INTRODUCTION: DON’T BE STUPID
Cryptocurrencies are here to stay. But don’t be stupid.
Yes, crypto millionaires and billionaires will certainly be minted in the coming years. There will be plenty of rags-to-crypto-riches stories to go around. And maybe you will be one of them. (If you’re reading this, you’re an early adopter, so it’s possible.) But don’t be stupid.
Even the wildest predictions of bitcoin hitting $50,000 by 2020… $100,000 by 2025… or even $1 million by 2034… aren’t completely im- possible. A few other great cryptocurrencies will rise beyond anyone’s imagination, too. But don’t be stupid.
I felt compelled to write this book because I’m seeing a lot of smart people suspending their disbelief. I’m seeing a lot of smart people turn stupid.
Cryptocurrencies are great. But I want as many of my readers as possible to avoid the crypto-tulip mania. I want as many people as possible to be less stupid about crypto. Because there’s going to be a lot of stupidity in this space — there already is. And I want to live in a less stupid world.
The cold, hard truth, if you can handle it: Up to 99% of the cryptocurrencies that exist today are total SCAMS. But before you rush off and sell every “sure thing” you’ve snapped up thus far, read this book. Read it closely.
If you’re a regular reader of mine, you might notice some overlap in content in this book from my monthly issues of The Altucher Report. That’s OK. Cryptocurrencies are complicated.
All of it is worth going over at least twice.
It’s important to become as familiar as possible with the main points. Especially if you plan to invest in this space.
So if I repeat myself, it’s for a good reason. Repetition is the mother of mastery.
This book will help you understand this abstract cryptocurrency stuff. It will help you sound more informed at dinner parties. It will help you separate the wheat from the chaff.
Once you realize you can ignore about 98% of what happens in the cryptocurrency space, it becomes far less intimidating.
WHY I WROTE THIS BOOK (EVEN THOUGH I DIDN’T WANT TO)
Obviously, we have lots to cover. Fortunately, I was able to jam a lot — pretty much everything you’ll need to know to get started — into this little book.
So let’s begin. For starters, here’s why I wrote this book:
Every month, many people write me and ask, “What do you think of bitcoin?” Or “What do you think of cryptocurrencies?”
I never wanted to answer.
How come? I believe the first question one should answer is: What did you do for your physical, emotional, creative and spiritual health today?
These are the keys to success. There is nothing else. Wealth is a side effect of applying these ideas every day. So I never wanted to write about something as specific as cryptocurrencies.
Until now. Because I see so many people now talking about cryptocurrencies that are pure scams. I see so many people day-trading these like they are penny stocks.
They are not. And we will get into it in this book. But the rise of cryptocurrencies is part of a 3,000-year-old historical trend in the direction and evolution of money.
It’s not a fad. But irrational investors are scooping in and treating it like the latest investing fad. They are going to get burned.
The picture is too familiar. We all saw this in 1997, people flipping penny internet stocks or any company that put the suffix “.com” at the end of their name. It was painful to watch.
Do you know why? Because I also was buying those stocks. I learned my lesson. I started my first internet company in 1995. My job: to actually convince corporations they needed websites and that I should build them.
People didn’t realize the internet was not just a fad. Companies like American Express or Time Warner actually had to be convinced to create a website. That this was the future and they needed one.
So there was value in the internet. The internet was here to stay — and it kept growing, into the mobile internet and now the “internet of things.” And it’s still growing.
But the scams got flushed out. And anyone in them went broke.
The same thing is happening here. The internet was ultimately a multitrillion-dollar opportunity. It’s clear now — and you would have been laughed at if you said this then — that many internet companies will be worth well over a trillion dollars.
Apple, Amazon, Facebook, Google, Uber and on and on.
Cryptocurrencies are not just a trillion-dollar opportunity but potentially a hundred-trillion-dollar opportunity or more.
This sounds ridiculous. Again, it sounds laughable.
But there’s simple math here. Simply ask: What is the demand for money?
