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The Great Bitcoin Bull Market Of 2017 by Trace Mayer
By: Trace Mayer, host of The Bitcoin Knowledge Podcast. Originally posted here with images and Youtube videos. I just got back from a two week vacation without Internet as I was scouring some archeological ruins. I hardly thought about Bitcoin at all because there were so many other interesting things and it would be there when I got back. Jimmy Song suggested I do an article on the current state of Bitcoin. A great suggestion but he is really smart (he worked on Armory after all!) so I better be thorough and accurate! Therefore, this article will be pretty lengthy and meticulous. BACKGROUND As I completely expected, the 2X movement from the New York Agreement that was supposed to happen during the middle of my vacation flopped on its face because Jeff Garzik was driving the clown car with passengers willfully inside like Coinbase, Blockchain.info, Bitgo and Xapo and there were here massive bugS and in the code and miners like Bitmain did not want to allocate $150-350m to get it over the difficulty adjustments. I am very disappointed in their lack of integrity with putting their money where their mouths are; myself and many others wanted to sell a lot of B2X for BTC! On 7 December 2015, with Bitcoin trading at US$388.40, I wrote The Rise of the Fourth Great Bitcoin Bubble. On 4 December 2016, with Bitcoin trading at US$762.97, I did this interview:
As of 26 November 2017, Bitcoin is trading around US$9,250.00. That is an increase of about 2,400% since I wrote the article prognosticating this fourth great Bitcoin bull market. I sure like being right, like usual (19 Dec 2011, 1 Jul 2013), especially when there are financial and economic consequences. With such massive gains in such a short period of time the speculative question becomes: Buy, Hold or Sell? FUNDAMENTALS Bitcoin is the decentralized censorship-resistant Internet Protocol for transferring value over a communications channel. The Bitcoin network can use traditional Internet infrastructure. However, it is even more resilient because it has custom infrastructure including, thanks to Bitcoin Core developer Matt Corrallo, the FIBRE network and, thanks to Blockstream, satellites which reduce the cost of running a full-node anywhere in the world to essentially nothing in terms of money or privacy. Transactions can be cheaply broadcast via SMS messages. SECURITY The Bitcoin network has a difficulty of 1,347,001,430,559 which suggests about 9,642,211 TH/s of custom ASIC hardware deployed. At a retail price of approximately US$105/THs that implies about $650m of custom ASIC hardware deployed (35% discount applied). This custom hardware consumes approximately 30 TWh per year. That could power about 2.8m US households or the entire country of Morocco which has a population of 33.85m. This Bitcoin mining generates approximately 12.5 bitcoins every 10 minutes or approximately 1,800 per day worth approximately US$16,650,000. Bitcoin currently has a market capitalization greater than $150B which puts it solidly in the top-30 of M1 money stock countries and a 200 day moving average of about $65B which is increasing about $500m per day. Average daily volumes for Bitcoin is around US$5B. That means multi-million dollar positions can be moved into and out of very easily with minimal slippage. When my friend Andreas Antonopolous was unable to give his talk at a CRYPSA event I was invited to fill in and delivered this presentation, impromptu, on the Seven Network Effects of Bitcoin. These seven network effects of Bitcoin are (1) Speculation, (2) Merchants, (3) Consumers, (4) Security [miners], (5) Developers, (6) Financialization and (7) Settlement Currency are all taking root at the same time and in an incredibly intertwined way. With only the first network effect starting to take significant root; Bitcoin is no longer a little experiment of magic Internet money anymore. Bitcoin is monster growing at a tremendous rate!!
SPECULATION For the Bitcoin price to remain at $9,250 it requires approximately US$16,650,000 per day of capital inflow from new hodlers. Bitcoin is both a Giffen good and a Veblen good. A Giffen good is a product that people consume more of as the price rises and vice versa — seemingly in violation of basic laws of demand in microeconomics such as with substitute goods and the income effect. Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases in an apparent contradiction of the law of demand. There are approximately 16.5m bitcoins of which ~4m are lost, ~4-6m are in deep cold storage, ~4m are in cold storage and ~2-4m are salable. (http://www.runtogold.com/images/lost-bitcoins-1.jpg) (http://www.runtogold.com/images/lost-bitcoins-2.jpg) And forks like BCash (BCH) should not be scary but instead be looked upon as an opportunity to take more territory on the Bitcoin blockchain by trading the forks for real bitcoins which dries up more salable supply by moving it, likely, into deep cold storage. According to Wikipedia, there are approximately 15.4m millionaires in the United States and about 12m HNWIs ($30m+ net worth) in the world. In other words, if every HNWI in the world wanted to own an entire bitcoin as a 'risk-free asset' that cannot be confiscated, seized or have the balance other wise altered then they could not. For wise portfolio management, these HNWIs should have at least about 2-5% in gold and 0.5-1% in bitcoin. Why? Perhaps some of the 60+ Saudis with 1,700 frozen bank accounts and about $800B of assets being targetted might be able to explain it to you. In other words, everyone loves to chase the rabbit and once they catch it then know that it will not get away. RETAIL There are approximately 150+ significant Bitcoin exchanges worldwide. Kraken, according to the CEO, was adding about 6,000 new funded accounts per day in July 2017. Supposedly, Coinbase is currently adding about 75,000 new accounts per day. Based on some trade secret analytics I have access to; I would estimate Coinbase is adding approximately 17,500 new accounts per day that purchase at least US$100 of Bitcoin. If we assume Coinbase accounts for 8% of new global Bitcoin users who purchase at least $100 of bitcoins (just pulled out of thin error and likely very conservative as the actual number is perhaps around 2%) then that is