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The $1,000,000 Schrodinger’s Cat

HODL

Today, I am going to talk about Hodling.  A while back, some drunk dude in the bitcoin community typed HODL instead of Hold and now it has become crypto-parlance for holding bitcoin.  We say it stands for  Hold On for Dear Life.  This is because Bitcoin has more swings than a schoolyard.  It is highly volatile. I have seen the price drop in half at least three times since I’ve Hodled, but I took these lumps like a Stoic philosopher standing under a tree of well-fed pigeons. It’s been a proverbial roller coaster.

                I first heard about the technology in 2014 in an episode off the Joe Rogan Experience. The idea I found most intriguing was that the bitcoin inflation rate is scheduled in advance, unlike the whimsical monetary policies of Central banks.  There amount of new Bitcoin gets cut in half about every four years. Of course, it took me a good six months of research before I mustered enough courage to buy any.  I asked about it on Twitter and someone gave me a small amount, about $1.50 worth using a twitter app named Change Tip. That app  doesn’t exist anymore, but if you are one of the first ten people to share this blog using the hash tag #minimalstructure, I will send you 28,882  satoshis on the lightning network. Just send me an invoice. I’ll explain how to do that in another blog if you would like.  The short answer is use Blue Wallet

When I first heard it, bitcoin was less than $200 and down from an all time high of $1,300. If you would have bought some at the height of the market, your investment would have been down about 90% percent by 2014. This didn’t discourage me.  If you had Hodled, your BTC would be worth 4X that initial investment assuming you didn’t put anymore money into it while it was cheaper.  If you had held onto it until December of 2017, everybody including your long-lost dear aunt Sally who has never even sent an email would have told you to “Sell! Sell! Sell”

It went all the way from around $20,000 to $3,000 and it’s $5,000 today.  It jumped about 17% the last time I looked.  So you might be asking yourself, what the hell is wrong with this guy?  Is he  more Loco than El Pollo?  I thought bitcoin was dead again. What’s going on here?

                Well, if you look at the worst-case scenario where someone invests in December of 2017 and holds onto it all the way until last month, you are selecting for the worst-case scenarios, which is aweful, but If you started investing in 2015, you are up about 20X.  There is another financial blogger who I love and respect that talks bout once getting $300% returns because he got lucky.  This is 2000% return, and for the record, I am not a millionaire.  If it makes you feel better, I made less than $8,000 in 2017, so it’s not like I had a lot off capital to throw into bitcoin. Even If I had a lot more, I wouldn’t have gone all-in anyway.  I also listened to an podcast about bitcoin in 2015 called EconTalk, an economics podcast hosted by Russ Roberts, professor of Economics at George Mason University.  It’s a great podcast with a wide range of past guests that include Milton Friedman, Charlie Munger (Warren Buffet’s partner) and Thomas Piketty.  I like the show because even though Roberts is biased, he is willing to talk to a wide range of guests.  He even had Gavin Andreasen back in the day when it just $1.00, but I was not lucky enough to listen to the show back then.

                In 2015, he had Wences Casares, CEO of Xapos, on the how. Casares talked about growing up in Argentina a country wrecked by hyperinflation while he was a child. He told a gut-wrenching story about having to run around the grocery isles to try and beat the price labeler to the punch so they could buy their food before the prices went up again.  We don’t really think about this type of stuff in the United States because this country has never experienced hyperinflation.   This clearly illustrates why he is so biased to believe that the technology is so powerful.

The Bitcoin Inflation Schedule

                Bitcoin is designed to eventually be neither inflationary or deflationary.  At first it is inflationary. It started out by increasing at a rate of 50 new Bitcoin issued every ten minutes until the first having after 4 years.  Then it decreased to a rate of 25 new Bitcoin every ten minutes.  In 2015, it decreased to 12.5 new bitcoin every ten minutes.  In 410 days from 4-8-2019 (the date I published this)  the rewards will decrease to 6.25 new bitcoin every ten minutes.  4 Years after that, it reduces to 3.125 every ten minutes.

