Imagine money, but it’s digital, like a magical online piggy bank

That’s a very basic way to think of Bitcoin.

Here’s the simpler explanation:

• It’s online money: Bitcoin is like online cash that exists only on computers and phones, with no physical coins or notes.
• No bank or boss: Nobody, not a bank or a government, is in charge of Bitcoin, according to Blockpit. It’s run by lots of computers working together all over the world.
• Like a giant shared book: Every time someone uses Bitcoin, it gets written down in a special online book called the “blockchain.” Everyone can see this book, and it’s very, very hard to change anything once it’s written down. This makes it safe from copying or being spent twice.
• Finding new Bitcoins (like a treasure hunt): People with special computers can help keep this online book updated and secure. When they do a good job, they sometimes get rewarded with new Bitcoins. This is called “mining”. It’s like a big puzzle, and the first computer to solve it gets the prize.
• You can use it: You can use Bitcoin to buy things online or from places that accept it, according to GoHenry. Some people also save it like a valuable toy, hoping it will be worth more later.

Important things to remember:

• Bitcoin’s value can go up and down like a roller coaster, so it’s a bit like playing a game where you could win a lot or lose a lot.
• There’s only a limited amount of Bitcoin that can ever be created, which helps to keep it valuable.
• Bitcoin is not like the money your parents use for groceries or rent, as it’s not controlled by a bank or government and its value can change rapidly.

The silly thing we want to ask

The 1 hour session became a 70 minute session because there were so many questions and so much chat . We were asked to share the chat in a blog and here it is.

Steve Goddard asked today’s web audience

If you would like to ask Sam or Josh a question…please raise a hand!

What we got was varied – these comments are either anonymised or attributed in bold.

How do you deal with the energy issue?

From an institutional perspective how do you get around the self-custody issue for Bitcoin?

I assume trustees holding private keys isn’t an option so will be with a custodian? How would schemes get around the counterparty risk aspect?

There followed a statement

Bitcoin consumes more electricity than entire nations to process far fewer transactions than Visa processes in a day. This massive environmental cost for a speculative asset unsuitable for daily commerce represents one of the most inefficient uses of energy in human history.

So what would a world with no government debt look like? Surely if the public sector runs a surplus, the private sector has to run a deficit?

What’s the difference between a bitcoin and a tulip?

John Mather had this to say

Bitcoin consumes more electricity than entire nations to process far fewer transactions than Visa processes in a day. This massive environmental cost for a speculative asset unsuitable for daily commerce represents one of the most inefficient uses of energy in human history.

I think some of the fears around electricity consumption are a bit overstated. Bitcoin as a % of global electricity and carbon emissions is pretty small (<0.5% off the top of my head) and the number of transactions don’t influence the electricity generated directly

Bitcoin’s annual energy consumption ranges from 91 to 150 terawatt-hours How Much Energy Does Bitcoin Consume? | Crypto.com, with annual electricity consumption comparable to that of Poland Bitcoin: electricity consumption comparable to that of Poland.

To put this in perspective, Bitcoin’s electrical footprint was around 17 percent of Russia’s entire energy production as of December 2024

How Much Energy Does Bitcoin Consume? | Crypto.com

Here’s how energy-intensive Bitcoin’s Proof of Work consensus mechanism is and what’s being done to offset it.

The annual electricity consumption dedicated to bitcoin mining [Editor’s note: the process by which bitcoins are issued and generated] is comparable to that of Poland. It is estimated at 155 TWh per year to 172 TWh per year (or 162 TWh per year according to the Cambridge Centre for Alternative Finance).

The International Energy Agency (IEA), meanwhile, estimates that cryptocurrencies would have consumed 110 TWh of electricity by 2022, or 0.4% of annual global demand.

CCRI Indices

Explore the carbon footprint of more than 20 cryptocurrencies and tokens!

This is from the article you shared and suggest that we’re both right!

Bitcoin can have the same electrical consumption as Poland and still be a very small proportion of global energy consumption!

Lets face it is  speculative digital asset that mimics some properties of money but fails as practical currency. It’s more like “digital collectible” or “digital commodity” than functional money.