approximately $21,875,000 of new capital coming into Bitcoin every single day just from retail demand from 218,750 total new accounts. What I have found is that most new users start off buying US$100-500 and then after 3-4 months months they ramp up their capital allocation to $5,000+ if they have the funds available. After all, it takes some time and practical experience to learn how to safely secure one's private keys. To do so, I highly recommendBitcoin Core (network consensus and full validation of the blockchain), Armory (private key management), Glacier Protocol (operational procedures) and a Puri.sm laptop (secure non-specialized hardware). WALL STREET There has been no solution for large financial fiduciaries to invest in Bitcoin. This changed November 2017. LedgerX, whose CEO I interviewed 23 March 2013, began trading as a CFTC regulated Swap Execution Facility and Derivatives Clearing Organization. The CME Group announced they will begin trading in Q4 2017 Bitcoin futures. The CBOE announced they will begin trading Bitcoin futures soon. By analogy, these institutional products are like connecting a major metropolis's water system (US$90.4T and US$2 quadrillion) via a nanoscopic shunt to a tiny blueberry ($150B) that is infinitely expandable. This price discovery could be the most wild thing anyone has ever experienced in financial markets. THE GREAT CREDIT CONTRACTION The same week Bitcoin was released I published my book The Great Credit Contraction and asserted it had now begun and capital would burrow down the liquidity pyramid into safer and more liquid assets. (http://www.runtogold.com/images/Great-Credit-Contraction-Liquidity-Pyramid.jpg) Thus, the critical question becomes: Is Bitcoin a possible solution to the Great Credit Contraction by becoming the safest and most liquid asset? BITCOIN'S RISK PROFILE At all times and in all circumstances gold remains money but, of course, there is always exchange rate risk due to price ratios constantly fluctuating. If the metal is held with a third-party in allocated-allocated storage (safest possible) then there is performance risk (Morgan Stanley gold storage lawsuit). But, if properly held then, there should be no counter-party risk which requires the financial ability of a third-party to perform like with a bank account deposit. And, since gold exists at a single point in space and time therefore it is subject to confiscation or seizure risk. Bitcoin is a completely new asset type. As such, the storage container is nearly empty with only $150B. And every Bitcoin transaction effectively melts down every BTC and recasts it; thus ensuring with 100% accuracy the quantity and quality of the bitcoins. If the transaction is not on the blockchain then it did not happen. This is the strictest regulation possible; by math and cryptography! This new immutable asset, if properly secured, is subject only to exchange rate risk. There does exist the possibility that a software bug may exist that could shut down the network, like what has happened with Ethereum, but the probability is almost nil and getting lower everyday it does not happen. Thus, Bitcoin arguably has a lower risk profile than even gold and is the only blockchain to achieve security, scalability and liquidity. To remain decentralized, censorship-resistant and immutable requires scalability so as many users as possible can run full-nodes. (http://www.runtogold.com/images/ethereum-bitcoin-scability-nov-2017.png) TRANSACTIONS Some people, probably mostly those shilling alt-coins, think Bitcoin has a scalability problem that is so serious it requires a crude hard fork to solve. On the other side of the debate, the Internet protocol and blockchain geniuses assert the scalability issues can, like other Internet Protocols have done, be solved in different layers which are now possible because of Segregated Witness which was activated in August 2017. Whose code do you want to run: the JV benchwarmers or the championship Chicago Bulls? As transaction fees rise, certain use cases of the Bitcoin blockchain are priced out of the market. And as the fees fall then they are economical again. Additionally, as transaction fees rise, certain UTXOs are no longer economically usable thus destroying part of the money supply until fees decline and UTXOs become economical to move. There are approximately 275,000-350,000 transactions per day with transaction fees currently about $2m/day and the 200 DMA is around $1.08m/day. (http://www.runtogold.com/images/bitcoin-transaction-fees-nov-2017.png) What I like about transaction fees is that they somewhat reveal the financial health of the network. The security of the Bitcoin network results from the miners creating solutions to proof of work problems in the Bitcoin protocol and being rewarded from the (1) coinbase reward which is a form of inflation and (2) transaction fees which is a form of usage fee. The higher the transaction fees then the greater implied value the Bitcoin network provides because users are willing to pay more for it. I am highly skeptical of blockchains which have very low transaction fees. By Internet bubble analogy, Pets.com may have millions of page views but I am more interested in EBITDA. DEVELOPERS Bitcoin and blockchain programming is not an easy skill to acquire and master. Most developers who have the skill are also financially independent now and can work on whatever they want. The best of the best work through the Bitcoin Core process. After all, if you are a world class mountain climber then you do not hang out in the MacDonalds play pen but instead climb Mount Everest because that is where the challenge is. However, there are many talented developers who work in other areas besides the protocol. Wallet maintainers, exchange operators, payment processors, etc. all need competent developers to help build their businesses. Consequently, there is a huge shortage of competent developers. This is probably the largest single scalability constraint for the ecosystem. Nevertheless, the Bitcoin ecosystem is healthier than ever before. (http://www.runtogold.com/images/bitcoin-ecosystem.jpg)(/images/bitcoin-ecosystem-small.jpg) SETTLEMENT CURRENCY There are no significant global reserve settlement currency use cases for Bitcoin yet. Perhaps the closest is Blockstream's Strong Federations via Liquid. PRICE There is a tremendous