This is technically inflation, but in about two years the rate of inflation will be less than that of the inflation of the US dollar. Eventually there will only be 21,000,000 Bitcoin.  Technically it’s slightly less, but we all say 21M just for simplicity.  Those 21 million can be divided by 100 million individual units called satoshis.  In other words, there will be 2,100,000,000,000,000 individual units for circa 8 billion people in the world.  At this point, more Bitcoin will be destroyed and no more will be created.  Miners will be paid by fees. Technically there will be some lost coins and forks that may be considered inflation or deflation, but the protocol that everyone deems as Bitcoin has not inflation after that. 

“ Eventually at most only 21 million coins for 6.8 billion people in the world if it gets really huge.  But don’t worry, there are another 6 decimal places that aren’t shown for a total of 8 decimal places internally. It shows 1.0 but internally it’s 1000000000.  If there is more inflation in the future, the software can show more decimal places.” Satoshi Nakamoto, creator of bitcoin. Here’s how bitcoin’s inflation works until 2022:


I didn’t add every halve-ning to this table. Basically, It gets halved every 4 years. Do the rest of the math yourself, don’t  just take my word for it. That’s the beauty of it, you don’t need to trust anybody!

                So, if I had to explain Bitcoin in one paragraph I would put it like this: Bitcoin is an experiment in one where the unit of account is verified by cryptographic signatures on an individual level and a cryptographic hash on the group level. This cryptographic hash time stamps a public ledger that needs no trusted third party or central bank because everyone knows how much Bitcoin has been spent. And how much will be released today, 4 years from now, and 140 years from now. The collective is rewarded with new Bitcoin and mining fees for time stamping this ledger.

In other words, everyone is incentivized to hide their keys and miners are incentivized to keep the public ledger verified every ten minutes.

$1,000,000 Schrodinger’s Cat

In that episode of EconTalk, Wences Casares said he believed that there is about a 50% chance that bitcoin will fail, but there is also a 50% chance that it will succeed and be worth $1,000,000 within the next 15 to 20 years.  Using this framework, I like to compare Bitcoin to Schrodinger’s cat, only this cat is worth $1,000,000 and it stuck in the box for 15-20 years.  It is both dead and alive at the same time, just waiting for an observer to set off the device that either kills the cat or lets it live based on where the proton is at the time of the observation. If we see the proton ends up on the poison gas side, Bitcoin dies.  On the other hand, if the proton does not set off the poisonous gas, one Bitcoin will be worth a million dollars. **

Casares admits that he is super biased, and no one can really foretell the future, but his early childhood experiences clearly have colored his Bitcoin colored lenses.   The world is full of examples where a national currency has failed. We have all heard stories of Zimbabwe, Argentina, Germany after world War 1 where hyperinflation became the sad, scary reality of those nation that printed too much money and were unable to pay it back.  We have recently seen issues with Brexit, protests of austerity in in Greece, and dangerous hyperinflation in countries like Venezuela. Since these are international events, they undoubtedly create political divides, but one thing is clear—These things keep happening again and again. It would be silly to think that every currency in the world will not never have these issues again. Even though most of the world is not in hyperinflation, many countries have currencies that are experiencing 10-20% inflation and most of the world has no access to any banking system. 

I really do not know what bitcoin will be worth in 20 years, but Casares suggest putting no more than 1% of your wealth into this new technology.  He reasons that most people can afford to lose 1% of their wealth.  I think this is an acceptable risk for me, so That’s what I do.  Now you see why I’m not rich, given that I make so little money.    It would clearly be a mistake to put your kids college fund into it or take out a second mortgage, but I think it’s a fine idea to risk 1% for most people as long as you are willing to lose it.  The thing is, even if it does go to a million dollars it is very easy to still lose all your Bitcoin.   If you put it in the wrong wallet, your money is gone forever and there is no customer service to help you retrieve it in bitcoin.  Think of it as digital gold that is buried and can only be recovered with a special shovel. If you lose the shovel you are screwed. No one can get it back to you.

In a way, this is Pascal’s wager for money with one subtle difference. Bitcoin works right now.  I know this because I run a node every transaction gets added to the Blockchain every ten minutes. It’s not dead yet because it still works. This is not to say it won’t be dead tomorrow or 29 years from now.  The future can not be verified, but right now, the past transactions on the Blockchain can be verified.  This is an important point—the future cannot be verified and that is why I can not say for sure that Bitcoin will be around in 100 years. There is no such thing as a sage investment.

