Peter Šurda e23582d3f5
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2021-12-24 14:11:18 +08:00

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Part 2, The five principles of Bitcoin.
What to do and what not to do.
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I collected five principles for everyone using Bitcoin, for beginners as well
as experts. You may recognise them as memes you've heard
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before. I chose memes
as they are easy to remember. There are more principles that are helpful,
however these five are the most important
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1. Bitcoin, not crypto.
The vision of Bitcoin is to be the best money there can be. This is achieved
through focus on decentralisation.
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Without decentralization, someone could
change the rules, make more Bitcoins out of nothing, redistribute other
people's Bitcoins. All the
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other "cryptos" have a centralized team of people
who determine the rules. There have been attempts in the past to change the
rules of
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Bitcoin, and they failed. Changes in Bitcoin take many years to
succeed and are more like optimizations than rule changes.
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Several years after the Bitcoin started, other project types came in waves.
There was an altcoin phase, after that a DAOs phase, and now
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NFTs are
everywhere. Many of these are just scams. Some may have interesting
technological properties or have a narrow specialised uses.
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However, if you
want to spend money on them, you're just gambling.
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2. Not your keys, not your coins.
The Bitcoin balances are controlled by cryptographic signatures. This is what
Bitcoin, is, a collection
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of crypographic signatures. In order to transfer
Bitcoin, you need to perform this cryptographic signature and for that you need
to have
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piece of data called "private key". In other words, having the private
key, means, having Bitcoin. If you use a custodial service for
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handling your
Bitcoin, like a bank or another service provider, it's, they, that have
Bitcoins, not you. You're degrading your relationship
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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
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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
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Bitcoins on your behalf. Even worse, they may run
away with them, or lose them.
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With Bitcoin, you can self-custody. This requires some learning and some
practice, but you can't get the full benefits without self-
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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.
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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
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Bitcoins are gone. Many people have suffered losses by
not taking proper care of their private keys, and probably many still will.
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In a later video, I will teach you how to properly self-custody.
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3. Stacking sats.
An easy way to get accustomed to Bitcoin is to accumulate Bitcoin
periodically for the long run, commonly known as
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"Dollar Cost Averaging". Pick
an amount that you feel comfortable with putting aside, such as a hundred
dollars a month. Then, every month,
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preferably on the same day, buy one hundred
dollars' worth of Bitcoin, or Satoshis (sats). Satoshi is the base unit of
Bitcoin. there are
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one hundred million Satoshis in one Bitcoin. People often
DCA once a month or once a week.
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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
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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
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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
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happen for beginners), your losses will be small.
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Don't daytrade, or suddenly put huge mounts of money into Bitcoin. You don't
understand how trading works, you'll lose money.
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4. HODL.
Selling your Bitcoins has a broad range of disadvantages.
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The price of Bitcoin often moves very quickly. Inexperienced people may panic
sell and make a loss.
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In many countries, selling can incur taxes. You may need to record your exact
trading history for accurate reporting. In extreme cases, you
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may still owe
taxes even if you make a financial loss!
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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
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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
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court. In the meantime, she
has 900000 virtual shekels she can't use, i.e., nothing.
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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
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take out a
loan, using Bitcoin as a collateral. There are specialised lending services, but
traditional banks are starting to provide such
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services as well. However, doing
this requires some level of financial experience, so I can't automatically
recommend it to everyone.
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Another option is just to do nothing. This is very easy.
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Supposing you really do have some emergency expenses, you could also try to pay
directly in Bitcoin, avoiding dealing with exchanges and
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banks. You could also
try to sell only the minimum necessary amount. Smaller amounts are less likely
to cause problems and losses are less
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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
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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
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can be a victim of fraud.
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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
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information. It probably
isn't necessary that every single person runs one, but maybe you have a couple
of friends or family members that
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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
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computer, about 300
dollars is probably enough, but it should be energy efficient and have a
reliable internet connection.
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One, Bitcoin, not crypto.
Two, Not your keys, not your coins.
Three, Stacking sats.
Four, HODL.
Five, Don't trust, verify.