amount of disagreement in the marketplace about the value proposition of Bitcoin. Price discovery for this asset will be intense and likely take many cycles of which this is the fourth. Since the supply is known the exchange rate of Bitcoins is composed of (1) transactional demand and (2) speculative demand. Interestingly, the price elasticity of demand for the transactional demand component is irrelevant to the price. This makes for very interesting dynamics! (http://www.runtogold.com/images/bitcoin-speculation.jpg) On 4 May 2017, Lightspeed Venture Partners partner Jeremy Liew who was among the early Facebook investors and the first Snapchat investor laid out their case for bitcoin exploding to $500,000 by 2030. On 2 November 2017, Goldman Sachs CEO Lloyd Blankfein (https://www.bloomberg.com/news/articles/2017-11-02/blankfein-says-don-t-dismiss-bitcoin-while-still-pondering-value)said, "Now we have paper that is just backed by fiat...Maybe in the new world, something gets backed by consensus." On 12 Sep 2017, JP Morgan CEO called Bitcoin a 'fraud' but conceded that "(http://fortune.com/2017/09/12/jamie-dimon-bitcoin-cryptocurrency-fraud-buy/)Bitcoin could reach $100,000". Thus, it is no surprise that the Bitcoin chart looks like a ferret on meth when there are such widely varying opinions on its value proposition. I have been around this space for a long time. In my opinion, those who scoffed at the thought of $1 BTC, $10 BTC (Professor Bitcorn!), $100 BTC, $1,000 BTC are scoffing at $10,000 BTC and will scoff at $100,000 BTC, $1,000,000 BTC and even $10,000,000 BTC. Interestingly, the people who understand it the best seem to think its financial dominance is destiny. Meanwhile, those who understand it the least make emotionally charged, intellectually incoherent bearish arguments. A tremendous example of worldwide cognitive dissonance with regards to sound money, technology and the role or power of the State. Consequently, I like looking at the 200 day moving average to filter out the daily noise and see the long-term trend. (http://www.runtogold.com/images/bitcoin-price-200dma-nov-2017.png) Well, that chart of the long-term trend is pretty obvious and hard to dispute. Bitcoin is in a massive secular bull market. The 200 day moving average is around $4,001 and rising about $30 per day. So, what do some proforma situations look like where Bitcoin may be undervalued, average valued and overvalued? No, these are not prognostications. (http://www.runtogold.com/images/bitcoin-price-pro-forma.png) Maybe Jamie Dimon is not so off his rocker after all with a $100,000 price prediction. We are in a very unique period of human history where the collective globe is rethinking what money is and Bitcoin is in the ring battling for complete domination. Is or will it be fit for purpose? As I have said many times before, if Bitcoin is fit for this purpose then this is the largest wealth transfer in the history of the world. CONCLUSION Well, this has been a brief analysis of where I think Bitcoin is at the end of November 2017. The seven network effects are taking root extremely fast and exponentially reinforcing each other. The technological dominance of Bitcoin is unrivaled. The world is rethinking what money is. Even CEOs of the largest banks and partners of the largest VC funds are honing in on Bitcoin's beacon. While no one has a crystal ball; when I look in mine I see Bitcoin's future being very bright. Currently, almost everyone who has bought Bitcoin and hodled is sitting on unrealized gains as measured in fiat currency. That is, after all, what uncharted territory with daily all-time highs do! But perhaps there is a larger lesson to be learned here. Riches are getting increasingly slippery because no one has a reliable defined tool to measure them with. Times like these require incredible amounts of humility and intelligence guided by macro instincts. Perhaps everyone should start keeping books in three numéraires: USD, gold and Bitcoin. Both gold and Bitcoin have never been worth nothing. But USD is a fiat currency and there are thousands of those in the fiat currency graveyard. How low can the world reserve currency go? After all, what is the risk-free asset? And, whatever it is, in The Great Credit Contraction you want it! What do you think? Disagree with some of my arguments or assertions? Please, eviscerate them on Twitter or in the comments!
Beer, Blockchain and Derivatives Trades: A Hackathon Brings Bankers and Techies Together to Disrupt a Trillion-Dollar Market
The beer was flowing and the hubbub of conversation was beginning to rise at Barclays’ fintech hub in London’s trendy Shoreditch neighborhood last week. After a marathon competition, developers finally let their hair down. For the previous 48 hours, the participants of DerivHack had been testing new digital tools. There was more than just pride on the line. The new technologies promise to cut billions from the cost of processing trades in the multi-trillion-dollar derivatives and securities markets. For two days, in long sessions fueled by coffee and Coca-Cola, international teams of developers in London, New York and Singapore tested a new trading standard developed by the industry group, International Swaps and Derivatives Association (ISDA) that could transform the way the derivatives industry and other financial markets work. Banks and developers say the new trading standard, coupled with distributed ledger technology, could bring big savings to the expensive business of processing trades. A distributed ledger is a secure, decentralized database shared among different parties. Think of it as a bookkeeping method that instantly verifies that you’re getting precisely what you’ve agreed to. The best-known ledger technology is blockchain, which underpins the cryptocurrency bitcoin. In recent years, there’s been considerable hype around deploying distributed ledger technology in the banking sector to speed up all manner of transactions that now take days to clear. The derivatives market is particularly ripe for disruption. Despite is size, it’s riddled with inefficiency. Participants have established myriad ways to process trades over the years, leading to redundant layers of processing and compounding reconciliation costs, which occur when the data shared between the buyer and seller doesn’t perfectly match up.
