Bitcoin & Talking Through Your Hat

By Hayhoe Team
March 1, 2018

Have you ever been in a conversation when someone starts talking about something and it quickly becomes clear that they really don’t know what they are talking about? The more they talk the less you understand and the clearer it becomes they really don’t know what they are talking about. “Talking through your hat” is an old English expression for this phenomenon. It is talking about something without understanding what you are talking about.

Of all the things this is applicable too I have to say the Bitcoin takes the cake. Just ask your neighbour or colleague at work what Bitcoin is and sit back and listen to their muffled response. If you happen to come across someone who has invested in Bitcoin, ask them to explain what it is they own. No one seems to be able to clearly explain what it is. Is it money? Digital gold? A new form of currency? On top of that, it introduces a whole new lexicon to our vocabulary; words like blockchain, cryptography, distributed ledger, mining (how exactly do you mine a computer?).

 

So, what exactly is Bitcoin?

If you look it up on Wikipedia (where I start almost all my searches) it states: “Bitcoin is a cryptocurrency and worldwide payment system”. Hmmm. Helpful? Not really. Over at Bitcoin.org (the official site for Bitcoin) it states that “Bitcoin is an innovative payment network and a new kind of money.” Maybe a little more helpful but a new form of money? Really, who created this money? My computer? Someone else’s computer? Some guy named “Satoshi Nakamoto”? And if he did, what’s stopping his brother from creating a competing “form of money?” Who “backs” this money? Where does this money come from? This is just creating more questions than answers.

Long story short, to really understand Bitcoin you must be willing to do a deep dive on what money is and what gives it value. There are some excellent tutorials on the internet and YouTube, but be warned, you will need to read/watch them multiple times to let it sink in, and even then, it will take most of us many hours of percolation before it starts to become clear.

I am not even going to try to attempt to give my own brief definition or explain it here in a few sentences. I will say that the Bitcoin.org definition “Bitcoin is an innovative payment network and a new kind of money” is a reasonable definition but it is only the tip of the iceberg. You need to understand what money is and why it has value before you can decide for yourself if Bitcoin really is a “new form of money”. Einstein was known to have said, “If you can’t explain it simply, you don’t understand it well enough”. I wonder how he would have explained Bitcoin?

Mike Hayhoe, Senior Investment Advisor
Mandeville Private Client Inc – Hayhoe Team

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