Part 2, The five principles of Bitcoin. What to do and what not to do.
I collected five principles for everyone using Bitcoin, for beginners as well as experts. You may recognise them as memes you've heard
before. I chose memes as they are easy to remember. There are more principles that are helpful, however these five are the most important
ones.
1. Bitcoin, not crypto. The vision of Bitcoin is to be the best money there can be. This is achieved through focus on decentralisation.
Without decentralization, someone could change the rules, make more Bitcoins out of nothing, redistribute other people's Bitcoins. All the
other "cryptos" have a centralized team of people who determine the rules. There have been attempts in the past to change the rules of
Bitcoin, and they failed. Changes in Bitcoin take many years to succeed and are more like optimizations than rule changes.
Several years after the Bitcoin started, other project types came in waves. There was an altcoin phase, after that a DAOs phase, and now
NFTs are everywhere. Many of these are just scams. Some may have interesting technological properties or have a narrow specialised uses.
However, if you want to spend money on them, you're just gambling.
2. Not your keys, not your coins. The Bitcoin balances are controlled by cryptographic signatures. This is what Bitcoin, is, a collection
of crypographic signatures. In order to transfer Bitcoin, you need to perform this cryptographic signature and for that you need to have
piece of data called "private key". In other words, having the private key, means, having Bitcoin. If you use a custodial service for
handling your Bitcoin, like a bank or another service provider, it's, they, that have Bitcoins, not you. You're degrading your relationship
with Bitcoin by relying on others to take care of your Bitcoins for you. This is exactly the problem that Bitcoin allows you to avoid. The
custodian can make up all kinds of excuses to deny you control of Bitcoins they hold for you. Many don't even allow you to withdraw or send
Bitcoins on your behalf. Even worse, they may run away with them, or lose them.
With Bitcoin, you can self-custody. This requires some learning and some practice, but you can't get the full benefits without self-
custody. You need to keep your private key, private. Anyone who sees it can take your Bitcoins. If you show it to somebody, they are gone.
The private key needs to be protected against thieves, but also against damage. If the private key is damaged and it's the only copy, the
Bitcoins are gone. Many people have suffered losses by not taking proper care of their private keys, and probably many still will.
In a later video, I will teach you how to properly self-custody.
3. Stacking sats. An easy way to get accustomed to Bitcoin is to accumulate Bitcoin periodically for the long run, commonly known as
"Dollar Cost Averaging". Pick an amount that you feel comfortable with putting aside, such as a hundred dollars a month. Then, every month,
preferably on the same day, buy one hundred dollars' worth of Bitcoin, or Satoshis (sats). Satoshi is the base unit of Bitcoin. there are
one hundred million Satoshis in one Bitcoin. People often DCA once a month or once a week.
The advantages of this approach are that it's repetitive, so you'll learn it by practice. It's simple, so you don't need to perform a lot
of mental work. It doesn't depend on the market conditions, so you don't need to worry about understanding them. It doesn't depend on
having trading experience, so you won't be influenced by psychology. It is working in small steps, so if you make a mistake (and this can
happen for beginners), your losses will be small.
Don't daytrade, or suddenly put huge mounts of money into Bitcoin. You don't understand how trading works, you'll lose money.
4. HODL. Selling your Bitcoins has a broad range of disadvantages.
The price of Bitcoin often moves very quickly. Inexperienced people may panic sell and make a loss.
In many countries, selling can incur taxes. You may need to record your exact trading history for accurate reporting. In extreme cases, you
may still owe taxes even if you make a financial loss!
According to a recent news report, 69 year old Esther Freeman decided to sell some of her Bitcoins. Her bank, however, refused to allow her
to deposit the 900000 shekels from the sale, citing risks of money laundering and terror financing. Mrs. Freeman had to sue the bank in the
court. In the meantime, she has 900000 virtual shekels she can't use, i.e., nothing.
Don't end up like Mrs. Freeman. Try to avoid selling your Bitcoins, unless there is an emergency. The most advanced way to avoid this is to
take out a loan, using Bitcoin as a collateral. There are specialised lending services, but traditional banks are starting to provide such
services as well. However, doing this requires some level of financial experience, so I can't automatically recommend it to everyone.
Another option is just to do nothing. This is very easy.
Supposing you really do have some emergency expenses, you could also try to pay directly in Bitcoin, avoiding dealing with exchanges and
banks. You could also try to sell only the minimum necessary amount. Smaller amounts are less likely to cause problems and losses are less
painful.
5. Don't trust, verify. Even if you have a private key, that alone doesn't tell you how many Bitcoins you have. For this you need to
connect to a node and request information. But the node could lie to you. If you don't know how many Bitcoins you have at each moment, you
can be a victim of fraud.
Luckily, operating a node can be done cheaply. If you run a node, you have your own auditor to make sure you're getting the correct
information. It probably isn't necessary that every single person runs one, but maybe you have a couple of friends or family members that
do.
If you want to run your own node, you should have a dedicated computer for this that can operate 24 7. It doesn't need to be an expensive
computer, about 300 dollars is probably enough, but it should be energy efficient and have a reliable internet connection.
Summary.
One, Bitcoin, not crypto. Two, Not your keys, not your coins. Three, Stacking sats. Four, HODL. Five, Don't trust, verify.