The search for the next bitcoin

Back in 2017, someone told me about Coinbase.

It was this great new app, they said, where you could buy these tokens that only went up in price, and did so at a pretty good lick.

£50 that the government had kindly lent me to study swiftly went into a single Litecoin.

Why Litecoin?

Well it was the cheapest so naturally all I had to do was wait a while and then it would catch up with bitcoin, which was 200x more expensive.

As the meerkat used to say, simples.

Well by the time Litecoin got to £200 per token, a 4x return, I’d bought and sold the damn thing so many times that after fees, selling dips and buying rallies, I doubt I’d made any money at all.

So if I ever write about crypto, bear in mind that I’m the opposite of an expert.

But for one unusual reason, I am still in a position to offer some help and insights.

I didn’t find bitcoin in 2012, I’ve never been on the dark web, I don’t understand the code, nor do I know how to mine.

So when I wrote to you last week with a bunch of open questions and early ideas, I really enjoyed reading the responses because it seems like you’re all roughly in the same boat as I was.

You’re investors, you’re curious, but it’s safe to say most of you are in the same boat in that it’s all a bit new and all a bit much.

But I have a secret…

Since that semi-comical series of decisions back in 2017, when I was just hopping on the bandwagon, I’ve learned a lot.

I learned first-hand about the psychology of a bubble.

I lived and breathed pretty much every step of this next image, for starters…

Source: Technical Traders

But more importantly, I didn’t sell out completely. Instead, I learned. I read.

And through a huge slice of good fortune, by getting my job here at Southbank Investment Research, I gained access to some of the best people and research in the country.

I remember in my interview even being told about the mystical “Sam” who had bought bitcoin back in 2012, and kept asking to be allowed to share his work with the public via a newsletter.

I now get free access to that research, and to him, Boaz, and others in the business who know far more than I do.

You can read Boaz’s insights for free at Capital & Conflict, by the way.

But over this week, I’m going to share a bunch of things that I’ve learned, from them and others, about bitcoin and cryptocurrency, laying out my views on how traditional investors could think about and approach the sector.

Ultimately, this is building up to a docuseries that we’re putting on next week. (You can sign up here.)

But first, there are a few things to know.

Bitcoin has returned more than any other asset since its inception.

Like a million or a billion per cent or whatever.

No one’s actually made that much though of course. And lots of people who got in early sold too early too. Or they lost them, or forgot about them and now can’t access them, or they spent them. So no need to be too jealous.

It is by no means settled what purpose bitcoin will serve, or whether it will “win” the crypto race to become the leading digital technology.

It is brilliant but not perfect, and other “alt” coins offer better capabilities in certain regards. But as I mentioned last week, the first-mover advantage is hugely powerful in that it has given bitcoin the biggest network, and the network effect is very powerful because size begets trust, which in turn begets size.

So it could pay to look Beyond Bitcoin. (No that is not what we’re calling the series, don’t worry!)

But back to a few basics.

Bitcoin is either a “cryptocurrency” or a “digital asset”.

One of the best descriptions I’ve heard includes this:

Digital Cash” – in the same way as I can give you a pound coin with no one else being involved, I could also give you one bitcoin without anyone else being involved. A card payment or bank transfer involves my bank paying your bank. So “digital cash” captures that aspect of it.

A very wise man I know, striking a different note, prefers to call it “everything you don’t know about computers combined with everything you don’t know about money”.

Seriously though, digital cash. How does that work?

Well there are two parts to bitcoin. It is both a technology and an idea – which is why people really struggle to say exactly what it is. Sometimes It behaves like gold, sometimes it’s more like cash, an investment asset, a reserve currency, a store of wealth or an international payments system.

Bitcoin has capabilities that allow it to be all those things in different places and at different times.

To “own” a bitcoin means that you are in possession of a key – a series of numbers or letters (I think), like the one in the subject line of this email, which gives you access to the digital token known as a bitcoin.

Currently, one bitcoin is worth £9,080.71, so if you have that code or “key” then you own that bitcoin. That’s how my subject line works – how a bunch of letters and numbers can be worth nine grand.

Sound mental? Well you pay for stuff with a piece of paper that says “£20” on it already. The essence of money is trust – not form, and so the fact that bitcoin has organically developed trust is more powerful than any theoretical objection you might have.

People already accept it in return for goods and services – based on its own inherent benefits rather than any legacy ideas or government mandate. That’s extraordinary, whatever you think about bitcoin.

The key is like a pin code for a vault with a gold bar in it. You don’t transfer the gold bar, you transfer the keys to the vault. But mostly you don’t have to worry about all that, companies have sprung up to do it for you – so on Coinbase, the user interface feels just like any other investing account, or forex trading depending on how you look at it.

That’s for investing in bitcoin – but for true ownership you need to have the key yourself, written down somewhere, on a USB stick, in a file, a Word document – whatever.

I guess it’s the difference between owning a gold ETF and buying physical bars of bullion.

How do you get the key though? Two ways – you can buy it, or mine it.

