Thoughts On Saving Wealth & Retaining Its Value — Bitcoin A New Tool
Original Email I Sent to Family and Friends in Early 2013 About Bitcoin Still Relevant Today
Family and Friends,
I feel compelled to share a few thoughts on saving wealth and retaining its value. A topic which I’ve spent considerable time contemplating recently.
We all spend the majority of our time and energy working to earn our wealth and therefore it is wise that we spend at least a few moments here considering how we might preserve that wealth once we have earned it.
With out a long winded analysis or going into a lot of technical details I wanted to offer the strategy I’m applying to my own finances.
1. Generate wealth through my occupation.
2. Invest a portion of my wealth in a diversified stock portfolio.
3. Save a portion of my wealth in precious metals or other hard assets such as land.
Simple enough. Work, Invest, and Save.
What I want to draw your attention to today is the third category.
That is savings.
Because the truth is most of us don’t save much in the bank in cash. We do so on a rational basis because the interest rate the bank offers is lower than the inflation rate. Meaning every moment we keep our wealth in USD we lose some of its purchasing power. If for example we foolishly left $10,000 USD in a savings account for 5 years at 5% inflation rate, by the time we withdrew the money and spent it, we would have lost 25% of our money’s buying power.
The current monetary policy leaves us effectively no option to save, except gold and land but those can be complicated to buy, store and maintain in themselves. The only rational options left to us are either to spend our money immediately or invest in stock or equities that can outpace inflation.
The downside to spending all our money quickly and living on a small buffer is obvious, and the better option of investing our money while wise in the long run, also carries a downside risk of being caught on the “Bust” side of a “Boom and Bust market”. Saving a portion of our money should have a place in our financial planning.
To that point let me introduce you to Bitcoin. http://www.youtube.com/watch?v=Um63OQz3bjo&noredirect=1
I’ve been researching Bitcoins for a while and recently went deeper and evaluated a lot of the software and technology behind it. It makes a lot of sense and has a really strong technical foundation.
In simple terms Bitcoin’s are an inflation free way to save your money (because the number of bitcoins is mathematically limited to no more than 21 million http://en.wikipedia.org/wiki/File:Total_bitcoins_over_time.png ). It is based on a peer to peer network of millions of computers so you don’t have to worry about the “network” ever crashing.
*The main risk I see is political. Like anything the government can come along and say, “We Don’t Like This And Try To Shut It Down”. Though as more and more big companies like Word Press begin accepting Bitcoins and Silicon Valley investors keep investing in Bitcoin financial services like Coinbase, I see this risk becoming smaller and smaller. Word Press Announcement:http://en.blog.wordpress.com/2012/11/15/pay-another-way-bitcoin/ Coinbase Investment: https://www.privateinternetaccess.com/blog/2012/09/coinbase-first-crowd-funded-bitcoin-company-raises-over-600k/ *
I installed a Bitcoin Wallet on my computer and if you are interested in the most secure way to encrypt, store and backup your wallet I’d suggest using one of the Wallets from Bitcoin.org
I use the Bitcoin-Qt wallet, but it may be a little much for those less technical. If you want something faster I’d go with the “Electrum” wallet.
When it comes to buying or selling Bitcoins using USD from your savings account the cheapest, and easiest online way I’ve found is through https://coinbase.com (about 1% fee to buy Bitcoins and then no fees to transfer them or buy things with them)
I’d strongly encourage you to check out Bitcoins for yourself. Not just for savings, but as a more secure way to purchase things online in general. The currency has several million users already and Engine will be accepting Bitcoins come March for those that upgrade to Pro accounts. I know a lot of tech companies that are beginning to accept Bitcoins because of the zero transaction fees involved in using the currency to make purchases.
I’ve done a great deal of research on this topic and I hope you can all financially benefit from this new tool for inflation free savings and highly encrypted secure online spending.
If you have technical questions let me know I’d be happy to walk you through how to install your Bitcoin wallet or create an online account with Coinbase.
Bitcoins are currently worth around $20 USD each. I wrote this email so one day none of you could say to me, “Hey Dave why didn’t you tell us about Bitcoins years ago when they were cheap?”.
Install a wallet, encrypt it, use a really strong password (here is a good password generator http://strongpasswordgenerator.com), then buy Bitcoins on Coinbase.com and transfer them to your wallet. Save them or spend them its up to you from there.
And for goodness sake, back up your computer and store your password somewhere you can find it!
Consider this your fair warning. The Bitcoins are coming.
David A. Johnston