                Index funds are the probably the best risk to reward ratio.  Bonds are kind of boring to me, but I understand their purpose.  JL Collins wrote an excellently book called the Simple Path to Wealth that describes all these financial instruments and I highly recommend it and he says nothing about bitcoin or cryptocurrency. You should read that before going deep down the rabbit hole.  He wrote about the big scary events like hyperinflation and deflation.   I just included Bitcoin as another edge versus worldwide hyperinflation.  

To me, it represents an exit plan for people in the countries with no other option, or for people that have no access to a banking system.  To me, this is more valuable than gold… It’s even more valuable than Bitcoin, but that is something you must decide for yourself.  Just make sure you realize that this is not investment advice.  As Satoshi Nakamoto and Mr. Mustache point out, bitcoin does not have a dividend or potential dividend.  Bitcoin is more of a gamble than an investment.  Actually, it’s more like a commodity such as corn or a collectible such as a baseball card, albeit one that allows you to exit the banking system if you have to.  Don’t Risk More than you can afford to lose. I look at it like a coinflip and that’s how you should look at it too. You wouldn’t want to risk your life savings on a coinflip(I hope) and you should also not risk it on a bitcoin flip.

The Cash App is my favorite place to buy it, but please don’t risk what you can’t afford to lose.

https://cash.me/app/MCLFTJTIf

If you would like to store your Bitcoin using Cold Storage, please check out Leger Nano.  https://www.ledger.com?r=6c06a57e6d68

 They are an affiliate, which means I will get paid some money if you get one using this link, but it’s an awesome product that lets avoid exchanges—You know those big news stories you hear about bitcoin getting lost or hacked?  It’s actually the exchanges that get hacked or lose their coins, it hasn’t been the protocol.  You can also store more than bitcoin on it.  Put any questions you have in the comments.

**This is not investment advice. I can’t tell the future and I don’t actually know the percentage of bitcoin going to a million dollars, but It’s an interesting experiment that works right now, even though it is volatile—Which it obviously is.

I also take lightning tips on Twitter @marcsmyname

Thanks for reading.

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Breakfast

Breakfast

I watched a Mr. Money Mustache video a few weeks ago.  He said it costs $42.00 a gallon to drive a car. I don’t trust anyone but math so I thought it would be fun to mathematically figure out my transportation costs from last year. I don’t have a Cadillac or one of those trucks compensating for a small peanut so my math is a little different.  I bought a car off of Craigslist that makes people think I have a small wallet. I also eliminated things like car crashes and the cost to my health for a sedentary lifestyle because I haven’t had an accident in years and my ADHD doesn’t allow for me to be too sedentary.  I combed through a years-worth of Personal Capital expenditures and tallied up everything that went to my family’s transportation. I counted things such as the cost of tires, gas, registration, windshield wipers, et cetera. Some of these things were spent on my wife’s Kia, but I just divided it by two as she also got tires and windshield wipers on her car.  Since her car is not as fuel efficient as mine and her tires were more expensive, the math is not perfect, but it gives me a good idea of how much I am spending when I drive.

It turns out that my little used 2012 Prius C costs about $0.25 per mile to operate.  I even included the expect to replace the $1,200 battery during the car’s lifetime.  I get 47 miles per gallon. In other words, a gallon of transportation juice actually costs a whopping 12 bucks. ($11.75 for all of you math nerds) If I drive 100 miles, that’s like literally burning $23.50.  Since we drive approximately 20,000 miles per year, we are spending $5,000 per year to drive to jobs.  It’s not $42.00 a gallon, but that’s still a lot of dough that could go a long way into baking my financial freedom.


With this car, women must look at me and say “Wow, he must be hung!”