A billion dollar fix
The ISDA’s fix to this problem is called Common Domain Model (CDM), a distributed ledger technology that it’s rolled out in stages over the past year that promises to automate the processing of derivatives trades. Deloitte reckons a blockchain-derived tool such as this could cut dealers’ costs of roughly $3.2 billion by 80-85%. “The total opportunity becomes much larger when considering the inclusion of other market participants outside the dealer community, benefits to regulators, improvements in funding, and balance sheet optimization,” Deloitte said in a recent report. But if CDM is ever to become a trusted trading standard, the geeks first have to put it through its paces. That’s why Barclays sponsored the hackathon, now in its second year. To get away from the suits in the Square Mile, it held the event where the coders and engineers could be found during the day—its Rise building in Shoreditch, which houses dozens of finch start-ups.
Making sense of credit default swaps
The market value of over-the-counter derivatives has fallen since the financial crisis of 2007-09. That’s when one type of derivative, credit default swaps, dominated before the market imploded under the weight of a cascade of defaults. But the gross market value of OTC derivatives still stood at a staggering $9.7 trillion at the end of 2018, down from a peak of $35 trillion in 2008, according to the Bank for International Settlements. The Common Domain Model was developed by ISDA in an effort to harmonize a patchwork of different conventions used to represent derivatives trades and processes, and bring them in line with the latest regulation. Another plus: it can automate error-prone manual processes. At its “derivatives hackathon”, Barclays gave teams of IT developers trading scenarios that required them to use ISDA’s CDM standard; the teams chose the technology platform—whether a centralized database or a distributed ledger platform. The scenarios allowed the teams to model post-trade processing of derivatives contracts to show how efficiencies could be achieved by using the CDM standard. Barclays hosted a similar event last year in New York and London. This year, DerivHack was extended to Singapore and the product scope broadened to include securities. Fifteen teams took part in London, 19 in New York and 8 in Singapore, including a team from Russia. In addition to Barclays, participating banks included JP Morgan, Goldman Sachs, HSBC, UBS, Bank of America and NatWest. Ian Sloyan, ISDA’s director for market infrastructure and technology, said ISDA was seeing a lot of interest in the new standard. “We are seeing some real-life projects now talking about implementing the ISDA CDM, which is happening at pace. In the next year, I think we are going to see some big implementation projects that will demonstrate how important the ISDA CDM is going to be to the market,” he told Fortune. Lee Braine, Barclays’ director of research and engineering, said that, a year ago, the purpose of the hackathon was to get a sense from the industry of whether the CDM made sense, and was usable. “We’re past that. The answer was yes. So now the challenge is: how do you drive adoption?” he said, adding the interest is strong from banks and fintechs alike. Sunil Challa, director, Business Architect, Barclays Strategy, said one big development since last year was that ISDA had made CDM open source, meaning any developer could work with the model, regardless of whether they were experts in financial services. “Within the blockchain/distributed ledger technology platforms, three out of the four major platforms have essentially taken this standard and mapped it, and extended it on their platforms,” he said. The winner of the London leg of DerivHack was Finteum, a startup that is building a platform for banks to borrow and lend to each other for hours at a time instead of overnight. Co-founder Brian Nolan found it relatively easy for Finteum, as a new trading platform, to integrate CDM into its platform. He said CDM showed promise as a standard. “Absolutely, not just derivatives, but here as you’ve seen in the securities industry, I think there is growing momentum behind it. I think today’s event proves that,” he told Fortune.
Blockchain in Banking & Financial Service Banking is mainly one of the most centralized and opaque industries, making the legacy financial ecosystem a prime target for Blockchain adoption. In the original Bitcoin white paper, cryptocurrency is labelled as a Peer to Peer (P2P) electronic cash system, highlighting the potential blockchain technology holds to transform the current financial ecosystem. Various characteristics of Blockchain such as decentralized, immutable, and transparency make it appealing for the banking and finance industries. The banking and finance sector is prone to errors and frauds being operating on the basis of highly dependent manual networks. This could lead to a crippled money-management system. As per Global Fintech Report 2017, 77% of Fintech institutes expect to adopt blockchain as part of an in-production system or process by 2020.
One of the most talked-about topics today is Blockchain in Banking & Financial Services. If fully adopted, it will enable banks & financial institutions to process payments more quickly and more accurately while reducing transaction processing costs. All major banks are looking to adopt blockchain which could be used for money transfers, record keeping, and other back-end operations. Traditional banks are highly aware of the potential blockchain technology holds to disrupt the financial sector. Major international banks — such as JPMorgan, Bank of America, and Goldman Sachs — are already heavily invested in the blockchain industry. The impact of Blockchain Technology in the Banking Sector is quite apparent. More than 1.7 billion individuals around the world currently lack access to basic banking or financial services as per the data released by the World Bank. Further studies were done by the World Bank showcase that blockchain technology holds powerful potential for promoting financial inclusion to the unbanked and underbanked.
