Client Questions Part 1
What does it mean now that Trump signed an executive order establishing Bitcoin as a “US strategic bitcoin reserve”?
The US strategic bitcoin reserve doesn’t mean the government will start buying BTC immediately. The US already holds about 200,000 BTC (worth around $17 billion) from confiscations linked to criminal activities, like the Silk Road and other illegal actions. While it would be a significant boost to Bitcoin's price if they started injecting billions into the network, I’m not expecting that anytime soon.
What’s more important is that this move establishes Bitcoin’s legitimacy on the global stage. States like Texas have begun creating their own BTC reserves, with plans to allocate around $500 million annually. The perception of Bitcoin is shifting from being "magic internet money" to a strategic asset that nations want to hold.
Additionally, actions like this, along with Bitcoin ETFs, pave the way for Bitcoin to enter institutional finance. This opens the door to things like using Bitcoin as collateral for loans, among other opportunities.
Can you explain what staking is?
Staking is when you lock your crypto into an account to earn interest, similar to how banks offer interest on deposits. In the case of Ethereum, staking also helps secure the network, as it transitioned from a proof-of-work to a proof-of-stake model several years ago.
That said, I would caution against staking, especially large amounts of BTC. The phrase “Not your keys, not your coins” is central in the Bitcoin community. It means if you don’t control the private keys to your Bitcoin, it’s not truly yours. This is why Bitcoin aims to empower individuals to control their own keys and, in turn, be their own bank. Unfortunately, exchanges like Coinbase can withhold your funds, as we saw with FTX. So, it’s generally safer to store Bitcoin in your own wallet.
What’s the difference between Bitcoin and Bitcoin Cash? Is this a separate account?
Bitcoin and Bitcoin Cash are separate networks. The split occurred between 2016-2018 during the "blocksize wars," where two factions of the community disagreed on how to scale the network. One group preferred keeping blocks small (under 4MB), while the other wanted larger blocks for faster transactions.
The small-block group won, and Bitcoin remained the original network. The large-block group split off, creating Bitcoin Cash. If you held Bitcoin during the split, you would have received both Bitcoin and Bitcoin Cash. However, Bitcoin Cash has underperformed compared to Bitcoin.
What is on-chain? Is Coinbase One on-chain?
Coinbase supports both on-chain and off-chain transactions. On-chain refers to using the Bitcoin network to send or receive Bitcoin, typically taking 10 minutes or more to process and costing anywhere from $0.75 to $5 in fees, depending on factors like network congestion and transaction urgency.
Off-chain transactions, such as those using the Lightning Network, offer much faster (nearly instant) transactions with minimal fees. If you're storing Bitcoin as a long-term store of value, you'd keep it on-chain. However, for smaller transactions (like buying a coffee), you'd likely use the Lightning Network for faster and cheaper transfers.
What is your take on XRP, Ethereum, and Ethereum Classic?
I’ve yet to come across an altcoin (non-Bitcoin cryptocurrency) that offers enough utility or value to justify investment. Some altcoins, like Ethereum, are exploring smart contracts, but Bitcoin can also leverage smart contracts through second-layer solutions like the Lightning Network. This allows Bitcoin to remain secure and reliable as a store of value, while second layers handle additional functionality without compromising the primary network’s integrity.
Another key difference is that Bitcoin has no CEO or centralized leadership, whereas altcoins like Ethereum have company-like structures with leaders who can change the rules. This can lead to short-term decisions that may hurt the long-term value, much like how CEOs sometimes prioritize their year-end bonuses over the company’s future. Bitcoin's decentralized nature eliminates these issues.
I hope this clarifies things, and I look forward to discussing further on our call. Please don’t hesitate to reach out if you have any additional questions in the meantime!
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