Book review: “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money”


Knowing more about Bitcoin was one of the points on my personal “to do list” for this year. By chance I found this book on Amazon which looked like it would be a good starting point.

This book is written by a “real” journalist, so the style of writing and the pace of the narrative is very good.

It covers the story of Bitcoin from the very beginning, when a guy calling himself Sathoshi Nakamoto uploaded the original white paper on Bitcoin in 2008 and was met initially with very little feedback.

The author manages to both, tell the story of Bitcoin and the various characters involved in the beginning and to explain the way the technology works in a very accessible way. In the beginning, very few people actually understood the idea and it were mostly “nerds” who played around with it.

One of my favorite stories is about the guy who in the beginning offered 10 thousand Bitcoins if someone sends him a Pizza to his home. A guy managed to get 2 Papa John’s Pizzas delivered and got the reward. At current prices, those were the most expensive pizzas ever at a cost of 3 mn USD each….

The book shows how Bitcoin, after starting with some nerds, became a worldwide phenomenon. One of the first “real world” applications was the infamous Online drug dealing venture “Silk Road” run by a guy called Ross Ulbricht who ended up getting a life long prison sentence. Bitcoin also had early fans in Argentina  where a non-replicable currency was a no-brainer in a country wiht hundred percent annual inflation and currency controls.

Many “Libertarians” were also attracted to the concept as well as Bitcoin can be spent anonymously and without interference from Governments.

Bitcoin really take off when Silicon Valley and in parallel the Chinese became interested. Today, the value of Bitcoin outstanding is approaching 10 bn USD, quite an achievement for such a short time.

With Silicon Valley funding, more and more “professionals” are entering the Bitcoin space, mostly to enable people to buy and/or trade Bitcoins against EUR, USD or other Fiat currency. Part of the success can be also clearly attributed to the aftermath of the financial crisis which created a very bad reputation of the once trusted financial institutions.

In short, I can highly recommend the book to anyone who has a general interest in Bitcoin and wants to get started with a non-technical, entertaining book.

My few cents  on Bitcoin /Blockchain

So what is the revolutionary part of Bitcoin ? In my understanding is actually a combination of mainly these features:

  1. Encryption: A transaction can be “signed” by a single, unbreakable code
  2. A distributed public ledger recording the chain of  every Bitcoin transaction
  3. An intelligent way to verify that no one is cheating within this record
  4. The people who run the infrastructure (“miners”) get rewarded for their work with new Bitcoins

As a result, you get a system of electronic money where no central institution (aka Central bank) is needed to verify and manage balances and transactions. According to the book, the original “Satoshi” intended Bitcoin to be “Electronic gold” rather than electronic money and he therefore limited the theoretical maximum amount of Bitcoins to 21 mn. Other than Gold however, Bitcoins can be divided down to a “one hundred millionth” of a coin and transacted separately. This “base unit” of Bitcoin is nowadays called a “Satoshi”..

Bitcoins have been stolen quite often (Mt. Gox, etc.). Once you obtain the private key of a Bitcoin account, one can easily transfer them anywhere . And as the accounts are anonymous and transactions not cancellable, it is close to impossible to get the stolen Bitcoins back. On the other hand, the Bitcoins themselves and the Blockchain have never been hacked, despite many attempts. No one has ever succeeded in creating fake Bitcoins which you cannot say of any “real currency”.

The “value” of Bitcoin

For me, the “true” value of Bitcoin (or other electronic currencies) lies especially in the speed at which transaction are executed and the low-cost associated. A Bitcoin transaction usually fully settles within 10-30 minutes no matter where you send the Bitcoins to. Even including bid/ask spreads, the cost is much cheaper than with almost any other means of transferring value.

However that seems to be one of the big problems of Bitcoin. According to one of the earliest and most influential developers, the Bitcoin community is not able to increase the block size for various reasons. That means that there is a limited amount of transactions that can be settled which clearly limits the use of Bitcoin as a means to transfer value.

My impression ist that currently the biggest use of Bitcoin is to speculate on its value, not to sue it as a cheap medium to transfer money.

I have absolutely no clue what a fair price of a Bitcoin might be. But I believe that in order to have value it has to be widely used and not just to speculate on an increase in value. Personally I would never “invest” in Bitcoin as for me, an investment needs to produce cashflows.