Blockchain in Banking & Financial Services – Use Cases
Now, let’s briefly look at some practical use-cases for Blockchain in Banking & Financial Services industry: Fraud Reduction 45% of financial intermediaries like money transfer services and stock exchanges are prone to financial frauds routinely. Blockchain technology would help to get rid of some of the current crimes committed online against financial institutions. Know your Customer (KYC) Banks and Financial institutions spend anywhere from $60 million to $500 million yearly to process Know your Customer (KYC) and customer due diligence regulations as per a Thomson Reuters Survey. Blockchain would allow an organization to access the verification details of a client by another organization, thus avoiding repetition of the KYC process & reduction in administrative costs. Smart Contracts Smart contracts would be helpful in increasing the speed and simplifying complex processes when used for financial transactions. A Smart Contract will also ensure the transfer of accurate information as the transaction will be validated only if all the written conditions of the code are met. Clearing and Settlement The web network that records financial transactions costs investment banks billions of dollars to run. According to Accenture, the biggest investment banks could save $10bn by bringing in blockchain technology to improve the efficiency of clearing & settlement. Trade Finance Trade Finance which is paper-intensive is considered to be the most powerful application of blockchain. The electronic decentralized ledger that gives all the participants, including banks, the ability to access a single source of information and allows them to track all documentation and validation of ownership of assets digitally. Payments Blockchain brings higher security with minimal lower costs to process payment between organizations and their clients and even between banks themselves. It would eliminate all the intermediaries in the payment processing system.
Public blockchain specifically is a globally distributed ledger system. Its public & permission-less network is free and open for anyone to join, read, and write. Entire data is hosted on public servers. So, anonymity and data-privacy are significant challenges to be managed. In many aspects, the banking and financial industry stands on private, mission-critical and sensitive data. Very few aspects of this industry, apart from their promotional brochures, can probably fit into the world of public blockchains. On the other hand, Private and Permissioned Blockchain seem to be tailor-made for the financial industry with a built-in access-control mechanism. This indicates that only authorized personnel can join, read or write to this network. Depending on how we tune the access control, this can become a very powerful tool with trustworthiness and scalability to bounce. Private and Permissioned blockchain. Does this sound a lot like a fancy name for a distributed ledger technology? No, it’s not. The value a privately managed, fully-permissioned blockchain brings over traditional databases is integrity through cryptographically signed history. Conclusion In the current times, Blockchain as technology is getting well worth the attention in the financial sector which is beyond bitcoin bubble. If we take a practical approach, carefully study the design and performance characteristics of each blockchain implementation, it can turn out to be a game-changer to use in Blockchain in Banking & Financial Services industry. Moreover, some of the organizations are also investing heavily in such researches and tests conducted by startups to develop solutions based on the blockchain. With Private and Permissioned Blockchain entering the current scenario, a lot of problems could be solved while making the financial system more transparent, easy to access and reliable.
Krugman and Bitcoin and Me: Radical Thoughts on Fixed Supply Currency
My dad asked me how I reconciled Bitcoin's fixed supply with the Keynesian model of supply. I understand that most people around here don't hold much stock in what Paul Krugman has to say. But much of the real world actually does, what with his Nobel prize and all. So I put some serious consideration into what he had to say about deflation, how it relates to Bitcoin, and other vague currency questions. What follows is my email back to my pa. Many of these ideas have come from my time spent in this forum, so feel free to chop it up, edit, and distribute away if you find any of it worthwhile. Thoughts from a liberal after reading Paul Krugman's 2010 NYT piece: Why is Deflation Bad? Krugman and Bitcoin and Me Krugman's argument against deflation is built with a dependency: that there is a central authority which controls the money supply. So in a sense he has two core points. (1) Krugman prefers that a centralized authority control the currency supply in order to manipulate the economy. I'll allow that this tool can be a good, stabilizing force. But if that's the case, I want to be able to vet that institution from the bottom up before handing them the keys to the kingdom. And I want that institution to unequivocally work for society, not for Goldman Sachs. If I thought the current system worked well, I wouldn't be exploring other options in the first place. (2) Krugman prefers that that centralized authority manipulate the economy such that it encourages spending and lending. In other words, manipulate toward small inflation. This could be a good thing. And maybe the economy it creates is more fluid than a deflationary one. But when you bake into the system incentives to spend now and borrow from the future now, you get exactly the problems that you'd expect: over-consumption and a society largely ridden in debt. Control of the supply of the currency carries tremendous power. It can be used to smooth natural economic cycles and encourage specific consumer and producer behavior. This supply-manipulative ability is not in and of itself a bad thing. The question is whether it is necessary- because with Bitcoin (as it stands) it is impossible. Within the theoretical bounds of crypto-currency, the abilities for algorithmic, "smart" money-supply, one that rests on mathematics rather than the banking elite, are endless. There are truly exciting developments to come in this space. A First Consideration on Currency Think, for a moment, of the unit of currency as sort of a creditor's note. It is an IOU from society; a placeholder for some unit of production. It says, "I produced something valuable (for someone else who takes part in this system). In return I got this note. I have reasonable assurance that one day I can cash this IOU in for