BTC Sessions - Bitcoin VS Altcoins: Exploring Monetary Policy EP014

Episode Date: February 5, 2020

What is Bitcoin’s monetary policy? How many Bitcoins will ever be issued? How often are new ones created? Who gets them? More importantly, is this the same for altcoins? If not, how do they hold up against Bitcoin? In today’s show I explore these topics and give you a number of questions you should ask yourself any time you look at an altcoin and think it’s a “good deal”. SUPPORT THE SHOW: Visit LEDN to check out getting a bitcoin-backed loan https://platform.ledn.io/join/0a00cca3dd61dea5909c95cd41f41685 Get Wasabi wallet and enjoy your privacy https://wasabiwallet.io/ Wasabi Tutorial https://www.youtube.com/watch?v=ECQHAzSckK0 Check out Rise Wallet – the easiest way to onboard your pre-coiner friends to Bitcoin! https://www.risewallet.com/ Rise tutorial https://www.youtube.com/watch?v=X2VUjj6wPM0 Get NORDVPN to protect your online privacy. 75% off a 3 year https://nordvpn.org/btcsessions Check out my website for private bookings: http://btcsessions.ca/ Looking for an audio-only version of the show? https://anchor.fm/btcsessions Join my Telegram channel! https://t.me/btc_sessions If you value my work and would like to send me a tip, they are always appreciated! LIGHTNING tips: https://tippin.me/@BTCsessions

Wasabi wallet. I'm fairly private. What's up everyone? I'm Ben with the BTC Sessions and today we're going to take a look at Bitcoin versus Altcoins when it comes to monetary policy. Before we jump in of course, shout out to sponsors of the show, leaden.io. This is where you can use your Bitcoin for a variety of different services. They've got their Bitcoin savings account where you can earn Bitcoin on your Bitcoin. Bitcoin paid in Bitcoin. They've got their Bitcoin back loans. This is where you can use your

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If you want to check them out, head over to rise wallet.com and click on locations to see where you can grab one. They're currently only in Canada, but keep an eye on them because they're looking at expanding. And with that, let's dive into the show. So as I said before, this episode is about monetary policy when it comes to Bitcoin versus altcoins. Now this is largely targeted at newcomers to Bitcoin and the cryptocurrency space. Now a lot of people end up here because they start curiously asking about money itself.

Or maybe they heard about Bitcoin and that led them to ask about what is money and what gives money value. And that probably took a lot of people down a rabbit hole of realizing that fiat currencies, as we know them today, Canadian dollars, US dollars, the euro, the British pound, all of that is essentially created by central banks that there's really no oversight on. They just run the printing presses, they print unprecedented amounts of money to bail out banks when they over-leverage themselves and thus inflate the base. currency which tanks the purchasing power of your savings and so Bitcoin was

largely created as an opt-out of this system. The problem with it is that a lot of people come into the space seeing what Bitcoin was created for and they place those qualities on every cryptocurrency out there and so they'll make the mistake of thinking well because Bitcoin has a sound monetary policy and was created as an opt-out of traditional fiat currencies that are just printed like nothing else, that must mean that all cryptocurrencies are a hedge against this central bank behavior. But that is largely not the case. So we're going to dive into three key points that I want you to start asking whenever you're looking at coins other than Bitcoin.

So number one, let's talk about the supply cap. If you're unfamiliar, Bitcoin has a cap on the total number of coins that will ever be created. And that number is 21 million. There are 21 million Bitcoin that will ever be created. And there's really not any way to change that other than if every single person using Bitcoin thought it was a good idea. Which odds are, that's not going to be the case. And so each Bitcoin can be subdivided. you can have a fraction of a Bitcoin. In fact, Bitcoin can be subdivided up to eight decimal

points, but when you're looking at total Bitcoin, 21 million Bitcoin, that is the cap. But what about other coins? Do they all have caps on the number that will ever be issued? Well, the answer is by and large, no. Of course, there are some coins that do have a stated cap on the number of coins that will be created. But even when you start looking down the list of high up on the list cryptocurrencies, ones that have large market caps, even in the current number two spot, Ethereum has no clear cap on the number of coins that will be created. In fact, it was originally thought that Ethereum was going to have a total cap of around 100 million coins. However, that number has long been surpassed. You can look at something.

like XRP and currently there's a cap or not a cap but currently there's a circulating supply of 43 billion units roughly and so a lot of people get into the habit of thinking well bitcoin is at this current price whatever it may be at the time you're watching this video and this other coin is at a price that is far lower thus this coin is a good deal because it's cheaper But you have to keep in mind that the total number of units on the market or that will be created has an impact on the price of that coin. Not to mention this demand for that coin also. So the supply and the demand are both factors.

