:04 lose the first video if I didn’t dry
00:05 everything off. So, I dried everything
00:07 off. Here we go. Okay. So, next series
00:10 of questions. My friend says, “At some
00:11 point, at some point in the future, at
00:14 some in some unforeseeable way, will we
00:16 be able to determine what the value of
00:18 Bitcoin is without the US dollar?”
00:20 Meaning, if the dollar collapses, how do
00:22 we know the value of Bitcoin? Uh, isn’t
00:24 it always based on the US dollar? The
00:27 answer is no, but I’ll explain. Uh
00:29 people in Europe see it in euros, but
00:31 it’s based on the value of the dollar. I
00:32 think also wrong. That is not correct.
00:34 I’ll go into that. I’m not exactly I’m
00:38 not saying it’s pegged to the dollar.
00:40 I’m saying that everybody understands it
00:42 in terms of US dollars and it has uh its
00:44 Bitcoin price uh dependent on the US
00:47 dollar and not vice versa. All of that
00:49 is incorrect. Okay. So um but let me
00:52 explain why. So the value of anything
00:55 that is used as money is a proportion of
00:58 how much of that thing there is as
00:60 compared to all of the things that could
01:02 be bought with that thing. So the value
01:04 of the US dollar is based on how much US
01:07 dollars you have compared to all the US
01:09 dollars. And that is what percent of all
01:11 the stuff that that US dollars can buy
01:14 right now that you have the right to
01:16 purchase. So quite simply, if there’s
01:19 only 10 US dollars and you hold one of
01:20 them, you can buy onetenth of all the
01:22 stuff that US dollars can buy at that
01:24 time. Uh if the government inflates it
01:26 so that there’s now $20, you have one
01:29 out of 20. So now you can only buy 5% of
01:31 the stuff instead of 10%. Okay? So all
01:34 currencies work that way and Bitcoin is
01:36 priced like every good and service in
01:38 all currencies. So, uh, Bitcoin’s price
01:40 stands alone based based on its
01:43 purchasing power. And the the reason
01:46 people look at, uh, Bitcoin in terms of
01:49 US dollars is because they’re in the US
01:51 and things are priced in US dollars. But
01:53 the more uh, Bitcoin you own, eventually
01:56 you start to mentally price things in
01:59 Bitcoin. So, for example, my power uh,
02:02 in Mississippi is super erratic. Uh I
02:05 feel like sometimes uh the power is more
02:08 stable in third world countries than at
02:11 for whatever reason than my power in
02:13 when I’m in Mississippi. Okay. So uh a
02:16 generator to make my power stay on all
02:19 the time costs $20,000. A natural gas
02:21 generator that can run 24/7 for eternity
02:24 on natural gas and power my house and
02:26 everything in it cost $20,000. Well, at
02:29 roughly $100,000 a bitcoin, that’s 1/5if
02:31 of a bitcoin. So when I think about
02:33 buying that generator, although it’s
02:34 priced in US dollars, I think about it
02:36 in Bitcoin terms. Do I want to spend 1/5
02:40 of a Bitcoin on a generator so that my
02:42 power stops going out? So I’m wrestling
02:44 with it. I can’t decide if I do or
02:46 don’t. What is the value of a hot of
02:47 being able to take a, you know, a hot
02:49 shower? What is the value of the air
02:50 conditioning working? My TV working, my
02:53 internet working. Now security systems
02:55 are on their own backup system, so I’m
02:56 not worried about that. But uh
02:58 everything else that is convenience in
02:60 my house uh runs on power. And again
03:03 it’s as simple as the fact that when the
03:05 power is out uh all the conveniences go
03:07 away. Um so is that worth 1/5if of a
03:10 bitcoin. And again that’s something I am
03:12 wrestling with. But I think about it in
03:13 bitcoin. Eventually that generator will
03:15 be priced in bitcoin and it’ll be worth
03:18 you know bitcoin will be worth a lot
03:19 more than it is now. But you’ll walk in
03:21 and they’ll say, “Hey, this generator is
03:23 0.05 bitcoin or 0.1 bitcoin or
03:26 0.00002 bitcoin, whatever it is.” Uh
03:29 that day will come. So every currency uh
03:31 bitcoin trades in every currency. Nobody
03:33 thinks about the price of bitcoin in the
03:35 US dollar except people in the US.
03:37 Everybody else thinks about it in terms
03:39 of their own currency. But they only
03:40 think about it that way because that is
03:42 how their brain processes purchasing
03:44 power in in in uh the future. That will
03:47 be in Bitcoin. And people will think
03:49 about everything the way I do, which is,
03:51 hey, I want a generator. Is it worth one
03:53 of a bitcoin? And eventually when it
03:56 gets down to, hey, I can get, you know,
03:58 my favorite iced mocha frappe with
03:60 whipped cream and chocolate drizzle
04:02 decaffeinated, you know, that cost seven
04:04 bucks. Well, eventually that will be
04:07 priced in Bitcoin and I’ll think about
04:08 it as, hey, do I want to separate myself
04:10 with from this much Bitcoin in order to
04:13 have one of those? Um so but uh yeah so
04:16 the answer is Bitcoin’s value is not dep
04:18 uh not based on the US dollar at all.