This new mathematical revelation just gave me a huge epiphany.  The price of a widget we see on the shelf is also not the true cost of consumption.  When I go to a restaurant, they are really giving me some bullshit price to trick me into believing I am getting a better deal. The price of a meal on a menu is not really the true cost of the meal.  I had to go to northern California for a funeral this last weekend.  My aunt was generous to give us a hotel to stay in so that was covered, but we decided to go out for breakfast.  We are watching our waistlines, so we tried to eat a light breakfast. I had steel cut oats with some dehydrated fruit and my wife had a yoghurt parfait.  The steel cut oats were $8.00 and the yoghurt was $7.25. I thought we were eating a reasonably priced breakfast. Our meal should be about fifteen bucks…right? That was the quick math I did in my head anyway just like when I used to see gasoline cost 2.99 a gallon I think:  hmmm… I have a ten-gallon tank so I must be spending about thirty bucks right now—Wrong!  I’m spending $117.50 to fill my tank.

I was shocked when I signed the credit card bill to see that I had spent $30.13 on a meal that I thought was only $15.00.  Here’s the problem.  I just automatically ask for coffee because I am a caffeine junky. I never look at the price.  I just ask for some java and hope the waitress brings a syringe full of the stuff so I can get my fix as soon as possible. This hotel restraint, non-peaches and cream flavored mocha, regular drip coffee costs 4.50.    That means we spent nine bucks, on coffee that happens to be “free” if you make it in the hotel. (okay it’s included in the price of the hotel 😉) I know the old saying from Ben Franklin about death and taxes, but I rarely think about taxes.   Add another $1.88 to the bill. 

Then there’s this thing that I’ve always wondered about. Why don’t they just include the tip in the damn bill in the first place.  Why don’t we just increase the price on the menu and pay these people a decent wage for busting their ass waiting on me instead of expecting someone to be good at math and not a dead beat. I round up to 4.00 using the double the tax method and now my bill comes out to $30.13 or $15.07 per meal.  Why don’t they just list this price on the menu?  It’s because less people would spend the money when faced with the true cost.

                These FI (Financial Independence) blogs and books I’ve been reading as well as audiobooks and podcasts I’ve been listening to have got me thinking a bit differently. I suspect I might be starting to look like one of those weird people on TV like the guys who split two-ply into two rolls toilet paper or eat French fries people leave on their plates at restaurants.  I am somewhat afraid of people looking at me this way.  What if I become a social paruria?  What if people make fun of me? What if people think I’m homeless, or worse—a cheapskate!  What would my family think?  What will my wife say if I implement all these crazy ideas?  These are real fears of mine.  I’m scared of being unable to hang out with my friends at the bar when they want to meet up for a drink.  I’m afraid of being guilted into buying things… It’s such and such’s birthday, it is family, don’t you think you should spend time with your family?  You just got a new job, you deserve a new car.

Instead of buying a new car, I have resolved  to put my newfound skills into practice.  All the books and all those podcasts are useless if I don’t apply the information to my life. I wanted a peacoat because it has felt like an Alaskan winter in Southern California this year, but I winced at the prices of new coats and there are not many options in our local thrift stores.  I reasoned there would be more coats in Northern California thrift stores where the climate is cooler and the coat selection is bountiful. 

I tried on this cashmere and wool overcoat that made me feel as rich as Captain Crunch.  I looked in the mirror and the price said $50.00 because the 2 looked like a five when read backwards in the mirror. So I got this really warm coat for $20.00! 

Then I perused the appliance section. Perused actually means to read carefully, so I didn’t really peruse the appliance section, but big words make sound smart. I came across something that looked like a hot plate. I once listened to an episode of The Radical Personal Finance show on how to save money while traveling.  I found this episode completely fascinating and even took notes on it, but my wife did not find these frugal travel hacks so appealing.  Joshua Sheets had great ideas such as using a Yeti cooler to keep your food cold in a hotel without a fridge, frying an egg on a tin-foil covered iron, using a hot plate and backpack cooking gear, turn on a crockpot while site-seeing and come back to a home cooked meal.  It was time to stop wasting $30.00 on breakfast and put this information into action. I googled Hamilton Beach Hot surface and I found out that this little contraption was a breakfast sandwich maker. I also figured I could use it as a hot plate for my next trip. 