Even if something like XRP where there's 43 billion on the market had an equal demand to that of Bitcoin, which at the time we're recording this video, there's about 18,000. million currently circulating because the supply is so inflated with XRP, that means that a far lower price point would have a same market cap or a same number of dollars across the ecosystem. So let's say, let's say just to set an easy number, let's say people had $100 billion each that they were willing to invest into Bitcoin and into XRP. With Bitcoin, there's only 18 million units currently on the market. That $100 billion means that the per unit price is going to be quite a bit higher than XRP

that currently has 43 billion units on the market. So supply cap and circulating supply are very important when you're looking at the value of a cryptocurrency. Now, number two, I want you to always think about issuance. How is the coin issued? How is it brought into existence and brought out onto the market? So with Bitcoin, it utilizes something called proof of work. And this is where you or anyone can volunteer computing power. It has become very specialized and competitive at this point, but you can utilize computing power to help secure the network and have a chance of being rewarded with newly created Bitcoin. Now, in doing so, there is a cost of

to this. You have to, of course, have your infrastructure, your actual hardware that you purchase, but also you have to worry about power consumption. If you're more, if you're able to find efficient power sources, then that could put you at an advantage. But more or less, everybody has the same shot to put forth their work and their time and their power expended energy to try and capture some of the newly issued coins. Now, the way that Bitcoin, uh, monetary policy was structured is that in the beginning in 2009 when it started every 10 minutes the miners that volunteered the computing power to help secure the network had the chance of winning a new block of coins every 10 minutes and the new block would contain 50 newly issued Bitcoin.

That went on for four years and every four years coded into the base rules of Bitcoin. that number would be cut in half. So for four years, every 10 minutes, 50 new coins were issued. In 2012, near the end of the year 2012, that supply of new coins, newly issued coins, got cut in half to 25. It happened again in 2016, it got cut to 12.5 Bitcoin. And in May of 2020, the new issued coins will once again be cut in half. So that means as of May of 2020,

every 10 minutes, 6.25 new Bitcoin will be created. That number will continue to be cut in half every four years until it can no longer be cut in half, until it gets down to the absolute tiniest piece of a Bitcoin called a Satoshi. Once the reward every 10 minutes is down to one Satoshi, and it goes to be cut in half again, it can be cut in half. And so at that point, there will be no more Bitcoin created. leaving us with a total amount of 21 million Bitcoin, or just under 21 million Bitcoin, ever created.

So what about other coins? How are they issued? Well, in the worst of the worst, I would say you could go with a 100% pre-mine. Now, what is a pre-mine? A pre-mine is where the person or people that created the cryptocurrency essentially created, all units of the currency right off the bat with no chance for anyone else to obtain them through fair means and then just sell that coin onto the open market. This was the case with XRP or at the time was referred to as Ripple. A company called Ripple Labs did a 100% pre-mine for, get this, 100 billion units. Now if you were paying attention earlier when I was

talking about the supply cap and the circulating supply, I said 43 billion. So what's up with the discrepancy there? Well, Ripple Labs created 100 billion units and they've been regularly dumping them on the market and selling them to retail purchasers. So at current time, they've sold around 43 billion units, but they're still sitting on 57 billion units of XRP that are just being, that are just waiting to be dumped on the market at regular intervals, which with the inflated supply and probably not as much demand as they would like, the price of XRP can be largely impacted when they are trying to sell large chunks of XRP and there is not any demand to meet it. So, important to pay attention to the issuance. Also, if you go to a website called Coin Market

Cap, one of the more popular websites that people tend to add up on when they're looking at the top cryptocurrencies. It's good to look at the column that reads circulating supply. And if you go down, there will be some asterisks beside some of the circulating supplies of these coins. And what that denotes is that the coin is not minable, which means that you cannot volunteer computing power to secure the network and thus possibly get some of the newly minted supply over time. And so what that means is either it was created by a centralized entity like XRP or it relies on something called proof of stake.

So what proof of stake in comparison to proof of work is. So proof of work with Bitcoin, as I said, everyone has an equal shot as long as they expend their energy and their time and their effort and their computing power to secure the network, they have an equal shot of obtaining some of the newly minted coins. With proof of stake, it actually works that those with money get money. So the rich get richer. So more or less, what happens is if you have that particular coin, you can do something called staking where you lock up that coin and you get paid out dividends of newly created coins.

Now, if you have lots of money, then this is great for you. If you have very little money, it's going to be very difficult for you to catch up. This largely favors early birds into the cryptocurrency. So if somebody was around years ago when any of these proof of stake coins were created, they might have a larger nest egg of this particular coin. So they can stake much more than any regular retail investor could. And thus, they will always outpace the game. of a regular retail investor. It also largely favors corporations like exchanges that

hold large amounts of this coin on behalf of other people. Even if they pay part of the staking out to their users, they're likely taking a cut and thus getting a large portion of the newly minted coins. And so inherently, proof of stake is much less fair than proof of work where everybody is at a level playing field the whole time, whereas proof of stake, if you got money, you get money. Number three, largely just alludes to the previous two, the supply cap and the issuance that I referred to, but how much can you bank on those rules being upheld? In other words, are the underlying rules malleable? Can you change them? Because it's great to say if there's a cap on the supply and you know what the issuance is going to be and it seems

