Could Bitcoin be a replacement for Gold?
Digital gold with a twist
“Satoshi [Nakamoto] was right with bitcoin. That’s what amazes me. Satoshi arrived at a foundation for the value of bitcoin that’s valid.”
The decline of the Argentine peso versus the US dollar from 2013 to 2014. Source: exchange-rates.org
“Digital gold currencies have been tried and failed many times in the last 20 years. They came to nothing thanks both to state resistance, but also to lack of adoption.”
Role as a currency
“Velocity is what determines value. Not just printing money. Satoshi [Nakamoto] has an absolute 21 million bitcoin limit. Bitcoin is determined by velocity, by turnover rate governed by the people holding the coins.”
Bitcoin believers
Source: CoinDesk
Harris poll question: Would you rather invest in gold or bitcoin? Source: CoinDesk
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All 70,000 residents living in Dominica will be eligible to receive bitcoin
(CoinDesk) All 70,000 residents living on the Caribbean nation of Dominica willbe eligible to receive bitcoin as part of ‘The Bit Drop’ project, an
upcoming collaboration between bitcoin businesses, interest groups and
local government officials.
supporters of bitcoin’, as well as education booths and free giveaways.
suggested the ambitious project started with a simple question: how do
you get bitcoin into the hands of as many people as possible? From
there, she explained, a plan was launched to distribute an undisclosed
amount of bitcoin to island residents via text messaging.
“Who doesn’t like a party? No one in the Caribbean, that is for sure.”
The ‘perfect location’
product (GDP), proved an ideal location for the event, according to
Blincoe.
the most compelling factor. Blincoe believes Dominica’s smartphone users
will be able to solve real-world problems using bitcoin, adding:
“The island has opportunities for remittance due to many
islanders moving for work to [other] islands, as well as the local
medical university with students from around the globe. Dominica
citizens also face currency exchange issues when traveling to nearby
islands.”
a regulatory body overseeing telecommunications in Dominica, bolsters
this claim, suggesting there were roughly 100,000 mobile subscriptions
active in the country in 2012. Additionally, bitcoin penetration is
comparatively low in Dominica.
“The young forward-thinking administration sees the long-term benefits
in the block-chain technology and is eager to support our project in any
way possible.”
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The bitcoin industry in Australia!
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Bitcoin has passed the tipping point
Products and services that are first-to-market often take such a battering that they lose out to competitors with copycat products. Business history is littered with wildly successful products with ultimately spectacular collapses because they lost out to competitors that found a better way of doing things – things they learned at the trailblazer’s expense.
The Sony Betamax is the poster child for products that created a market and lost out to a rival – in this case VHS. Sony created a market for recording TV, but because the tapes where an hour long VHS grabbed the movie rental market.
More recently, Friendster was the first social network to explode, with millions of users in the first 3 months. But it couldn’t manage its growth and lost out to MySpace and of course Facebook.
There are many more examples. Some lost slowly, like the Atari 2600 game console, and some crashed spectacularly like Rio MP3 player. Palm lost to Apple, Netscape to Internet Explorer, WebCrawler to Google, Tivo to the cable companies, and on and on.
So far Bitcoin is an exception to this model. And though it’s been battered by ruinous headlines, including one just this week where the World Bank is calling it a naturally occurring Ponzi scheme, Bitcoin remains resilient.
Kaushik Basu, World Bank economist and author of ‘Ponzis: The Science and Mystique of a Class of Financial Frauds’ argues that most Ponzis today are not always obvious and that today’s Ponzi schemes often don’t have a puppet-master pulling the strings. Bitcoin, he says, is just such a Ponzi. The speculation on the currency raises the demand for Bitcoin making it a bubble.
Bitcoin has hundreds of competitors all built on the Bitcoin model. A handful are gaining some success, like Litecoin which is currently trading at $9, and Darkcoin (I’m not kidding) which is trading now trading at $7.50.
Darkcoin was built to cover perceived flaws in Bitcoin’s anonymity. One reason for the early success of Bitcoin was that it was as anonymous as passing dollars on the street. And while there is a far greater level of anonymity with this electronic transaction than making a purchase with a credit card or PayPal, Bitcoin is not anonymous to those forces who really want to know.
Unlike Bitcoin, Dash mixes up users’ transactions so that it’s nearly impossible to trace a payment to a person. But the promise of Dash’s privacy features solves a problem for only a small subset of Bitcoin users.
Few have heard of other crypto-currencies. If people barely understand Bitcoin, then any competitor has the impossible task of differentiating itself.
In his paper Basu mentioned Bitcoin by name, so did the IRS when it said it was a taxable asset. And this week Benjamin M. Lawsky, the superintendent of financial services for the State of New York, proposed regulations to create a “BitLicense” to include rules on consumer protection, the prevention of money laundering and cybersecurity. That’s akin to Apple successfully rebranding the MP3 to a podcast.
Just search “20 USD in BTC” on Google and you’ll get the exchange rate. It works for any fiat currency. You can’t do that with any other crypto-currency.