The demand for money is over $150 TRILLION. That’s how much money is out there. But currency, as it stands, has many problems. If a currency or idea came along that solved these problems, then the demand for that new idea would be over $150 trillion.
We will describe why and how and what and where: But cryptocurrencies solve the problems created by “regular” currencies. To start: security, privacy, forgery, double-spending, centralized control, risks of inflation and manipulation and on and on.
But let’s start with the basics. There’s a reason I want to start writing about it. Two reasons, really. But I want to start with the negative first.
98% OF CRYPTOCURRENCIES ARE A SCAM.
Sometimes people ask me, “What do you think of ABC?” where ABC is the latest hot cryptocurrency.
I say, “It’s a scam.”
They say, “No it isn’t.”
I say, “Then why did you ask me?”
“Well, why is it a scam?”
And I break open the code and show them where in the code it looks to me like a scam. And I try to explain my philosophy of cryptocurrencies and why if something doesn’t fit into that philosophy, I’m willing to bet I can open the code and find out exactly why it’s a scam.
My original background is in programming. I wrote my first program in 1982 on an Apple II Plus. I majored in computer science, went to graduate school for it, worked as a programmer for six years and then started software companies for another 12. Even when I traded, it was often based on strategies I tested with software I wrote. And I wrote software to test the strategies.
Do I have experience with cryptocurrencies? I have never written about it before because I never believed it was important to know about how to live a good life.
But again, I see people about to lead a very bad life because of cryptos. And by the way, you can also now live an AMAZING life if you have the right knowledge of cryptocurrencies. Knowledge that I’m going to completely share here in this book as much as I can.
So what is my experience in cryptocurrencies?
In 2013, when bitcoin was a fraction of what it is now, I set up the first online bookstore that ONLY accepted bitcoin. The only book I sold there was my hit best-seller, Choose Yourself. This was about a month before I officially released it on Amazon.
CNBC had me on to talk about bitcoin.
My good friend Herb Greenberg, always a skeptic, said, “Did you just do this to get marketing?”
I said, “Where are we?” “We’re on TV. On CNBC.”
“I guess it worked.”
More recently, several months ago, I was a seed investor in a crypto-currency I felt was necessary, based on what I felt were the flaws in some of the bigger names.
That cryptocurrency went up 8,000%.
I say all this to establish credentials. We have some time still. Time to figure all this out together and make some money. But I want this section to explain how one should look at the evolution of money and why cryptocurrencies are going to be a part of it.
This will point all of us in the direction of the enormous pockets of opportunity that exist in the cryptocurrency space.
And not just by buying coins.
I want to make this nice and easy for readers. The currencies them- selves are very complicated and often difficult to understand. I can explain the philosophy enough here to help people at least avoid the scams.
But I also think people should focus on the public companies — easily traded from a Fidelity account while you sit at your kitchen table — that will benefit the most from this revolution and evolution of money.
CHAPTER 1: MONEY IS THE BUBBLE THAT NEVER POPS
I’m going to start at 60,000 feet high.
The good news is this: Cryptocurrencies are super complicated, and most people who talk about them don’t understand them at all. And en- tire books are written about them that are so unreadable and boring it’s worthless to buy them and try to understand them.
By the time you finish this book, you will have a great grasp of the way cryptocurrencies work and their potential advantages over traditional currencies.
And very importantly, you’ll have an idea of how you can start making money today with this knowledge of cryptocurrencies, even if you don’t own any cryptocurrencies and have no plans to.
Cryptocurrencies are true “choose yourself” currencies and fit the trends in every industry I’ve discussed over the years. There’s an evolu- tionary direction everything’s moving in — money is no different. I talk about this evolution in the next chapter.
Theism ➔ Humanism ➔ “Data-ism”
Take any industry: medicine, for example. If you got sick 1,000 years ago (or 5,000 years ago or 20,000 years ago), you’d pray to God (or a god) to save you from this illness inflicted upon you.
Or you’d assume you sinned and were being punished and this was why you were suffering.
That’s when medicine depended on theism, a belief that a higher power would solve our problems.
