Bitcoin has become something I should have seen coming but didn’t. It’s becoming a safe-haven asset for those looking for a port in the upcoming monetary storm.
Back in the before time, when libertarian populism was still in its infancy, I found a link to a thing called Bitcoin on the Daily Paul. This would be 2010.
I wrote about it for Lewrockwell.com before there was even a Wikipedia page. I tell you this so you understand that my relationship with Bitcoin is multi-dimensional. If I was there at the beginning why am I not dictating this to my assistant from my private island in the Caribbean?
Many reasons. Getting hacked and losing 250 of them is one of them.
Not believing in Bitcoin’s eventual success was the other and I wrote:
I see Bitcoin as a metaphor for the Web itself. It is what happens when people of common tastes are able to find each other over vast distance to find their niche in the division of labor. Synthesizing cryptography, programming and monetary theory into a unique offering could not have happened without the Web; itself that which subverts attempts at control as a natural consequence of its own structure.
Any success Bitcoin enjoys exists as a means to an end (improving how humans interact via mutual exchange), not the end itself (adoption in the marketplace). All knowledge is fractal; each new exploration implying a completely new host of questions that need answers… and right now we need answers.
Today, I still don’t believe in Bitcoin itself because of scaling issues. Every day that it grows in usage the limitations of the initial conditions of the protocol reveal that they are inadequate to what the market demands of it.
But I do believe in cryptocurrencies and their potential to change way the world works.
The market is awake to this power. It started with the desire to be anonymous. Contracts on the ‘dark web’ and all of that.
But, since 2013, newly-minted middle-class Chinese have been using Bitcoin to bypass capital controls to get money out of China’s slow-motion credit collapse. So have Europeans, South Africans, Turks, etc. Anywhere there has been monetary and social upheaval, Bitcoin has been there assisting them in preserving their wealth.
This is normal safe-haven behavior, the kind that gold used to fulfill, people procuring gold and silver, crossing borders at lightly guarded stations. You know, spy movie stuff.
That was the next step for Bitcoin to take. From a curiosity and black-market currency to a temporary means to move wealth without governments knowing about it. It is what began to truly fuel its rise.
And as the monetary system continued to break, evidenced by ever bigger interventions to prop up sovereign bond, currency and stock markets by central banks, more money flowed into cryptocurrencies, especially Bitcoin.
Today, $100 billion has been laundered out of the monetary system and into cryptocurrencies. That number represents a tiny fraction of the world’s wealth.
The copycats showed up and tried to solve Bitcoin’s scaling issues, thinking that was the way to a win the market share. But, that wasn’t it. Bitcoin, had what we market analyst guys call ‘first-mover’ advantage.
It has branding and the strongest infrastructure.
Building Safer Tools
Today, losing your coins like I did to a keylogger getting my Mt. Gox password will only happen if you allow it to and don’t take simple precautions. Back then, Trezors didn’t exist.
What will challenge Bitcoin in the cryptocurrency space is not only solving the scaling issues but also building more information and therefore value into the blockchain itself. And that’s where Ethereum comes in.
Ethereum, simply put, builds on Bitcoin’s ledger system to create ‘smart contracts’ that can house more nuanced information. Ethereum can close a property transfer (like buying a house) with all of the legally necessary information embedded and verified.
But, more importantly, we can build distributed applications (DAPPS) on top of the Ethereum blockchain. For me this means the end of voting fraud. One person, one vote. Verified in the blockchain. No singular nodes of corruption like a Supervisor of Elections stuffing a ballot box, or Diebold machines programmed to George Soros’ preferred outcome.
Completely secure communication of all types and the aggregation of that information forms a unit of account that can be valued against other units of account, like dollars. Except that these dollars have rules no philosopher-king at the Marriner-Eccles building can change at a moment’s notice.
And that’s why both cryptocurrencies are in the news, spiking in value every day.
Embedded in that statement is something more powerful. It is the need for a better money. Safer money. Money that better connects entrepreneurs with capital.
Money that does away with the middle man who gets paid to create debt for no create debt for no cost to him and lend it to you at usury rates, doing, you know, “God’s Work,” to quote Goldman-Sachs CEO Lloyd Blankfein.
Every day politicians work with the banking class to put up barriers to keep us in a failing system. The institutions have arrogated the power – the banks, the governments, the exchanges, etc. They are over-leveraged and under-capitalized.
Their tools for clearing transactions are out of date. I keep speaking about Bitcoin’s ‘scaling problem.’ But, seriously, is a 10-minute clearing time for transactions that normally take days really an issue?
No. Only when Ethereum can do it, and more, in seconds.
We have reached debt saturation around the world.
Ending the Debt Monopoly
The central banks are fighting a losing war. Japan just approved Bitcoin’s use. Singapore declared financial war on Hong Kong and no one noticed. Their central bank is moving the Singapore Dollar onto the Ethereum blockchain, fulfilling a long-held belief that it will become the Zurich of Southeast Asia, leveraging Ethereum’s massive advantage in clearing to drive costs lower and service higher.
Vladimir Putin met on the sidelines of the St. Petersburg International Economic Forum with Vitalik Buterin, the developer of Ethereum to discuss Russia developing a national crypto-Ruble using the Ethereum blockchain.
Putin knows that national sovereignty can only be obtained through having control over the value of your currency. This is why he ordered a national replacement for the SWIFT electronic payment system be developed in case of further degradation of relations with the U.S.
A meeting like this says Putin is looking ahead as plans for Eurasian integration and development mature. Building a national cryptocurrency upgrades Russia’s financial system and fast-tracks development of financial services across the region by eliminating the need to train thousands to do the back-office tasks that Ethereum and DAPPS can automate.
This has always been the Achilles heel of emerging market economies. The cost to professionalize financial services and banking.
The gulf between Zurich or London and Moscow as financial clearing centers shrinks considerably if Putin adopts Ethereum. It also makes Russia the target destination for capital looking for a home in the coming European sovereign debt crisis.
Looking at how the market is reacting to the earliest rumbles coming out of Europe, I can safely say this is just the beginning of this story, which is why I am not bitter about my early interactions with Bitcoin.