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   Alex Hadonou

I think some of the fears around electricity consumption are a bit overstated. Bitcoin as a % of global electricity and carbon emissions is pretty small (<0.5% off the top of my head) and the number of transactions don’t influence the electricity generated directly

As a percentage of global consumption is a rather specious reference. Aviation ‘only’ accounts for about 2.5% of global CO2 emissions. Does that make it insignificant? I think not.

Energy is only one measure. What of water usage, another major consideration within most SIPs these days?

It still needs to be measured, managed and disclosed.

More anonymous calls

What is the fundamental difference between investing in Bitcoins and investing in works of art, which was the vogue in the 1970’s and 1980’s. They both have developed markets.

or investing in fungible tokens?

yes and rely on the greater fool theory of pass the parcel investing

Is it still a store of value if you can’t access it? Bitcoin: James Howells gives up on retrieving hard drive from Newport landfill site – BBC News

Bitcoin: James Howells gives up on retrieving hard drive from Newport landfill site

Mr Howells claimed his ex-girlfriend mistakenly chucked out a hard drive containing 8,000 bitcoins.

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Peter Cameron Brown (Unverified)

What is the fundamental difference between investing in Bitcoins and investing in works of art, which was the vogue in the 1970’s and 1980’s. They both have developed markets.

fundamentally art is piecemeal unique and its relative attractiveness is in the eye of the beholder – BTC takes additional monies into an homogenous asset without deviation

If your house is a store of value and you don’t live in it you can rent it out and earn an income!

John Mather (External)

Bitcoin’s annual energy consumption ranges from 91 to 150 terawatt-hoursHow Much Energy Does Bitcoin Consume? | Crypto.com, with annual electricity consumption comparable to that of PolandBitcoin: electricity consumption comparable to that of Poland. To put this in perspective, Bitcoin’s electrical…

Do you invest in AI?  or dismiss that on a similar basis?  Actually the contribution to green energy of BTC is enormous – Sam can expand if you ask him – for example, instead of round trip cost of switching on or off peaking assets (gas power stations), you can simply switch off BTC mines for the peak period, reducing the roudn trip.  Also many green energy facilities are financed because of the assiciated BTC mines.  Over half the network is now I believe powered by renewables.  AI will consume manifold more energy, but people still buy its ecosystem of stocks.

Can an adviser get PI cover for this?

Or why have we tied people’s right to housing to their economic productivity?

Sometimes there are simpler attack methods to get people’s crypto keys… Second suspect arrested in alleged NYC Bitcoin torture scheme – BBC News

Second suspect arrested in alleged NYC Bitcoin torture scheme

Police say the two men kidnapped an Italian businessman and tortured him with a gun, chainsaw and electrical wires for nearly three weeks.

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As a DB Scheme with a long time horizon.  We consider all investments on a buy and maintain basis.  The key metric used to evaluate investment is the current yield the investment offers (either now at a finite time in the future).  We avoid accumulation funds (which are buying more of the same assets with their current yield) and closed ended funds (with their presumption that you will wish to sll the asset).

So you’d imagine it’s a non-economically incentivised actor and there are other things you could attack if max disruption was your aim

BTC doesn’t impart greed, in fact I would argue it protects and keeps honest the value of your work.  It stops that being tacitly stolen by inflation.  No inflation should be any currency’s monetary target.  But is isn’t, because governments spend too much.

Alex Hadonou (Unverified)

So you’d imagine it’s a non-economically incentivised actor and there are other things you could attack if max disruption was your aim

potentially.  Unless you were going for a global scorched earth.  It’s the reason buy gold.

*the reason people buy gold

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Surely if there is no inflation there would be deflation, which would be even worse for the economy

in an expanding economy there must be expansion of the money supply to keep up

BTC looks very much like a return to the gold standard to me, and I don’t think that worked out very well.

deflation – prices going down is what SHOULD happen with productivity improvements and production efficiencies – it should be linked solely to the underlying scarce commodity of production prices. But it isn’t happening.  and the why is government spending.  Cost price reductions wouldn’t lead to lower wages, so it wouldn’t be deflation per se.