All transactions are recorded digitally on the blockchain – the technology on which the idea is built. You can think of blockchain like complex accounting software.

Transactions which take place on this blockchain interface (rather than using your debit or credit card or cash) are recorded like in an accountant’s book, but digitally in a “block”.

If you verify the all transactions in a block (not easy), your reward is bitcoin.

Originally you got a lot of bitcoin (40), but every four years the reward halves, so now you get just 6.25 bitcoins for verifying a single block. This verification process happens roughly every ten minutes, and once one block is verified, the next one springs into existence.

The beauty is that the code number (eg, ijsdbg5498ns9ugn9sudng) of every block carries a shadow of the previous block, and that block’s code carried a shadow from the one before.

So in the same way an accountant goes through every transaction a business made in a year, a blockchain analyst could go through each one of the last hundred blocks to make sure every transaction is correct and adds up.

Because the transactions in each block determine the code it’s given, if someone steals money or puts a perfidious transaction into a block (ie, one side of the balance sheet doesn’t add up), then like this (iiiiiiiiiiijiiiiiiiiiii) it will stick out.

Obviously, I wouldn’t spot it, I’m clueless, but someone who understands the coding and the process can.

So to simplify.

Each block is made up of a ton of coded transactions (digital cash payments) which create a code for the block (it’s called a hash).

If you solve what the code should be for the block then you get a reward, because it takes time, energy (yours and the grid’s), and plenty of smarts. The reward is bitcoin, in the form of a key (a series of numbers and letters again) which can be traded.

This process is called “mining”.

The original price of bitcoin was determined by the value of the electricity and work it took to solve a single block.

Back then you got 50 coins as a reward, so the fiat (dollar) price per bitcoin was lower (the cost of power and work was split into 50). That’s why each time the reward halves (every four years), the price has tended to rise, because many think the monetary reward should remain broadly stable even as the reward in bitcoin terms diminishes.

Allow me to illustrate this.

Here’s a block. From 2009, with one transaction and a reward of 50 bitcoins. No wonder they were only worth a cent or two back then, “mining” them was a doddle. I don’t know what height is, but I think “confirmations” means that other miners or users have double checked that the hash code is correct – ie, all the transactions are legit, or in investment speak, the balance sheet is clean.

That’s decentralisation in action, constant supervision of the blockchain like swarm of accountant locusts auditing a company constantly.


Back then bitcoin wasn’t worth much at all – it was easy to mine, and you got a lot for doing it.

Now though, things look a lot different. The price of bitcoin is £9k or $12k, and here’s part of the reason why:


You can see that the difficulty is much higher and there were far more transactions to verify.

And I think perhaps height could be what number block in the chain it is… so the top image is the tenth block and this is the 619,841st block. With multiple bitcoins dished out per block, ultimately there will be 21 million bitcoins created, with the last block being “mined” around 2040, depending on how quickly the miners work.

Because anyone can do it (mining), the creation of money is described as “decentralized” as a contrast to the centralisation of money supply that we currently have with the Bank of England and the Federal Reserve controlling the interest rate and supply of money.

That’s why last week I suggested that how you feel about central banks will often dictate whether you are interested in bitcoin and cryptos.

If you see no problem with eight (ish) white (usually) blokes (usually) in a room deciding the price and volume of money in the system, then why would you be interested in the idea and technology behind some alternatives?

That’s why the docuseries focuses in large part on the history and nature of money – because it’s a core debate in the crypto space. It’s also very interesting and when you’ve got monetary experts in to speak about bitcoin and cryptos, it would be a waste not to cover these fascinating and fundamental questions.

So I really hope I’ve managed to help understand a few things about bitcoin, and build out a few key terms.

Sorry it’s hard to keep it absolutely simple – it just isn’t, but that’s the beauty. It’s a simple concept, digital cash not controlled by governments, but that takes a lot of technological complexity to achieve.

So that’s why I say bitcoin is the holy duality – given power and form by the marriage of an idea (digital cash) and a technology (blockchain).

And if you are interested in learning more about this phenomenon, this investment asset, this new currency, or if you already know a fair bit and want to delve into some of the key debates surrounding bitcoin, the history of nature of money, and other cryptos, then check out our docuseries.

You can sign up by clicking here.

I’d say it’s worth any investor’s time. It’s free. It’s educational, and potentially hugely profitable.

It’s going live on Monday, and I’ll see as many of you there as possible!

Very best wishes,

Kit Winder
Editor, UK Uncensored

  1. […] PS I’ve not centered a lot on the precise nature of bitcoin in immediately’s letter. You’ll study all about bitcoin’s perform and potential in our upcoming video series, however if you’d like a fast crash course on what bitcoin is and the way it works, my colleague Equipment Winder wrote up a really accessible information to BTC yesterday – complete with his own experiences of 2017.  […]

  2. […] as I’ve outlined so far this week, here and here, I’ve developed a neat little way of understanding bitcoin’s […]

  3. […] you missed them – you can find them here (intro), here (the tech), and here (the […]

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