The Crypto-Magicians


Cryptocurrencies: Freedom Currency


(Updated June 17, 2016)

The outlook for cryptocurrencies? Great. Think private, however. Protect yourself from you know who.

Do you believe that cryptocurrency is money, all by itself? Without a physical backing? Without gold? That Fintech alone creates value?

Currently, you are correct. In a token sort of way.

A few economists actually agree anyway. And they might be right.

With their little red bow ties, wire rimmed glasses, tweed suits and soft handed manners, they are happy to explain.

These new ‘cryptonomic’ or crypto-maniac, if you prefer — economists assert that the old methods – nay they disdain the ancient “gold” backed monies — as just that: the paradigm of the past. Economics of cave people. Move on, they say.

Fed Chairperson Janet Yellen would probably agree. Yellen mines dollars at the Fed. Token currency.

In a ballet of monetary magic, the banks then mine more tokens. Not real money. Keynesian money. Not much different from many a cryptocurrency, except the main part.

Decentralized. That’s the byword of cryptocurrencies. But they are not really all that successful at it.

Now many cryptocurrency developers would agree. They adjust the supply of crypto-tokens with demand, like the Fed. Either at the mining level or “stake” level — the process is a mirror image of top-down National token-politics.

The only difference is that the math — the algorithms — are the dictators in the crypto-world.

And math is not fickle nor does it have agendas. But cryptocurrency developers can be fickle.

In a sense, gold, to the Brethren of Bitcoin, is too centralized. An economy based upon trading pretty colored rocks. Albeit, rocks with many uses. But rocks to be avoided.

It’s the modern age. Act modern. Break out the computers and enter virtual reality…and open an account. Ignore the fact the Fort Knox has a lot of gold. Never mind that your computer is made with gold.

Like pretty rocks, but in a virtual sense, Bitcoins are limited in number. The number of numbers are limited. Virtually. A Fort Knox of Numbers. Please stop.

The nearly ubiquitous and reasonably fast blockchain technology-ledger rules the kingdom. Maybe.

Gold is too heavy to lug around. High insurance fees. Overpriced transfer costs. Government covetousness. And you should have some anyway.

Just rocks. Believe in the virtual-money. Have faith. Or use your brain.

You have no worries now. Computational information can be zipped around in a flash.


 

Flash Money?

And that’s what you have  — a form of ‘flash-money.‘ Not the kind used by police to entice a drug dealer, but the kind that can evaporate in a flash. More basic. Real-unreal. Magic.

Why does it work?

These new economists are zealous, tossing out, in a flash, the entire school of Austrian economics, with the baby. Regression Theorem and all. Or have they?

The debate whether or not cryptocurrencies are “money” has put a spotlight on the Menger-Mises Regression Theorem. As stated, the theorem posits that a non-fiat money must have had value before it became a money. — Peter St. Onge  (12/11/2014)

Source: Cryptocurrencies and a Wider Regression Theorem | Mises Daily

Can cryptocurrency confirm the Regression Theorem, as Peter St. Onge, assistant professor at Taiwan’s Fengjia University College of Business, implies? Only if the Regression Theorem is “liberalized.”

In other words, one must rip away the pillars of the theorem in question — that gold has non-money value. Why? Because cryptocurrency does not. But it’s okay.

Gold is used as jewelry and a million other non-money things. Not cryptocurrency. Does just one thing. Provides a token to make the blockchain go round.

By itself, cryptocurrency is just a collection of coded numbers. Numbers which represent useful information. Numbers that run programs — applications — as well.

Cryptocurrencies are a service. A service paid for with the native token currency.

The scarcity of the programmed numbers is not the value of cryptocurrencies, however. The service provided by cryptocurrencies generates their value.

The fact that people might want the native crypto-tokens, means they might want the provided service. For example, embedded email or chat built into a cryptocurrency platform.

If the crypto-tokens are private, all the better. If there are a limited supply of tokens, better still. Artificial disinflation.

The ability to attach projects and other executable software or contractual records or information to cryptocurrency systems can increase their value.

It is arguable if any intrinsic value is imparted as a result of utility, however. A use value is just one aspect of a good crypto-token money.

The service function of a crypto-token is perhaps it’s best transitory utility. It is not a “useful good,” as Ludwig von Mises would argue. But a useful service?

It’s a tool. A reusable tool. An ever improving reusable tool.

ludwig_von_mises
Ludwig von Mises

Those who can provide wanted computational processing, especially in a private decentralized manner and do it efficiently, will certainly attract willing buyers.

But in the end, these cryptocurrency systems are selling tokens. It’s the price of admission for blockchain enjoyment. The service. Or the promise of a service to come.

Tokens pay for specialized processing and data storage. Why? Because coded cash from the banks is not yet allowed — in most countries.

Cryptocurrencies, a token money, do compete with government token monies.


…computational token monies…

These privatized computational token monies streamlined the costs of token-money transfer and, depending upon the choice of cryptocurrency, eliminated inflation.

Cryptocurrencies also gave one access to services — to a more secure and private economy. Some would term this a ‘Black Market’ on a worldwide scale. Others claim it is a free market.

