We all have heard about crypto, bitcoin. Digital currency supported by nothing, only by math and trust. But why is it suddenly so popular? Why so many even conservative people go there, investigate, learn?
Many different reasons. but all of them reasonable. It is all good about crypto but mostly all bad about current currency.
Currency is supported by nothing, trust in government and that their promises have value. Oh well, but nobody half smart believes in government and especially in anything that has the word TRUST in it. If you old fashioned conservative good person and you do what decent people do, so you earn some money and stash them to a safe bank and very nice bank account. Then you get older, you try to retire, you go to your safe bank, you have some money there, but they have no value. Because you trusted in official speech by government.
They forgot to mention to you that the official currency maintains no value over time. It is affected by inflation. So if you buy loaf of bread in 1990 for $1, that same loaf next year will cost you $1.10. Npo big deal, still cheap, right? But this is 10% inflation my friends. So if you stored $100,000, they are worth 10% less now!
That loaf of bread will be $1.20 the next year, then $1.29 and in a few years $2!
Inflation has many reason why it happens, but it is mostly the result of how government works. Gov has a problem? Financial problem? Needs to run some war? Well, when money is short, and it always is, they just print more money! Imagine that! The country is worth million dollars and it has million dollars in circulation. But then they print extra $200,000, but the country is same, it produces nothing more, nothing special. So it is still worth million dollars, but in circulation it has 1.2 million. 1.2 million chasing the same products and services as before, so clearly te value of that currency is less.
Just one mini detail. Not that important, but it clarifies the story of how government handles money and responsibility. And so overall, when you save your money, their value over time will go down. Inflation is a good example that shows the changing value of money that is easy to understand. Look at this chart:
| Year | Inflation (%) | Dollar Start Value | Dollar End Value |
| 2000 | 3.4 | 1.00 | 0.97 |
| 2001 | 2.8 | 0.97 | 0.94 |
| 2002 | 1.6 | 0.94 | 0.92 |
| 2003 | 2.3 | 0.92 | 0.90 |
| 2004 | 2.7 | 0.90 | 0.88 |
| 2005 | 3.4 | 0.88 | 0.85 |
| 2006 | 3.2 | 0.85 | 0.82 |
| 2007 | 2.8 | 0.82 | 0.80 |
| 2008 | 3.8 | 0.80 | 0.77 |
| 2009 | -0.4 | 0.77 | 0.77 |
| 2010 | 1.6 | 0.77 | 0.76 |
Imagine years from 2000 to 2010. Each of them has some inflation and so dollar starts at some value and ends at different value due to inflation. In this example the dollar starts at value 1. The first year it loses 3.4% of its value so at the end of the year you think you are holding 1 dollar, but it has value of only 97 cents.
And then go year after year. And at the end of 2010 your one dollar has value of only 76 cents. If it was not 1 dollar, but 1 million dollars at the start, you would now have just 760,000 dollars. You lost 240,000 dollars but you did nothing and nothing bad.
Then came crypto. And bitcoin. It guarantees nothing like government does, but it is designed and set up to provide guarantees by default. Value of bitcoin will go down, because we will print more currency? Part of bitcoin is that there are 21,000,000 of them and that’s it. Some will get lost, so the result will be lower.
The value of bitcoin will naturally rise, because bitcoins has no borders between countries and so 8 billion people will need to share 21 million coins. Digital coins. Plus if you look at its value versus dollar, it is not fair, because it shows the value of bitcoin goes up but dollar also goes down. So if in one year bitcoin rises 5% in its value, but dollar loses 5% of its value?
| BTC | Dollar |
| $1,000.00 | $1,000.00 |
| 5.00% | -5.00% |
| $1,050.00 | $950.00 |
Let’s start with 1000 dollars in bitcoin and 1000 dollars in US dollar. Bitcoin rises 5% so at the end of the year it will be valued at 1050 dollars. US dollar drops 5% so it will be valued at 950 dollars. The difference is obvious.
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