04:21 It’s not based on any currency. It’s
04:22 based on its purchasing power of goods
04:25 and services what it can buy in the real
04:27 world. And when uh those other
04:30 currencies eventually go away presuming
04:32 they do then bitcoin will be you uh
04:35 people will think in terms of bitcoin
04:37 and price in terms of bitcoin uh and
04:40 it’s not dependent on anything else.
04:41 just again in the Vhimar Republic when
04:44 uh the the uh the German mark uh
04:48 inflated you know into
04:49 oblivion it was just based on itself and
04:52 people used different currency or they
04:54 transacted in gold or they did other
04:56 stuff but um but no no currency is based
04:59 on another currency’s value they all
05:01 float or the vast majority of the
05:03 currency of the world float freely in
05:05 value compared to each other but none of
05:07 them are based on the value of another
05:09 and
05:12 Sorry. Same is true of Bitcoin. Okay. Um
05:16 another So this uh puts forward a
05:18 thought which is all of this is based on
05:20 the fact that Bitcoin will continue
05:21 increase in value because people will
05:23 inject capital into it. Value/ capital
05:26 must be generated to then inject into
05:28 Bitcoin until there is mass adoption and
05:30 people buy products and services with
05:32 Bitcoin, not just paying with Bitcoin.
05:34 That is an exchange to a currency. Uh so
05:36 yes, as long as everything’s priced in
05:38 other currencies and most people
05:39 transact in other currencies, people
05:40 will continue to to trade in and out of
05:42 Bitcoin um for their local currency. But
05:45 again, that will happen less and less as
05:48 time goes on. So just like with the
05:50 Venezuelan Bolivar, initially if you had
05:52 US dollars, you always had to trade
05:54 trade them back into Venezuelan Bolivar
05:57 to buy stuff. And eventually nobody
05:58 wanted Venezuelan Bolivar, so you could
05:60 just use the US dollars directly in
06:02 Venezuela uh because nobody wanted the
06:04 local currency. And the same is true of
06:05 Bitcoin. Eventually it’ll just everybody
06:07 will want Bitcoin. Nobody will want to
06:08 be trading in and out of it. Um anyway,
06:11 so that’s that’s how that will happen.
06:14 Um another thought here is the person
06:16 says the exchange fees are worth the
06:18 cost. I imagine there are some sort of
06:19 processing fees for foreign transaction
06:21 types uh when you pay with Bitcoin or
06:23 convert into US dollars. So yes, every
06:26 time you process any transaction
06:28 anywhere, you’re paying some sort of
06:29 fee. Uh normally Visa and Mastercard
06:31 charge 2.9% which is a super high fee
06:35 especially when most merchants are only
06:36 making a couple percentage points of
06:38 profit and half of that or you know
06:40 almost all of that ends up being eaten
06:42 up by credit card processing fees. Um
06:45 but Bitcoin is the same way except on
06:46 the Bitcoin lightning network uh which
06:49 is how payments are typically made uh
06:51 the fees are fractions of a penny. So um
06:54 and then to trade in and out of fiat
06:57 currency which is government currency
06:59 there are some transaction fees
07:00 typically you can get them as if you try
07:03 hard as low as point4% uh or on Coinbase
07:07 Advance for example or 0.55 on Robin
07:10 Hood or uh anyway so yes there are fees
07:13 to trade in and out of US dollars but
07:15 those fees get lower and lower um with
07:18 each passing month and year because more
07:21 people are doing it and the uh exchanges
07:23 have to compete with each other. Um but
07:25 uh again in the future you won’t have to
07:27 trade in and out of uh government
07:29 currency because you’ll be able to just
07:30 directly pay with Bitcoin which as of
07:33 yesterday is exactly what you can do at
07:34 Steak and Shake. You can go to Steak and
07:36 Shake and you can buy stuff with Bitcoin
07:38 at Stake and Shake without ever
07:40 converting in or out of uh another
07:42 currency. All right, last step it says
07:44 the exchange fees are worth the cost. I
07:46 imagine there will be some sort of
07:47 processing fee. Uh oh.
07:50 Um, and then uh the hypothesis that if I
07:53 hold money in Bitcoin that it will be
07:55 worth more in the future than it is now
07:57 and therefore I can buy more stuff with
07:59 it. Um, so uh all again all of that uh
08:04 is premised on the fact that there is
08:06 less Bitcoin and it’s not inflating.
08:09 There’s only 21 million. Therefore, you
08:10 can trust its monetary properties and
08:12 therefore over time it will go up. Uh
08:15 the credibility of Bitcoin’s monetary
08:16 properties dictate that it will go up in
08:18 value over time, although it will be
08:20 volatile. It will go up and down on its
08:22 way up. Um the US dollar only goes down.
08:25 So it feels stable, but that’s because
08:27 it’s always sinking. It’s just not
08:29 sinking fast enough that everybody has
08:31 to jump off the ship immediately, but it
08:34 is absolutely positively losing value.
08:36 Um so anyway, hope all that is helpful.
08:39 Uh just some musings on a rainy Saturday
08:42 afternoon. And uh I’m free to answer
08:45 anyone’s questions or send me stuff.
08:46 I’ll do videos about them. Have a great
08:48 day, everyone. Thanks.