Thread by @panekkkk

This thread is my attempt to explain the value proposition of crypto assets ("crypto") like bitcoin ($BTC) and ethereum ($ETH) to newcomers like you.

I've seen many attempts but most fall short for a variety of reasons.

Let's see if we can fix that. 👇

First, know that this thread only scratches the surface.

It will take weeks or months of research before things really click.

Second, I encourage you to be skeptical. But also curious and open-minded.

You won't learn anything unless you're both curious and open-minded.

Finally, we'll focus only on the economic features of crypto assets.

To fully appreciate them requires understanding both their economic and technological features.

The tech is more difficult to understand though, so we'll start with economics.

Okay, let's begin.

Humans have been using money for 40k+ years.

We started with small objects that were rare in nature and whose circulation could be controlled.

This meant using things like shells or even animal skins as money.

Eventually we started using coins.

Even today, we still use physical forms of money like paper bills and coins.

Increasingly however, money has become digital.

We now store our money in banks (where it is managed digitally) and we increasingly send money digitally.

Today, you can send money digitally using services like debit or credit cards, ACH transfers, bank wires, Venmo, Paypal, WeChat Pay, and Alipay.

Digital money transfer is great.

It makes it easy to send money around the world.

But this comes at a cost.

Third party services like Venmo can see who you're sending money to and how much you sent. And they charge (sometimes high) fees for services.

As more and more money transfer becomes digital, we are

- unconsciously placing more and more power and trust into the institutions that handle our money
- and slowly moving away from physical money (cash).

Is that a good thing?

What makes cash great is that it preserves the freedom to transfer value.

Cash transactions are largely private and most importantly, they don't need anyone's permission and cannot be reversed.

I am free to give my friend $20 to help me move furniture.

I don't need anyone's permission.

Nobody can prevent me from handing my friend a $20 bill or reverse the transfer.

And nobody else should or needs to know about it.

Today's digital money transfer is different:

- it requires permission
- transfers can be reversed (censored)
- transfers are not private
- and global transfers can be slow and expensive

This wouldn’t be an issue if we weren’t rapidly sleepwalking towards cashlessness.

Cash use has halved in the past 10 years and is forecast to halve again in the next decade.

bbc.com/news/business-…

Moving to a cashless world where money is digital and stored in banks also carries risks:

- your account can be locked
- bank errors can send you into deep financial problems
- and you lose the option to exit the financial system in an economic crisis

fee.org/articles/the-c…

Although all these money transfer/storage features are important for preventing and managing crimes and facilitating global economic activity, they come at the expense of a fundamental freedom:

the freedom to transfer value and be in control of your money.

The fundamental value proposition of crypto assets like $BTC and $ETH is very simply that they preserve these freedoms. They make digital money more like cash.

Transfer of these assets is

- permissionless
- censorship-resistant
- semi-private
- and sometimes faster and cheaper

They also give users the option to store and be in control of their own money rather than handing control to a bank.

What's more, creating a digital "bank account" to hold crypto assets is free and doesn't require permission.

This is important because 1.7 billion people (or 31%) do not have a bank account.

centerforfinancialinclusion.org/new-global-fin…

While crypto assets are not the perfect solution to the issues of financial non-inclusion and cashlessness, they do offer an alternative to the current financial system.

In this way, they serve as a critical hedge against the risks present in today's financial systems.

And for this reason, crypto assets have value.

People are willing to buy and hold these assets to take advantage of their features (or utility) and because some believe (or speculate) that they will become more desirable as risk in the traditional financial system increases.

So that's it. That's a very simple primer on the economic importance of assets like $BTC and $ETH.

Where things become a bit more complicated is in trying to understand why or how the many crypto assets differ and the technology behind them.

This would involve deeper discussion of

- decentralization (ie, to what degree is the control of a system distributed so that no single party is in control)
- privacy features
- security

- programmability (to what extent can you automate certain types of value transfers and increase the efficiency and utility of money)
- monetary policy (how is the supply of the asset managed?)
- and more

But we'll save those discussions for another time.

Now that you understand the economic importance of crypto assets, I encourage you to dig deeper.

Just know that there is a lot of material out there (some of which is bad) so separating the signal from the noise can be hard.

But if you're curious, there is a great community of people who are willing to point you along in your journey.

Seek them out, ask questions, and be curious.

Would love any thoughts on this. It can probably be condensed a bit which might be a project for another time!