Bitcoin and crypto feels like going to Vegas. What I will never understand is how someone can steal your Bitcoin and there is no way to track who stole it.
So if you keep it online, someone can steal it, use it and noone can track it. If you keep it on paper, you could lose it and never get it back.
Just seems all weird to me.
So just chiming in b/c I thought it might be helpful as I think a small allocation to this space could be useful for people in their FIRE goals. As usual, do your own research, YMMV. The decentralized technology space that is developing is absolutely fascinating and there's a lot of details about it to learn. Like medicine, it requires you to develop an entirely new vocabulary due to the specifics of it. It's worth looking into. On to bitcoin...
In brief, bitcoin in its current form, trading "on-chain", is never going to be anything approaching what people commonly think of as a currency. It's why the "digital gold" analogy has been recurrently used. There are other means (Lightning network, a layer-2 technology) that do allow such things but time will tell what wins out there. For those interested in a slightly more traditional analysis of this asset from Jan 2020, look here:
What's interesting when you run various simulations as he alludes to in that post, is that even a 1% allocation would outperform with less risk to the overall portfolio, than a 0% allocation, likely due to not correlating fully with the overall equity markets. This is why you will continue to see more institutions put a very small portion of their funds in this space.
As for tracking...that's somewhat complicated and to avoid this post getting too long, I won't keep going unless someone specifically requests more info. Every transaction on the bitcoin blockchain is completely trackable, public, and 100% auditable. It's not anonymous, it's pseudoanonymous. What that means is every transaction and wallet address is public, but you may not be able to identify who owns a particular wallet address. The IRS (and presumably other govt agencies) employ companies in what's called the "chain-analysis industry" to track things. It's how funds get recovered, and how people get caught for avoiding taxes. Because bitcoin is a bearer instrument, like cash, transactions are not reversible. So it comes down to tracking who owns what wallet.
As for losing it online...think of it like leaving your cash in the trunk of your car, and you park your car in a public parking garage. Someone breaks into your trunk, they walk away with the cash and you have no recourse. That's kind of an analogy for keeping your assets on an exchange. There's more details to it than that, like everything in this space. Very few people keep their assets on paper anymore, that's kind of crazy at this point. People use what are called "hardware wallets." But you are correct that if you lose your private key (this is what lets you tell the bitcoin protocol that you are the person with the control over specific assets, like a password for your bank account) you will forever lose the funds. Just like cash. If someone stole your car from that parking lot, the cash is gone and you don't get it back.
Ok this post is already way too long, hopefully helpful in some fashion. I'd be happy to post links to other resources if anyone wants to start learning more for themselves, or refer to the bigger names in the space (basically everything is discussed/announced on Twitter) for others to do their own research and decide if this asset space is appropriate for their risk tolerance.
www.bloomberg.com