Other electronic currencies & The Blockchain

Based on Bitcoin technology, a lot of other “electronic crypto currencies” have been created. A site called “Coin Gecko” lists 60 different ones.

Although I have still a very limited understanding, Ethereum seems to be one of the most advanced concepts. In theory, Ethereum looks like a kind of Operating System for blockchain programs (Smart contracts) with some very interesting possibilities. For instance it seems to be quite easy to create one’s own digital currency on Ethereum.

The “Blockchain” concept is currently hyped everywhere, but in principle it is just a concept of how to keep score of who owns what on a distributed basis. If you imagine however that most financial institutions do little more than keeping score of who owns what, the potential impact of Blockchain technology is potentially significant. I think it is not unsimilar to the potential impact of 3D printing on manufacturing at some point in the future.

Clearly, all companies whose main purpose is to move money from A to B will at some point in time get impacted by this technology one way or the other. But also other financial institutions will need to understand this technology rather sooner than later.

A final comment on Satoshi:

I think that the fact that no one knows for sure who the creator of Bitcoin actually is, creates much of the fascination and allure of Bitcoin.

According to different sources, the initial amount of Bitcoins mined (or created) by Satoshi is worth 700 mn USD at current prices. Due to the Blockchain one can see that none of those Bitcoins has ever been spent but remain in the original.account.

Quite recently, an Australian guy claimed to be Satoshi but failed to deliver any proof for that. According to the book, Satoshi disappeared in 2010 saying that he “moved on to other things”. In any case he is/was a guy who left behind a quite significant legacy….

Final (final) note:

Just to be clear: I am not interested in fundamental discussions about the monetary systems or where the price of Bitcoins will go in the future. Please spare me comments about these aspects. Thank you.




  • Lend.IO and BlockFI offers interests on cryptocurrencies like BTC. So now, there is a cash flow production. Is it now an investment case for you?

    • No. I guess they offer interest because you “lend” your Bitcoin to someone who might not give it back. Why should that change my approach?

      • You do the same with EUR or USD. Why do you give EUR or any other FIAT-currency to someone who might not give it back? That is doing investments. There is always a counterpart risk.
        What is the difference between FIAT-currency investments and cryptocurrency investments?

        • I think the difference is that behind the Euro and the USD there are governments that have police and military power, can enforce taxes and provide a judicial system with a civil bankruptcy law.
          So if someone doesn’t give me back my euros, there are legal procedures on how to deal with it.
          Moreover, governments don’t just print money, they provide public goods and do so in a fairly transparent way, at least in industrialised countries. Bitcoin miners just waste a lot of energy and I have no idea what they do with the wealth they gain.
          For these reasons, governments can make a credible promise that in future I will still be able to buy a basket of goods with one Euro or one USD (stable prices). No one can give me this promise with Bitcoin.

  • UNIQA, ASR.NL, GM, NXP, DUERR, VALERO, or some MLP (PhillipsEnergyPartners & alikes). Nordic regional banks (Handelsbank, Helgelabd, Nordfys, Lollands, Sparebank-1…).
    Patrizia AG

  • Thanks mmi for giving this important topic a forum among your readers. Bitcoin and other CryptoCurrencies (CCs) have established a loyal community of programmers and nerds (in the best sense) during the last couple of years. These people have been and are still building important services for this technically and mathematically highly challenging concept. Mostly for free!

    The next step for CCs is IMO to become popular in the finance world. Even though CCs should never be considered as a value investment by definition, it should be part of a value investors toolbox. I would consider myself a value investor and look at my CC portfolio from different angles:

    1. I have cash sitting in my account/safe deposit box (Sometimes more, sometimes less). CCs are a very good alternative for storing cash. Here are a few reasons for that:
    – I made backups and even if criminals get a hold of one copy of my CCs, they won’t be fast enough to make use of it.
    – Travel with them on your harddrive/smartphone/… or transfer them over the internet at near to no cost.
    – very low inflation build into most CCs. So if you are planning to store some cash long-term, CCs are probably the better option compared to EUR or USD.
    – stay anonymous if you want and hide your wealth from anyone
    – pay worldwide with it like this guy from Berlin who traveled the world for one year only paying with Bitcoin. Try this with your Krügerand or anything other than EUR/USD basically.