something that I'll need in the future." The unit of currency acts as a placeholder for its owner. Under this system, people trade their current productivity for the placeholder, and later (given the system still has integrity) they can trade that placeholder for something that raises their standard of living. It allows us to "time-shift" our production with respect to our consumption. But don't forget!: A unit of currency as "just a thing". It only carries value if it is actually valued by somebody else you want to do business with. The dollar, the gold bar, the Bitcoin. the Euro, all work the same way: they are nothing but numbers or paper or metal. They are just atoms arranged in a way that make them valuable to a group of people only because they trust in the future of their common system. Currencies are a subset of commodities. Commodities are things (oil, clothing, food, televisions) that are valuable to humans because they have useful properties. Like we said above, a currency's use is to "time-shift" production and consumption. The properties of the object that afford this advantage are usually a combination of irreproducibility, fungibility, scarcity, ease of transport, and securability. Why is Deflation Bad? In his 2010 NYT piece, Krugman argues that deflation hurts the economy due to three factors: (1) People become less willing to spend, because sitting on money becomes an investment. Your dollar tomorrow will buy you more than what it can today, so why spend today? Therefore, spending goes down. (2) Those in debt get into serious trouble awfully quickly, because the nominal amount-owed appreciates in value. As a result, they spend significantly less. At the same time, creditors have been shown to not spend enough such that it make up for this difference. Therefore, borrowing (and spending) goes down. (3) Psychologically, people hate nominal wage decreases. With a fixed supply currency, year over year, wages will have to decrease in name. Even if the value of your wage rises, the amount written on the paycheck is lower. Therefore, people freak out. These are troubling scenarios, though I think the first two are more substantial than the third. I don't mean to underestimate the psychological factor- in economics psychology is everything- but we'll talk about this later. Krugman presents the first two points as bugs in a deflationary system. I see them as features. "Your dollar will buy you more tomorrow than what it can today." I think this is natural. We are a rapidly advancing species; through technology we are becoming more efficient, automating crappy tasks, raising the standard of living for less work, of course a dollar (that placeholder for your unit of production) is going to go further tomorrow than it does today. Personally, I find this appealing. It provides every incentive to work now and spend later. That falls very much in line with good ol' American hard-working values and non-consumptive ethics. Krugman finds this worrying though. If people have less incentive to spend, their is a crisis in demand. Hello liberals?! When was the last time we complained about lower consumption? In a country wracked with hyper-consumption that has put an unprecedented load on Earth's environment and ignited a climate crisis, I see a drop in demand as a breath of fresh air! Furthermore, you don't have to worry about people never spending. People will always spend now- but only on the want/need products, rather than the maybe-want-need-this-now-really-might-as-well-because-my-currency-is-losing-value-and-all-these-things-meet-my-zillion-useless-ephemeral-wants products. I do believe there are much higher economic principles at work here. The United States is the world's default consumer. The global economy needs us to consume as much as it needs the million child laborers to produce. The economy would come crashing down if we stopped consuming immediately. But if we're trying to aim for a more sustainable economy, one that is compatible with the Earth's environment, let's move slowly and use a deflating currency as an incentive! "Deflation rewards creditors and hurts debtors. Debtors spend less and creditors don't spend more enough to offset." The impassive Krugman is beating around the bush. There is a problem when debtors suffer at the expense of creditors, and it's more than just a net loss in consumer spending. If you're concerned about a reduction in spending, see my previous point. But the remaining ethical problem is glaring- a power imbalance already exists in a creditor-debtor relationship, and it seems that deflation only widens this gap, crucifying the debt class on a cross of deflationary coin. There's no doubt that this is a problem. And wealth redistribution may ultimately be easier with an inflationary currency- again, a word on that later. But there is also an incentive here: borrow less. Credit card debt is at an all-time high, up 1200% in the US since 1980, all while student loans have ballooned out of control. But neither of these problems even compares to the $7.8 trillion of mortgage debt our country has dug itself into. Now debt is not a bad thing. The right combination of debt and saving, that is- using both capital previously earned with capital borrowed from future earnings- indicates a healthy economy. I don't want to have to work my entire life only to afford a house at the very end. I want to be able to borrow from my future economic output, buy the house now, and live in it while I work to pay it off. The same goes for student debt, corporate debt-financing, etc. Access to credit is crucial to a healthy middle class. But ever-increasing debt is not sustainable. Nobody lives- and produces- forever, so you cannot always borrow from your future economic output. In the end, regardless of the money tricks you play, you have to produce enough value to cover your consumption. The world recently found out, in a mild manor, what happens when a currency's incentive and a nation's culture favors borrowing. When given the opportunity to build houses they never could have dreamed of paying off in their lifetime, millions of people took the offer and the biggest lenders took the risk. The echoes of their mass default still burden the global economy 6+ years later. The point is, if Krugman says "inflation promotes borrowing", I say, "is this debt-ridden wreck what we really want our economy to look like?" "People would freak out when their paycheck goes down." I say get over it. Other possible proclamations in a deflationary world:
"Today, this meal costs the most it ever will!"
"My phone bill will never be this high again!"
"Filling my car up costs less every day!"
"Taxes go down every year so I love my life!"