Bitcoin is currently trading at $600. Not bad for a five year old Ponzi scheme.
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Analysts: Winklevoss Bitcoin ETF to pass SEC approval
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Pantera Launches BitIndex to Track Bitcoin
Components of index
- Developer interest on GitHub.
- Merchant adoption as a measure of consumer adoption.
- Wikipedia views measuring bitcoin education.
- Hashrate by logarithmic scale corresponding to orders of magnitude.
- Google searches captured by the number of times “bitcoin” appears.
- User adoption as measured by wallets.
- Transaction volume on the bitcoin network.
Always about price
Focus on investing
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Cryptocoins for good: Cryptocurrencies Empowering Citizens Against Oppressive Governments
How cryptocurrencies can change the balance of power between dictators and citizens
the “control by the ruble” of the Soviet Gosbank, to the dual currency
system in Cuba, China’s overvaluation of the Yuan, or the exchange
controls in countries like Venezuela and Iran, regimes of all types have
relied on these kind of controls to rein, or at least try to rein,
capital flights, inevitable when -sooner or later- markets try to
correct the excesses committed by money-hungry “revolutions”.
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| The Gosbank controlled the currency markets using what it came to be known as the “control by the ruble” |
citizens are usually the most affected by such currency controls: as a
pseudo-monopoly is established, a black-market is instantly created and
exchange rates climb inexorably, specially in left-leaning regimes where
the government aims for greater control of all aspects of the economy,
affecting the efficiency of the production system and pushing the
trade-balance the wrong way, increasing in consequence the amount of
foreign currency required to cover internal demand. In short, more
expensive currency is required to buy each time more stuff, the result?
Rampant inflation and even more poverty.
Marxist theory says that the structure of society must be based in
keeping people in poverty, ruled by an upper class with certain rules,
norms and such in order so they can keep people like that. This
old-proven-wrong-policy is still used by many governments today, in
February 2014, for example, some education minister of a Latin American
country said that the government “wasn’t going to take people out of
poverty so they can become political opponents”. This proves that
currency controls are not a consequence of failed economic policies, but
tools for the governments to exert repressing power over its citizens.
what would happen to oppressive regimes if they were to lose control of
the currency exchange, so the people is free to manage their wealth
beyond the power of government currency controls? Currency
decentralization is not new, 20th century economist and Nobel Prize
Winner, Friedrich August Von Hayek (F.A. Hayek), theorized extensively
on this subject, and though polemic, his writings provided an important
part of the theoretical framework for modern economics, specially in
areas such as theory of money and economic fluctuations.In his book Theory of Liberty he wrote:
“The
experience of the last fifty years has taught most people the
importance of a stable monetary system. Compared with the preceding
century, this period has been one of great monetary disturbances.
Governments have assumed a much more active part in controlling money,
and this has been as much a cause as a consequence of instability. It is
only natural, therefore, that some people should feel it would be
better if governments were deprived of their control over monetary
policy. Why, it is sometimes asked, should we not rely on the
spontaneous forces of the market to supply whatever is needed for a
satisfactory medium of exchange as we do in most other respects?It
is important to be clear at the outset that this is not only
politically impracticable today but would probably be undesirable if it
were possible. Perhaps, if governments had never interfered, a kind of
monetary arrangement might have evolved which would not have required
deliberate control; in particular, if men had not come extensively to
use credit instruments as money or close substitutes for money, we might
have been able to rely on a self-regulating mechanism. This choice,
however, is now closed to us. We know of no substantially different
alternatives to the credit institutions on which the organization of
modern business has come largely to rely; and historical developments
have created conditions in which the existence of these institutions
makes necessary some degree of deliberate control of the interacting
money and credit systems (my emphasis). Moreover, other circumstances
which we certainly could not hope to change by merely altering our
monetary arrangements make it, for the time being, inevitable that this
control should be largely exercised by governments”
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| Governments have assumed a much more active part in controlling money, and this has been as much a cause as a consequence of instability F.A. Hayek |
what if it was no longer inevitable? During the 20th century creating
and managing currencies was only possible for governments, so it was in
essence exclusively a political matter, but technology is changing that,
money issuing is not only government turf anymore, they now must
compete with cryptocurrencies. In governments with an effective rule of
law, this can be fair competition, for example, currencies can be
somehow regulated -as the IRS recently did in the US- and a legal
framework can be established so everyone can play by the rules. But,
there are many countries where the line between state and nation is
blurred, these countries may also take two additional paths, they can
prevent financial institutions or businesses from transact with
cryptocurrencies (e.g. Colombia and China) or they can declare an
outright ban (as it is rumored about China every single day). In both
scenarios cryptocoins could have a very important role, in the former
-while remaining legal- they can create a new channel for the flow of
foreign currencies, in the latter they can work as a relief valve, as an
alternative for the black market. In any case, by increasing the supply
of foreign currency, these coins can effectively push prices down, with
all the benefits that comes with it.
once, the development model that could arise from an efficient
cryptocoins market presents a development plan that is not based on
plain charity, in giving away something with the hope that the recipient
will make a good use of it and luckily return it back in future
productivity. People cannot only mine their own coins but they can rest
assure that the value of such money will be subject to fair rules of
supply and demand, not to devaluation-based political planning; and most
important, they may not be held hostage in poverty by exchange
controls, giving back to them a little of that sovereignty that
dictators keep claiming or themselves.