I took a trip to Safeway and found this interesting CoinStar machine.  I didn’t use it to buy bitcoin because they charge a 10% vigorish for counting change and they probably charge more for satoshis. (One bitcoin can be divided into 100,000,000 individual units. One satoshi is the smallest unit of bitcoin or 1/100,000,000 of one bitcoin) Mr. Money Mustache would not approve of such a machine, but I still love his blog.  I bought some English muffins, half a dozen eggs, and a little bit of beer and wine. For the record, the beer and wine were not part of the breakfast.

I used the cup to mix the egg whites and got some salt and pepper from an earlier trip to Wendy’s.  I’m a little worried that my wife is going to apply for me to get on a show called Extreme Cheapskates: Travel Edition, but so what? 

A couple of years ago, I started reading stoic philosophy after hearing Tim Ferris talk about it on his poddcast.  Here’s a passage that really resonated with me:

“Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with course and rough dress, saying to yourself the while: ‘Is this the condition that I feared?”—Senneca

I once dressed in a stained t-shirt and some basketball shorts and paid for a piece of bread at a grocery store using some spare change I had around the house after reading this. The cashier looked disgusted because he obviously thought I was homeless.  He didn’t want to touch my hand as I gave him the change. It was enlightening; but it was time to really put this passage into practice. What the hell did I read so many books for?  What’s the use of reading Henry David Thoreau if you are not willing to be self-reliant, build your own house, chop your own wood, and grow your own beans? What if my wife did have me go on that extreme cheapskate show?  Is this the condition that I feared?  When I got home, I applied that to more things in my life.  I realized that I was not saving as much money as I could because I was worried that people would consider me a miser. Look at all the words in the English language used to describe frugality.

 Can you believe that stingy bastard making his own breakfast in a hotel?  What kind of miser saves a buck like this? It must be St. Patrick’s day because he’s pinching that penny as if Abraham Lincoln didn’t wear green. What a tightwad! Can you believe how niggardly Scrooge MarcDuck is?

Is this the condition that I feared?  People will talk behind my back and call me names.  I will shrug. Seneca lived as a banker, playwright and advisor to the emperor.  He actually had plenty of money until Nero had him killed. Another stoic philosopher named Epictetus was born a slave and then bought his freedom. 

“Wealth consists not in having great possessions, but in having few wants.”—Epictitus.

When I got home, I started reading Early Retirement Extreme, Your Money or Your Life and finished the Simple Path to Wealth.  I decided that I wasn’t going to be afraid of what people thought of me because I have student loans to pay off.  I believe a debt should be honored and paid back, nevertheless I can’t claim bankruptcy on my student loans, which is most of my debt.  Think about what this means?   I may not exactly be a slave like Epictetus was, but having a debt that can not be forgiven is indentured servitude. 

Once I realized this, I turned off the heater and wore a sweater. I turn off the lights when I leave the room.  I wait two weeks before I do my laundry with my own laundry soap. 

I made my own Greek yoghurt.

I’ve started to consider every purchase I make. I go over my receipts and see if I could have done better. I didn’t buy that soda at Target. I use bodywash/facewash/shampoo, shave with a safety razor. Hopefully I can get my wife to cut my hair again.  I’m no cheapskate.  I am spending a lot of money on the thing I find the most valuable.  I’m buying my freedom.


I ♥ ฿⚡tips!

lnbc1pwfud3npp5r0hpn6qgvf8zxu0w0053f5sxrwz2fhs5sd6nlejgttafvueg2tpqdpu235hqurfdcsy6ctjvdek67twv9kk2gpgw35hqurfdchx6eff9p6nywpcxs5scqzysxqyz5vq3acz2zclxkyrwhgnqms0dwyfjszhrahnrf2r4h6jparzq925hzs4y2d3ycff5yq93j055tlqqewt9zefahn642n6pef4arvk03y58pqq6txfhy

bitcoin address

3B3nMuux5KMFq5KKGrdzyxKdArpUR67fEK

Note: I guess I did not include how much of a tip should be included on this menu.  I’m not sure.  My idea was to treat this blog as if I was a street performer offering entertainment. I also might try selling something to experiment with the technology. If a magazine costs about five bucks, and a blog is like an online magazine that I am giving away for free, 20% would be $1.00. At the time of this writing, $1.00=24,000 satoshis.  Hopefully it is possible to make a profit without any ads.