Better yet, this reflects reality! Technology makes everything cheaper every day. You should be paying lower phone bills tomorrow. Has the infrastructure gotten less efficient? Here it feels like Krugman's grasping for straws. He pounces on people's reaction to their one source of income rather than their many expenses. This point also invokes that ugly liberal side: "The people don't know what's best for them." The Central Authority as a Tool for Wealth Redistribution Now we're talking. As a Liberal, I consider this to be a most important necessary evil. But let's call it what it is: stealing from the rich to give to the poor. (Unless we reject the modern notion of property- stay tuned...) In an inflationary economy, value is constantly leaching out of everyone's savings. Those who control the monetary supply have a means of reaching into every dollar, and skimming off a little bit of value. We can choose to do a lot of good with this. Right now the skimmed dollars are "lent" to banks- the theory is that they then have more to lend to the general public and everyone benefits. Lending is good right? It introduces liquidity. But continue this cycle ad infinitum and all the spending in the economy starts in the form of bank debt! It is no coincidence that Americans households are more in debt than ever before. If wealth redistribution is the only benefit of a central supply authority (which can fall out of trust at any time), this is a weak foundation. We already have a mechanism for wealth redistribution: taxation. Let's be proud of it, call a duck a duck, raise taxes on the wealthy, and introduce that liquidity with massive infrastructural programs, education spending, science spending, etc, rather than in the form of bank loans. One last point- inflation appears to be a flat tax. That's already bad. It affects every dollar proportionally, rich or poor. Worse, the middle class and poor have a higher percentage of their net worth in USD- so inflation then becomes a regressive tax... given to banks... to be lent out to again to the middle class. All in the name of wealth redistribution?! In the name of kick-starting the economy?! Something's fishy here, and "you wouldn't understand, it's more complicated" doesn't cut it as an answer for these practices. Bitcoin So. What are we even doing here? In 2009 a great mind developed a tool, the first in the history of human civilization, for "minting" a currency according to a fixed and open sourced algorithm. Without the involvement of any third party, you can now send an irreproducible digital object of fixed supply to anyone with an internet connection. The implications are mind-boggling. But the first such currency, Bitcoin, happened to be fixed-supply and ultimately deflationary, which has re-sparked the deflation vs. inflation debate. This is happenstance. The protocol that gives rise to these digital currencies- the bitcoin protocol (small b)- could easily implement a different supply model. Paul Krugman can start a currency, KrugCoin, with any supply model that he likes! Which begs one last question. Let's say I'm presented with an option: I may collect my paycheck in a currency that deflates- that is, my paycheck will gain value over time. Or I may collect my paycheck in a currency that inflates- it loses value over time. Why would anyone choose the latter? Must a population be forced into using an inflationary currency? Are we?
TL;DR: money makes the world go 'round. buy bitcoins before the dollar collapses. Global trends should be making everything cheaper, faster, and easier. But some things remain the same. Americans still aren't taught how to critically think in public schools. People across the globe are still hungry. Isn't it obvious that the people who make the rules, and the people who make the money - the people in charge - are not using this power and money for good? The reason these problems still exist is simply that fixing them is not profitable. But "profitable" is soon going to be an outdated notion. Money won't matter, if we reach the point where the whole world has been stripped to the bare earth and a few giant corporations own everything. In that world, who'll give a shit what's profitable? Everyone's lives will be equally bad, except for those at the top. The money system is controlled, collectively, by the bankers. (-1-, -2-) The banks create their profits by loaning money to companies and governments, creating debt. All that new debt has interest attached; the interest charges on the USA's debt, for the year 2010, were about half of the 2010 income tax revenue. (Right - half of 'our tax money' goes to the interest fees on Uncle Sam's credit card. After the other half is spent on other line items, there's still a couple trillion dollars worth of other bills. We've just been letting them pile up on the kitchen table for a couple of decades. See IOUSA, streaming on Netflix, or this data-packed site for further info on the USA's astronomical debt.) The US is cheating right now by making more money to pay some of these debts. (The Fed is not part of the government. It's a private corporation whose shares are owned by... Surprise! More bankers - JP Morgan, Chase Manhattan, Goldman Sachs, etc. These are the owners who get half of our tax dollars each year. Remember when we had to bail these same guys out a couple years back, because they bet all the mortgages at a roulette table and lost all their money? Fun times!) Understandably, other countries are grumbling about the US's unfair advantage. The dollar's value has just been dropping steadily since the Fed was invented 1933 - but since modern finance is based entirely on the dollar ('the world's reserve currency'), allowing the dollar to fail would be a very messy prospect. No countries have been willing to call us out on our shenanigans so far. But nothing good lasts forever; saying that the dollar can't fail is simply wishful thinking. Even the Council on Foreign Relations says that economically, we're no stronger than the rest of the G20. Wouldn't it be nice to neatly sidestep this collapsing system? We might have a chance with "Bitcoins." Bitcoins are a cryptocurrency. They're anonymous, and transactions can't be chargedback. This means, that for the first time ever, we might be able to set up a real free market, free of meddling by banks and governments. Digital cash brings a paradigm shift - for example, since bitcoins are anonymous, the government can't look in your bank account to see how much tax money they can take. There's many interesting ramifications of this idea; for one, if you want to buy drugs anonymously with anonymous