Theism gave way to humanism. We went to human experts instead of shamans or priests. He or she patted our backs until we coughed. Maybe we’d get a little hammer that would hit our knee. And the doctor would say, “Take two aspirin and call me in the morning.”
This was fine, but there were so many diseases and illnesses we couldn’t solve. And humans are ultimately flawed. George Washington died be- cause doctors thought leeches would suck the illness out of his body. And even now, 250,000 deaths from human malpractice occur each year.
Data solve much of the problem. Instead of the doctor just looking deep into your eyes with a bright light, they now send you over to get an MRI, an EEG or even a genetic test. In the near future, the doctor will feed those data into a database, and the database will then say what likely illnesses you might have, what medicines to take and what surgeries you need, and robots will be part of surgical processes. Average life spans go up every year now.
War, while not an industry, also follows this evolutionary trend.
Three thousand years ago, if two tribes or kingdoms prepared for war, they would pray to their gods. They would have festivals and sacrifices and then go to war. It was assumed that the country with the most powerful gods would win the war.
One of the most sacred texts in Hinduism, for instance, is simply about a war. Who was the winner? The side that had Krishna, the most powerful god.
In every religion, we have seen aspects of this.
Until, again, a few hundred years ago.
Bullets. And people. Humans would decide war. Whoever had more bullets and people on the ground would win the war.
But where is the war now? I will tell you. It’s being fought every day all around us. The war is being fought with data.
Every day, some country (guess who) is trying to bring down the electrical grids of Eastern European countries by hacking into their easily hacked older computers.
Again, we saw a whiff of the “data wars,” a screenshot but not more, in the U.S. election. Was the election manipulated? Were emails hacked? Of course they were. And that will never stop.
The data wars are in full force. The people reading about them in the newspapers are only reading the rough draft of history. History will eventually be written by the greatest hackers in these wars. The winners.
Money is following this evolutionary path as well. I don’t even have to fully describe it.
Take out a one dollar bill.
Look at the back:
“In God We Trust.” A leftover remnant of theism. If you can trust God, you can trust this dollar bill.
But even then, trust our Founding Father George Washington and the signature of the secretary of the Treasury. This is a contract! It’s not just a piece of paper.
But you have to trust humans to make money in its current form work. And as we will see, humans can make mistakes. And mistakes about money, made by a few humans in charge, can have disastrous consequences that can wipe out entire countries.
Data. “Cryptocurrencies” are the next generation.
Why do I put “cryptocurrencies” in quotes? Because it’s a bad word. I don’t say that Amazon is a “TCP/IP application.” Even though it is.
You don’t need to understand the deepest underpinnings of cryptocurrencies to understand why they are important, why the trend is happening and why there is a $150 trillion demand but only $200 billion in supply.
You need to understand what I talk about in this book. This will help you avoid the scams. Get started in the right places. And understand that this trend is only the beginning. No matter how late you think you are in this game, we are still only in the first inning.
But this evolutionary direction is only one aspect.
It doesn’t quite answer why cryptocurrencies exist. This boils down to a five-second history of money.
Money has been around, we’re learning, for hundreds of thousands of years. But ask 10 people on the street what money is — I guarantee you’ll get 10 different answers. (The same can be said about both bitcoin and blockchain, but we’ll get there.)
A good answer: Money is the bubble that never pops.
Or Yuval Harari’s definition, describing money as a story: “Money, in fact, is the most successful story ever invented and told by humans, be- cause it is the only story everybody believes.”
But let’s make it easy and bring it down to earth. Why do we have money in the first place?
A) As a “store of value.” You create value in your life. For instance, through savings from the hard work at a job.
Or you build a business that has value and you sell it. Or you sell a house.
You created this value and it has to be bottled up somewhere. Like a genie in a bottle. So later you can unleash the value and make all of your dreams come true.
Originally it was resources you simply had on your land. Rice. Wheat. The land itself.
Later it was metals. Gold is often talked about as a “store of value.” But it’s not. It’s a rock.