to be fair, but what if that can be changed? Can it? Well, Bitcoin has successfully maintained its monetary policy since its Genesis in January 3rd of 2009. It has not been changed. There's been no real effort to change it, nor has there been any way that somebody could have easily done that. As we've seen with the difficulty to change the base rules of Bitcoin, there's been plenty of Bickering around ways to scale the system, but it does very much contribute to the certainty everyone has around the monetary policy of Bitcoin, which I believe is one of its biggest strengths and kind of the point for it being, even being created in the first place. Now, let's take the example of Ethereum. As I said before, the market cap of Ethereum or the number of the

the cap on issued coins was originally thought to be 100 million. Since then it has over surpassed that by by millions of coins. So what's up there? The reason for that is originally Ethereum was planning on going from proof of work, meaning it could be mined, and transitioning to something which I just told you about called proof of stake, where if you have Ethereum, you can get new Ethereum as well. However, they keep on putting on putting it off and they keep on also changing the number of Ethereum that are issued every block. It used to be three Ethereum per block or three eth per block. It got reduced to two eth per block. But it wasn't so much changed by a consensus of the crowd but rather a dictation

of a group of people called the Ethereum Foundation which is largely seen as a governing body. So they dictated that, well, it would be better if we reduced the supply of Ethereum coming into the market. And once they released that code, it was just sweepingly upgraded across the network to those changes. Now, that may sound good. Yes, okay, they reduced the supply of new coins coming onto the market. Isn't that a good thing? Well, sure. But what happens when they want to change the other direction?

It was very easily changed this time around and the Ethereum Foundation seems to have quite a bit of say in how Ethereum functions. And they have also put off proof of stake. And so even if they were to change from proof of work to proof of stake, it does speak to the fact that the monetary policy of Ethereum is very much in the air and very malleable. It can be changed like that. So how certain are you of the monetary policy of the coin you're looking at? So it's and it can vary quite a bit, but I haven't seen any that are quite as certain as Bitcoin. Now, if the monetary policy of a coin you're looking at has not been changed, you also need to ask yourself, have any of the fundamental rules governing the coin been changed ever?

especially in a non-backwards-compatible way. A backwards-compatible change to the rule set means that it's opt-in. And so something like the supply of coins can't be changed with an opt-in change in that way. It has to be a non-backwards-compatible change to the code. So that's known as a hard fork. So it's always good to ask, has my coin ever undergone hard forks? And does it undergo hard forks regularly? Something like Ethereum, something like Bitcoin Cash, and there's plenty of others, dash, lots of different coins,

undergo hard forks regularly, which could be seen as a lack of conviction when it comes to the underlying rules. And thus it could denote a possibility of changing the underlying monetary policy. on a whim. And finally, out of all of this in regards to the malleability, is it easy for you, I'm looking at you, you as an individual to actually run the code yourself, to run the software, and partake in the rule set and actually dictate what rules you want to follow. So with Bitcoin, this is known as running a node. It's as simple as downloading, a program called Bitcoin Core. There are also other implementations of it. Or there's lots of other services where you can actually order specialized equipment for about 100 bucks or less, or sometimes

a little bit more if it's a fancy one. But you can run your own node quite easily. And that means that you agree to the rules of the network and that if somebody tries to change them on you, you can opt out of that. You can say absolutely not. I'm going to run the program as is. And if you try to change the monetary policy, create more coins than originally were planned, while I'm going to ignore those changes. And if that is accessible to anybody, if it's easy to run a node, then it is much less likely that the monetary policy will be changed in the future. This is very much the case with Bitcoin. It remains incredibly easy to run a node if you choose to. run a couple myself and you can easily run it on a laptop with enough space or on a little

Raspberry Pi computer a dedicated box you can run it in many different ways not everybody has to run a node but it's important that it's accessible with things like Ethereum things like XRP it is exceedingly difficult to run a node and dictate what the rules are going to be for yourself and thus you can be coerced into following whatever central figures decide to change those rules including monetary policy so i'm going to wrap up there guys i hope you have found this informative again it is very important to recognize that just because bitcoin was created as an answer to poor central bank policies does not mean that other cryptocurrencies will also follow suit so Stay sharp, ask good questions, and I will see you next time for your daily session.

Now, of course, always please do hit like, subscribe, and share if you're watching this on YouTube. Or if you're listening on the podcast, of course, share that on your social media. It will be great to get more people listening there. You can help out the show in another way by hitting up the sponsors in the show notes below. That was leaden and rise wallet, as well as Wasabi Wallet. check them out, wasabi wallet.io, to get some more privacy on your Bitcoin. And finally, you can elbow the show by checking out NordVPN. This is a service.

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Have a wonderful evening, and I will see you next time for your daily session.