Answering the Most Commonly Googled Questions About Bitcoin

October 9, 2019

Covering legality, taxability, scalability, security, and volatility

Introduction

Everyone has a ton of questions about blockchain and bitcoin but now that the early market adopters have moved on to more complex ideas there’s a lack of consistent educational content that has left new comers to the industry still wondering about the simple questions. There’s an article of Anthony Pompliano answering these question in a 2018 interview and, don’t get me wrong he’s probably my favorite blockchain celebrity (after John McAfee), but his answers left a little more to be desired. My goal here is to shed some light on these questions.

1. Is Bitcoin here to stay?

Bitcoin was created in 2009 by an anonymous person(s) who went by the handle Satoshi Nakamoto. The goal was to create a supplemental economy to the existing system we have where all money is free of restrictions from borders, governments, and societies. The world has become increasingly more digital and the internet has broken down the barrier of communication between the whole world. Location no longer restricts your ability to contribute and share ideas. However humans haven’t been able to make their money flow as fluidly as their data. The institutional bonds behind fiat currencies functionally inhibit their ability to be used as transfer of values in code. Digital Assets derived from blockchain (ex: Bitcoin) are examples of “programmable money” that can be leveraged to transfer value instantly to between any two computers.

This technology is vital towards the progression of a borderless economy which is necessary for humanity to move from the industrial age into the digital age. Bitcoin isn’t going anywhere unless all corrupt governments and institutions in the world are erased.

2. Is Bitcoin a bubble?

All asset’s fundamentally appreciate in “bubble” patterns.

This pattern is what any asset that grows at an exponential rate follows. There is slow scaling growth early, then a huge up trend before coming down to a price below the “mean” as seen in the chart. Bitcoin goes up exponentially and comes down just as fast. But where it ends up has historically always been higher than where it started. Thusly, traditional economic definitions of “bubbles” are hard to apply to a decentralized asset such as Bitcoin where the strong social influence and nascent market size leads to exceptional volatility.

This means two things. One, yes Bitcoin experiences bubbles. But two, the end of a bubble phase does not mean the end of Bitcoin. Simply its return to the mean growth trendline.

3. Is Bitcoin legal?

In 2017 the SEC (Securities Exchange Commission) and the CFTC (Commodities and Futures Trading Commission) agreed that Bitcoin is a commodity. This means it’s under the same label as Gold and Oil and considered property. This removes it from pretty much all strict regulation but financial gains are still to be taxed. Bitcoin is 100% legal and appropriately regulated.

4. Is Bitcoin safe?

Bitcoin is approved by the federal government as legally acceptable and is traded actively around the world. Bitcoin has proven to be as safe, if not more safe, than the money in your bank account.

5. Can Bitcoin be hacked?

The Bitcoin network has never been hacked. Exchanges and Wallets can have flaws in their systems, but as long as you stay with a regulated platform like Coinbase or Gemini then your money is insured up to $250,000 just like your bank account.

6. Can Bitcoin be traced?

The short answer is yes. Bitcoin is what you call “pseudo-anonymous”. The transactions themselves are on a public transparent ledger and so through deep analytics origins of the transaction can be identified. However, the most traceable action is either buying or selling bitcoin for fiat. There are ways to make your transactions even more private, like switching to an alternative anonymous currency. However, if you’re committing high ticket crimes using Bitcoin, you will get caught. Thusly, criminals around the world still use the US Dollar as their go-to currency.

7. Can Bitcoin crash?

In this case I don’t think I could answer this better than Pompliano did. Since he is the founding partner at Morgan Creek Digital Assets, a leading Bitcoin fund, his explanation hits the nail on the head.

Definitely. “Bitcoin’s favorite thing is to run up really fast and then crash really hard. The only people who actually care about that are all the people who are speculating on it but for all the people who actually understand the technology and really believe in the difference and kind of change that Bitcoin can bring they don’t get phased when it crashes.”

8. Can Bitcoin be shut down?

No country that has tried to ban Bitcoin has done so successfully. China, which initiated a ban several months ago, has actually been home to some of the highest Bitcoin network activity in the world. To kill Bitcoin you have to kill the internet and the idea itself. Ironically, the harder one might try to ban Bitcoin, the stronger the argument to support it becomes.

9. Is Bitcoin taxable?

Anytime Bitcoin is traded on an exchange for USD then that is considered a taxable event. Exchanges have tried to limit the amount of data the share with the IRS, but if you’ve made a lot of money through Bitcoin they will likely come knocking one day. If you only hold a little bit, just mess around, or use it to buy anything, you have a solid chance of flying under the radar. To be safe always try to keep record of, atleast, all profitable transactions.

10. Can Bitcoin hit 100k?

I recently wrote an article on the Bitcoin Halving and how this event historically causes a sizeable increase in price due by reducing the amount of supply available to the market. You can read more here, but to answer the question, yes I believe Bitcoin can hit $100k and beyond. The answer of when, is a matter of time. As supply reduces overtime the demand will remain constant or increase and cause increases in valuation for the Bitcoin network as a whole.

Thanks for reading and hope you learned something. I am currently a CoFounder at KoinStreet, we are launching a biweekly newsletter next month so head over to our site or our telegram to keep up to date and learn more. Appreciate the support so far, I’ll continue writing weekly articles to try to shed light on the complex topics that are Blockchain, Bitcoin, and Digital Assets.

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