Gold has some intrinsic value. It can be used as an electric conductor, for instance. It has antibiotic properties. It probably has about $60 in intrinsic value. The rest of the value is that for millennia, people have relied on it as a store of value.
People buy necklaces or rings or other jewelry not only as ornaments but as convenient ways to travel with this store of value.
And for a long time, gold was used to back paper currency. Until everyone decided that “In God We Trust” seemed to have even more extrinsic value than the metal itself.
And bitcoin is a store of value. A great example is to see the correlation in the price of bitcoin with any government change in Argentina. Argentina is known for being a horrible country as far as how they treat their currency. They have had hyperinflation, the government has seized money directly out of bank accounts, there is a black market, there is even something called a “blue market.”
The currency is a mess. And whenever it looks uglier than usual, bitcoin spikes.
How come? Because the wealthy have gotten smarter. They know they can’t rely on their currency, or even gold, to get their wealth out of the country in an emergency. So they use bitcoin.
This is the canary in the coal mine. A clue as to what will come. Argentina, in its wretchedness, has pointed toward the future.
As our faith in humans disappears, our reliance on stable and trustworthy data will rise.
B) To pay for things. And to sell things. First there was barter. But think about the problems of this. For every two items, people had to figure out what the items were worth relative to each other.
If I had a pair of shoes and wanted an apple, how many apples would I get for a pair of shoes? But what if I had only one pair of shoes (I’m a cobbler), and I want an apple and some milk. Do I need to cut my shoes in half?
And with hundreds of possible items to barter, that’s tens of thousands of exchange rates. It’s too complicated.
Money made out of hard-to-get metal became a common store of value that can be easily traded because one side of the transaction always has the same value. So negotiation became much easier.
Again, I said, “One side of the transaction always has the same value.” But that all depends. What if supply went up and nobody told us?
Well, that’s a BIG problem cryptocurrencies solve. And we’ll get into all of the pros (and cons) of crypto in a moment.
First, here’s the evolutionary direction that everything in the world is moving in. It answers why the rise of cryptocurrencies is just an inevitable and natural evolution of money.
CHAPTER 2: WHY THE RISE OF CRYPTO IS INEVITABLE
“Bitcoin is almost to computers what quantum mechanics is to physics.”
— Naval Ravikant
I spoke about the evolutionary trend in every industry: theism (a belief that a higher power will solve our problems) to humanism (a belief that humans will solve our problems) to data-ism (a belief that data will solve our problems).
But now let’s look at the trends and problems in money. From barter to precious metals to government-controlled currencies to where we are now.
We will see that even in the history of money, and not just the evolution of every industry, the demand for a data-based currency solves critical problems that must be addressed in the decades and generations ahead.
CRYPTO IS A NATURAL EVOLUTION OF MONEY
Human error, frailty and weakness will be the downfall of traditional currency, and it has already begun. Think about it this way:
James wants to send money to Joe.
Many things have to now happen.
James tells his local bank. They tell the local reserve bank. They tell the Federal Reserve (who quietly tells the IRS). The Federal Reserve tells the central bank of Joe’s country, who then tells Joe’s local bank. And finally Joe goes to his ATM and takes out the money.
Well, let’s break down what just happened:
A) Six discrete steps occurred. There was the possibility of human error at every step. There were also transaction costs at every step. These transaction costs are the built-in inflation of a centralized banking system.
B) James and Joe lost all rights to the privacy of the value they have spent their lives creating (note: IRS or NSA or FBI or CIA or DEA or DIA). Maybe it doesn’t matter to them. But sometimes it does.
C) Not only is human error a risk, but humans controlled the value they sent. Hidden transaction costs are baked into every step of the system. And there’s also the various “black boxes” inherent in centralized banking systems:
For instance, how much new money is the Federal Reserve printing today?
We simply don’t know. They don’t tell us every way in which they create new money without permission.
Value is determined by supply and demand. What happens to the value of your hard-earned money if people you don’t know and have no faith in are completely deciding supply (and then value) without your knowledge or permission?