cash no one can stop you. Bitcoins exist in a peer to peer network of clients, who run the Bitcoin software. All nodes talk to each other and follow an agreed-upon set of rules. These rules handle stuff like the exchange of bitcoins, preventing cheaters from spending coins that they don't own, and minting more money. The system seems pretty robust so far; and as more people use it, it gets stronger. There are 5.7 million bitcoins right now; worth about $0.75 each. The minting process will gradually slow down as the total supply of bitcoins approaches 21 million. I bought a couple hundred bitoins myself, because a) they're cool and b) if the system gets widely adopted, the value of each bitcoin will see some impressive gains. See bitcoin.org for the official client, mybitcoin.com for a much easier to use web client, bitcoin.it for a wiki. Go buy some bitcoins before the dollar collapses. Follow @bitcoinnews, check out the bitcoin.org forums and trade anything over the counter in #bitcoin-otc on chat.freenode.net. There's also /bitcoin. Technical details - Bitcoin is based on public-key crypto. Imagine a big pool of bitcoins; and imagine that each one has a different lock on it. These locks are here to prevent coins from being spent without the matching key. Everyone can see and examine all of the coins and the locks, but the keys are secret... only the person with the key can unlock the lock and spend the coin. Bitcoins are digital cash - if you lose the key to the lock on your bitcoins, you have no way to ever get a new one to unlock the coin. It's like dropping change down a storm drain. So, owning the key means that you effectively 'own' that coin. When a coin is 'spent,' the old lock and key are destroyed and new, different ones are created. The new owner gets the new key; now he 'owns' the coin because he's the only one who is allowed to spend it. You spend bitcoins in "transactions." Let's say Alice owes Bob ten bitcoins for some data. Alice sends out a message to the network, saying 'I am transferring ownership rights of these coins to Bob'. From now on, Bob owns the coins. The system makes a note of this transaction, and a few minutes later, the transaction is recorded in a "block." Blocks are lists of recent transactions that prove the transfer of ownership. About 6-8 blocks are usually generated per hour, so each block generally contains about ten minutes of transaction history. Every time a block is created, the creator is rewarded with some bitcoins. This is how bitcoins are created. There's a chain of blocks going all the way back to the first bitcoin that was created, in 2009; new bitcoins trickle in at a constant rate. (Over a period of decades this rate will slow to a trickle and stop; the total number of bitcoins that will ever exist is 21 million.) The transaction record stored in the chain of blocks is complete. There is a hard record of every bitcoin transaction that has ever taken place. Clients can look through this history to check if a transaction is legitimate - if Alice sends Bob her bitcoins, the network as a whole will cry foul when she tries to send the same ones to Claire later. This prevents cheating, because anyone who tries to simply create new bitcoins out of thin air will be ignored, since there's no record of the coins existing. However, note that until the Alice-Bob transaction is recorded in a block or three, ("confirmed,") it might be possible for Alice to send Claire the same bitcoins. In this case, the official ruling is, whichever transaction ends up in the next block counts as valid. (The nodes generating blocks will include the first transaction they receive, and ignore the later attempts.) Either Bob or Claire would get the bitcoins, the other would be SOL. So, to completely trust a transaction, you need to wait for the transaction to be confirmed. Incidentally I am planning a cross country road trip next month funded entirely by bitcoins.Follow me on Twitter, it's going to be an epic adventure! I plan on making a podcast and blog about my travels (maybe a documentary too if I can get my hands on a camera.)
Goldman Sachs And Morgan Stanley Are The First Banks To Use IBM’s CLSNet. The bank-owned currency trading utility CLS, which now has a partnership with the tech giant IBM, has finally made its joint effort with IBM, CLSNet, go live after more than two whole years of development. Now, companies like Goldman Sachs and Morgan Stanley are starting to use IBM’s CLSNet along with other companies. Goldman Sachs have tired of being nagged about Bitcoin — and did an investor call about this nonsense, and about what might be good for investors in the Covid-19 era. So, Goldman Sachs made several obvious and uncontroversially true statements about internet novelty collectibles. Page 29 notes that bitcoins: [Goldman Sachs, PDF] A new technology is redefining the way we transact. If that sounds incredibly far-reaching, that's because it is. Blockchain has the potential to change the way we buy and sell, interact with government and verify the authenticity of everything from property titles to organic vegetables. Goldman Sachs Crypto Report Is Positive For Bitcoin. Goldman Sachs held a call with its Chief Investment Officer on the US economic outlook. Topics discussed in the call included the US dollar as it faces the worst inflation yet, and how assets such as gold and Bitcoin would come into play, but Goldman Sachs doesn't think Bitcoin is an asset class at all. The bogus confessions of operatives claiming to have created Bitcoin are diversions to keep attention away from the real bitcoin creators and owners – Goldman Sachs and Philip J. Venables, a member of the Highlands Group (1995), and a member of Obama’s Commission on Enhancing Cybersecurity (2016).
Snowden & Bitcoin Goldman Stable Coin CSW Crying In Court
This video is unavailable. Watch Queue Queue. Watch Queue Queue Queue Visit our website: https://altcoinbuzz.io In this video, Mattie talks about Warren Buffet and if he suddenly has come to like bitcoin. He also gives you the ... 1 month free. Find out why Close. #cryptocurrency #BAKKT #Bitcoin. GOLDMAN SACHS STARTS BITCOIN BOOM! FIRST BTC EXCHANGE ON WALL STREET! ... Goldman Sachs Embrace Bitcoin - Duration: 1:05 ... #cryptocurrency #BAKKT #Bitcoin #altcoin #binance #kucoin #coinbase #ripple #cryptocurrencynews,#xrp #bnb #neo #bakkt #fidelitydigitalassets #bitcoinprice #bitcoinnews,#bitcoinpump #bitcoindump # ... Goldman Sachs held an investor call Wednesday to discuss current policies for bitcoin, gold, and inflation in the context of the COVID-19 crisis. The stalwart investment bank is still no fan of ...