Bitcoin

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

With this simple sentence in the first block of the bitcoin blockchain, Satoshi Nakamoto made history. The purpose behind bitcoin is clear : the need to separate Money and State. If you feel like taking the red pill and seeing how deep the rabbit hole goes, welcome to the world of Bitcoin.

But where to start?

• A bitcoin address is simply a bunch of letters and numbers. It's not a secret. On the other hand your "private key" (the "password" for that address) is secret and must be guarded with your life.
• In the bitcoin world, there is a saying "Not your keys, not your coins". If you don't know the private keys for your bitcoins, they're not really yours. If you trust an online platform to keep them "safe" for you, you'll very likely come to regret it, as others have in the past.
• The first step is to install a bitcoin wallet (software or smartphone app). Mostly, you want to use either Bitcoin Core (the standard bitcoin software for the network) or Green Wallet from Blockstream.
• The second step is to buy some bitcoin. There are bitcoin ATMs where you can usually buy bitcoin privately with cash. Other ways to buy bitcoin without completely sacrificing your privacy include bisq and hodlhodl. If you don't care about privacy (but you should, by the way), you can use a multitude of online platforms.
• You'll hear the following terms. Don't worry about them for now. Just a little introduction :
  • "mainnet" (the standard bitcoin network)
  • "lightning" (a faster layer on top of bitcoin, more private, faster and cheaper transactions but mostly used for smaller transactions)
  • "liquid" (a network attached to bitcoin (or "sidechain") allowing faster and more private transactions but mostly used for bigger transactions; also allows for the existence of other digital tokens on the bitcoin network, indirectly)
  • "coinjoin", a way to gain more privacy for your bitcoins (notably using the "joinmarket" software)
  • "payjoin", another way to gain more privacy (notably using the "btcpayserver" software)
• To learn more, you can read bitcoin-intro.com.
• To learn even more, you can read this lopp.net.
• But don't forget : the important thing is to start. Start small. Take it slow.
• Later, you can secure your bitcoins even better with a hardware wallet like coldcard from coinkite.
• To enjoy this journey, one of the best ways is to listen to podcasts, notably Tales from the Crypt and Stephan Livera.

Here at SimpleAristocrats.com, we can also help Your Lordship/Ladyship get started on the Bitcoin journey.

The Only Inflation Rate that Counts

Simple Aristocrats keep in mind that the only inflation rate that matters is the one that affects us. For example, if you don't watch TV, you don't care whether the price of TVs is going up or down. Simple Aristocrats are not "average", so there's very little point in worrying about the inflation rate applicable to the "average" family.

In short, you should plan your retirement based on the choices you will make, and the lifestyle you want, not what the government estimates a “typical” household will do.

35 Years at 2% Inflation

Simle Aristocrats keep in mind that a yearly inflation rate of 2% over 35 years eats up about 50% of one's savings. Put in 1,000$ dollars at age 25, get back 500$ (in "real" dollars) at 60 when you're ready to retire.

But, before those 35 years are up, if you manage to also earn some money on that investment, you'll probably have to pay income tax on that. And you can't (anywhere, as far as I know) deduct inflation before calculating your "income" (interest or capital gain). So basically you pay income tax on inflation.

The Dangers of the "Average Return" Concept

Simple Aristocrats know the dangers of the "Average Return" concept. If you invest 100$, lose 50% that year and make 50% the following year, your "average return" might be 0%, but the amount you're left with is 75$. So your "real" total average return is actually more like -25%...

Ben Jacobs : "This is exactly what happened to a bunch of almost retired friends I know during 2009. Average return looks great until you lose half your equity on one week."

Crypto-Currencies

(UPDATE: 2020-05-09 : Bitcoin is still going strong! )

Original post from 2017-06-06 :

Crypto-currencies are going through the roof. Starting from nothing eight years ago, crypto-currencies currently have a "market cap" of roughly 100 billion US dollars. Not bad for "magic internet money".

The granddaddy of them all, Bitcoin, is still doing well after having been declared dead 133 times.

If you had bought $100 (usd) worth of bitcoins on Jan. 1, 2011, your bitcoins would now be worth about 1 million dollars. Go ahead, throw-up a little in your mouth, I'll wait.

All cleaned-up? A Simple Aristocrat tries to find opportunities where even a small investment can "punch above its weight". It's hard to see how cash-burning businesses like Uber and Tesla can fit the bill. Or how loaning money (bonds) to soon-to-be-bankrupt governments (like the US) can be a good long-term strategy. Given the alternatives, some crypto-currencies actually look like rock-solid investments...

And just for the sheer entertainment value alone, crypto-currencies beat traditional gambling any day of the week and twice on Sunday. You get to learn how to use complicated software, deal with the human drama of competing groups each trying to pump their own crypto-currency, infighting, greed, lies and fraud, and all that with the (slight) possibility of eventually completely overthrowing the current world order and replacing it with a decentralized and privacy-protecting crypto-capitalistic-anarchy. The entertainement value of the crypto-currency world certainly beats Netflix, hands down.

A good place to start is to learn about Bitcoin. Enjoy the ride!

Dividend Aristocrats

For the strongly motivated who wish to buy stocks, there's another option for Simple Aristocrats : investing in the Dividend Aristocrats (and also this Wikipedia link).

The Dividend Aristocrats are S&P 500 constituents that have increased their dividend payouts for 25 consecutive years. The companies that make up the Dividend Aristocrats span ten different business sectors with both growth and value holdings.

Happy Gambling!

Index Investing

For those with a strong stomach and who want to gamble in the biggest casino invest in the stock market, a Simple Aristocrat's choice is simple : index investing; recommended by the likes of MrMoneyMustache, Tim Ferriss and even Warren Buffet.

For a different point of view though, one might read this series of articles, "Confessions of an Index Investing Skeptic", Part 1, Part 2, and Part 3.

Happy Gambling. Live long and prosper!