    2. Hold CCs to hedge against “black swan” events. Look at a Bitcoin Chart of 2016 and you have no problem recalling the date of the Brexit vote. I guess there is some probability of bad news coming from politics or financial markets in the next years.

    3. Despite the name “currency”. The CCs itself, the loyal community, the free tools and infrastructure that have been created. All this offers far more than a real world currency and might be far more valueable than recognized and prized in. If you look at CCs this way each CC is like a small, productive company with highly skilled employees working fanatically because of very good intrinsic (the cause, freedom) and extrinsic (they own the CCs) incentives.

    If anyone wants to invest into CCs and needs security advice or wants to talk strategy: I am happy to help and answer questions:

    Disclaimer: I am working on an open source investing tool for CCs to simplify investment process and rebalancing between CCs.

    • Thanks for the comment. I didn’t edit it although I do not share some of your statements.

      Again, from my perspective, CC are not an investment and also not a hedge against “Black Swan” event. Therefore I would argue that any reader might echange the word “invest” in this comment with “speculate”.

    • A very recent post supporting my “speculation theory”:

      Over 94% of bitcoin trading involved Chinese yuan in August, up from about 60% a year earlier, according to data provider Bitcoinity. China’s two biggest exchanges, Huobi and OKCoin, collectively account for more than 90% of global trading. OKCoin reached more than 1 million registered users in the first half of this year, thanks to a user growth rate that was five times greater than a year earlier.

      • Hi mmi! Thanks for the response.

        Chinas relations with Bitcoin concern me too sometimes. Part of this is major players faking dominance.(

        Also you want Chinese people to adopt CCs. If you want to have even distribution China should account for 1.7x the amount traded EU/USA combined (weighting per capita). Now you could start to factor in stability of society/financial system/currency/local payment networks, freedom, technology adoption, general risk mentality…

        Still, there will be some truth to the article you posted and I am not in China. If you exclude Huobi and OKCoin from volumes you have still about 2% ($200m) of Market Cap trading every day, so at least there is decent liquidity even without China.

        You may be right that one should refer to buying CCs as speculation. But thats concerns me even more, because compared to EUR/USD/YEN a basket of CCs seems to me like the superior choice.

        My suggestion for (value) investors would be to buy into a CCs basket every month and hold on to it. There are indeces like the CRIX ( that can help you rebalance. As I said I am working on a software to make rebalancing very simple for this kind of cost averaging approach.

        Thanks again for posting about this topic, there needs to be more public discourse about CCs.

        • Hi Uncle Fry,

          MMI explicitly didn’t want discussions about monetary systems but I just can’t hold back when reading your comments. You seem to know a lot about this topic but for me such a virtual currency is even more intransparent as our current system. Buying something I don’t understand and I can’t determine a value for is just as risky as buying a basket of this in a cost averaging approach. Maybe you’re right and in a few years some people (including me) might think ‘Why didn’t I listen to Uncle Fry’. But maybe everything will just go on and on like it does since 1913 (Fed-system established). Right now I would say that the probability for scenario 2 is a little bit higher.

          I once read ‘The Creature from Jekyll Island’ and thought: Oh my god. The world will end soon. Then I realized that it was written in 1994 and I’m still waiting for the real collapse (well – not really 🙂 ). I’m pretty sure that I will have problems to buy bread and water with CCs then…

  • A log or ledger of all transactions is something companies prefer and something subsequently not be changed is likely to become the standard.

    No need for some middlemen is another point. Banks will not need SWIFT for your money transfer. But what about securities? “No one has ever succeeded in creating fake Bitcoins”. However, what you get for your money can be faked.

    For the time being, I will continue to use banks and banks will use Blockchain in near future. Normal transfers could be carried out in seconds, worldwide.

  • To be honest I am not understanding bitcions at all.

    I always wondered: are there any possibilities that a government (let’s say the USA) will ban bitcoins by law?
    And would that break the neck of bitcoin? Or is it out of government reach (darknet, already used for illegal stuff)?

  • Thanks for the book review. I am trying to understand Bitcoin/Blockchain and the related stuff myself, but have to admit that I wasn’t able to acquire “enough” knowledge up to this point.

    I have found cointelegraph which publishes articles on the topic, so maybe you are interested in that too (the stuff seems to be free of charge, but maybe you should not take all of the information published there at face value – but I guess that holds true for any website):

    Anyway, it’s a fascinating topic.


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