Jim Woodlingfield (Unverified)

BTC looks very much like a return to the gold standard to me, and I don’t think that worked out very well.

It was working just fine until governments started spending more than they have – instead of tampering with monetary policy redistribution, it would be much fairer to execute their wealth redistribution ideologies (on both sides) fiscally.

all these sources of energy are needed to power peoples homes, hospitals etc too

Jim Woodlingfield (Unverified)

in an expanding economy there must be expansion of the money supply to keep up

Why?  The divisibility of BTC was designed to accommodate all the assets in the world.  Money supply expansion is a toxic fool’s errand.

Peter Cameron Brown (Unverified)

As a DB Scheme with a long time horizon. We consider all investments on a buy and maintain basis. The key metric used to evaluate investment is the current yield the investment offers (either now at a finite time in the future). We avoid accumulation funds (which are buying more of the same asse…

yield is meaningless on non contractual assets when the  capital value tanks.  BTC and Gold hedge against this and Fiat currencies have unlimited downside.  We could have a million pound cup of tea within my lifetime.

Surely the best place to mine bitcoin is in Iceland using geo-thermal energy.  The data connection requirements are minimal compared to the energy needs.

Surely the best place to mine bitcoin is in Iceland using geo-thermal energy.  The data connection requirements are minimal compared to the energy needs.

 

Rebecca Kowalski (External)

all these sources of energy are needed to power peoples homes, hospitals etc too

Nuclear fusion will fix this within your lifetime.

There has been a lot of talk about bit coin, what about the other digital coins Ethereum, XRP, how will they play out in future

if Bitcoin are so perfect why were stable coins introduced?

Nick Bee (Unverified)

There has been a lot of talk about bit coin, what about the other digital coins Ethereum, XRP, how will they play out in future

Ethereum, Solano and the rest encrypt additional code into the BTC blockchain network to accommodate enhanced functionality.

Seems profoundly anti-democratic to me, taking away the ability to direct the money supply from democratically elected governments.

Mortality is relatively stable so interest rate movements are the key metric for annuity pricing.  So how would bitcoin annuities be priced?

Con Keating (External)

if Bitcoin are so perfect why were stable coins introduced?

to use the blockchain as a swifter and cheaper way of trading the underlying pegged assets.  It’s happening at scale.  A new digital custodian is popping up each month in Canada and the US.  Massive in France now too.  We are so behind the curve here in the UK.

Essentially the next decade will see unprecedented change in the way the financial system operates.  Ai amplifies this to broader society.  It may not even take that long.

Chris Giles (Unverified)

Mortality is relatively stable so interest rate movements are the key metric for annuity pricing. So how would bitcoin annuities be priced?

they would one assumes be invested in and priced in BTC, were they to be formed.

Bit coin does not pay interest!

Matt Levine likes to say that crypto is speedrunning the history of finance

There is a risk that the value of btc could dip a lot

 

Ian McKnight (External)

Nuclear fusion will fix this within your lifetime.

Its not what the scientists see as the best solution and its unlikely to be the most equitable.  Community energy and district heating, which the tech industry could support, if it was truly thinking about E and S and there was some good G in the world, is making energy fair for the world, not just money.

This question is prescient I expect the next few years will be an interesting period for FX – make sure you all brush up your FX strategies!

Nick Bee (Unverified)

There is a risk that the value of btc could dip a lot

There are two points to address here – time horizon, and value in what currency?  If you hold a btc, you will still hold a btc.  IT goes back to “what is money” and I don’t think many people realise the answer to that.

 

rofit mechanisms:

• Price speculation: Hoping demand increases relative to supply
• Store of value belief: Betting others will view it as “digital gold”
• Network adoption: Profiting from increased usage/acceptance

The “greater fool” critique has merit – Bitcoin’s value relies heavily on others being willing to pay more later. However, this oversimplifies it. Bitcoin does have underlying utility (decentralized payments, inflation hedge for some), but much of its price is indeed speculative.

 

Thank you, very thought provoking