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Virtual and digital currencies can challenge the sovereignty of states
official. At a recent digital money conference in Dublin, he mentioned
that rivals are interfering with a bank’s ability to sway the price of
credit for the entire economy. Murphy warned that there might be
considerable threat to the finances of a country if increasingly more
transactions for services and goods fade away from the tax system due to
the use of crypto currencies such as Bitcoin. He added:
“Central banks, [out] of necessity, have monopolized the exercise
of these functions. Virtual currencies pose new challenges to central
banks’ control over these important functions.”
Bitcoin conference. It gathers the brightest minds in finance,
payments, banking, and business. The goal is to host fearless debates on
the risks and opportunities involved with decentralized currencies.
Bitfin (Bitcoin Finance) wants to shape
the future of corporate strategy, commerce, and economic policy in the
current industry of peer-to-peer digital money. “Bitcoin Finance is the
digital money conference you’ve been waiting for,” the official press
release reads.
trigger significant drops in economic activity. The Central Bank has
constantly emphasized that it doesn’t recognize digital currencies such
as Bitcoin in Ireland. Nonetheless, those who choose to use Bitcoin anyway won’t have consumer protection.
Murphy is well aware that virtual currencies could offer a great option
for people looking to buy and sell different services and goods. He
added that in these circumstances, the anti-money laundering rules will
be thoroughly tested. Failure of settlement infrastructure and
payments, or any sort of “financial plumbing,” could have a great impact
on the country’s economic activity and consumer confidence. Murphy
said:
“In effect, economic activity is the aggregate of domestic
transactions in the ‘euro-denominated economy’ and the ‘virtual currency
economy.’”
institutions and banks will most likely feel the effects. Other major
financial institutions don’t see Bitcoin as a threat to their
operations. However, in Murphy’s view, these institutions would be
foolish to have this kind of attitude towards the technology,
mentioning:
“This is likely to have a profound operational impact on these firms and their regulatory risk profile.”
economic challenges. Digital currencies defy the way these institutions
calibrate exchange rates, monetary policy and set price of credit.
Supporting Bitcoin and encouraging its growth would have to be
attentively monitored. Gareth Murphy added:
“The existence of a ‘euro-denominated economy’ and a ‘virtual
currency economy’ raises the prospect of an internal balance of payments
between two sub-economies where suppliers may prefer one currency over
another as a means of payment (for different goods and services).”
the most frequently used on a global scale. Bitcoin undermines a
central bank’s ability on matters such as economic analysis, data
collection, supervision, policy formation, enforcement and resolution,
so these sort of implications can’t be overlooked.
shouldn’t take things for granted and assume its actions will keep
falling under US and Switzerland regulations. He did mention that
Bitcoin should be used to support indefinite innovations that may come
from a wiser use of the technology:
“We should not presume that current regulations are
future-proof. It is possible that further innovations will mean that
these regulations may no longer apply. This suggests that new
regulations may ultimately be needed which are based on new legal
concepts with a clear scope which must stand the test of time.”
because they’re offering lower fees, commissions, greater convenience
etc. Bitcoin might gain control over the most important functions of
exchange rate and monetary policy. In spite of the currency’s relative
instability, more people are turning their attention to Bitcoin, and the
more publicity it receives the higher chances it has to become
ubiquitous in our everyday lives.
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Winklevii Bitcoin ETF under the ‘COIN’ symbol
As some have speculated, evident of the twins’ latest filing, the first of its kind bitcoin ETF will trade on the NASDAQ under the ‘COIN’ symbol.
“Identifying the ticker symbol and the exchange are two major events that further demonstrate that we are moving forward as expected.”
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Tim Draper, venture capitalist, wins government Bitcoin auction
(OnBitcoin) Tim Draper,
a Silicon Valley venture capitalist, was the sole winner of the US
Marshal Bitcoin auction. Mr. Draper purchased all 30,000 BTC, outbidding
many other participants in the auction such as Barry Silbert’s
SecondMarket.
Draper is an investor in Vaurum, an exchange platform for financial institutions.
In a statement,
Vaurum founder Avish Bhama said that Draper’s new bitcoins will be used
to provide liquidity to emerging markets through Vaurum.
“Bitcoin frees people from trying to operate in a modern market
economy with weak currencies. With the help of Vaurum and this newly
purchased bitcoin, we expect to be able to create new services that can
provide liquidity and confidence to markets that have been hamstrung by
weak currencies,” said Draper. “Of course, no one is totally secure in
holding their own country’s currency. We want to enable people to hold
and trade bitcoin to secure themselves against weakening currencies.”
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