These computational tokens are very divisible, which is also requirement for money.

They can be saved.

Computational tokens can be artificially rare, within their own systems.

Homogeneous, yes.

Easily stored. Yep.

Perishable? Gold will last a very, very long time, but will cryptocurrency? So long as they are updated. New systems will emerge. Improved forms will come along.

Wide value fluctuations. That is another flaw in the computational token world. In this sense, they are inferior forms of token money, but so is cash. Perhaps they are better speculative vehicles.

Long term cost or price stability is important. If tokens revalue wildly, few will use them regularly. Unless their own national token money is devaluing, broken, corrupt, over-taxed or non-existent.

Tangible. Computational tokens are not tangible. Processing costs money, but you can’t touch a computational token.

And the electricity used to mine cryptocurrency does not transfer to the tokens. For the same reason, your pocket calculator does not lend the numbers on the readout any special electrical powers.

Not a big problem. Many of us never use tangible cash anyway.

Demand

The demand for cryptocurrencies continues.  And that is the crux of it. One must have demand for a cryptocurrency for it to be valuable — even temporarily.

The store of value for savings and long-term planning is still growing. Computational token currencies do not yet qualify as a long term saving vehicle. Even a short-term hedge can be problematic.

The usefulness of computational tokens can me magnified, however. Value added.

Ethereum and Lisk are examples of this technique. Both, unfortunately are currently inflationary. What’s more, neither one is private or cash-like.

Ethereum and Lisk are more closely related to public businesses, albeit with decentralized blockchain (ledgers). In fact, the banking systems have been interested in Ethereum for some time.

Several banks have issues with decentralized blockchains, however. They want security and privacy and a way to keep prying eyes blinded, except for Uncle Sam. Maybe these should be considered “lockchains.”

Look for Eth-Clones, brought to you by banks, in the near future. Or Bitcoin clones with Ethereum-like capabilities. Even Lisk, which uses JavaScript programming language, rather than a new programming language altogether, like Ethereum — could take over this space.

And there is that DAPP problem. These “decentralized applications” are designed to run on either Ethereum or Lisk, but which particular DAPP has become or is becoming so useful that it puts the “service” into the system(s)?

Gambling? Lotteries? Okay.

But what about real life utilitarian DAPP’s that fit the blockchain like the proverbial glove? Something that cannot be found off-chain?

We’re not looking for cool DAPP’s, like self-executing smart contracts. Contract DAPP’s may not be trustworthy. Reputations would need building. Publication of real names a distinct option, for things like real estate.

There are map making DAPP’s or street view DAPP’s. Google Maps are free, but they are watching your every internet move.

There are DAPP’s for art, blogging, identity theft protection and crowd funding.

So far, there are no DAPP’s we can’t live without. A DAPP where we will say afterwards, “how did we get along without this DAPP before?”

That is the key — a highy desired DAPP, but one more thing. A highly desired DAPP on a private blockchain. Again, Ethereum and Lisk? Not private. Result? Neither is your potential ‘service-money.’ Your crypto-token.


Privacy Matters

Monero, on the other hand, is working on DAPP-like features to give their decentralized and private crypto-tokens more zing.

That is the thing about services. One can compete in an open market and offer a service-money (tokens) that is privacy-centric.

Monero is working on private email functions within its cryptocurrency system as well. This has been done before.

DigitalNote has this function, along with a blockchain savings feature.

In any case, no matter the development effort behind the cryptocurrencies or the variety of computational tokens and DAPPS, it boils down to this: unless and until cryptocurrencies are backed by some real substance, their value will probably be transitory and unstable; and fantastic.

Computational processing time has value, but it becomes less expensive each day. So to would any token-money-cryptocurrency. In other words, the DAPP would need to compete against more efficient APPS in the non-blockchain worlds.

Privacy of information is very valuable. This appears, upon examination, to be a great way to monetize crypto-tokens, but are these crypto-tokens unfocused? Trying to sell us the sizzle, tons of cool useless DAPPS and no steak, meaning useful applications?

This is not a game to be sure. Tokens are not real, but token-money has value. Processing power and DAPP’s are ever improving on and off-chain.

The tax picture is confusing for DAPP’s and crypto-tokens. Cryptocurrency tokens are intangible commodities in the United States. They must follow money transmission guidelines to boot.

In any event, cryptocurrencies will continue to thrive, in the current international environment.

Threats include government mandated shutdowns. Or a new gold standard.

Gold as money seems doubtful in the United States since government is addicted to the cheap-money-drug. No different from Greece…except the bigger they are… and you know the rest. The winding-down could be detrimental to one’s assets. That’s polite way to put it.

Cryptocurrencies could be used as virtual gold certificates, if we, in the United States, so chose.

Cryptocurrencies also serve as a buffer against inflation — government devaluation of the currency in circulation. And like in Argentina, Cyprus, Greece and China…and many more nations where money is devalued at the expense of the people, cryptocurrencies act as temporary islands of safety. Safe harbors, where one can regroup…and organize.


Prediction

Cryptocurrencies will continue to gain market share as long as nations deny citizens sound monetary systems.

 

 

 


Sources: Photos/Artwork

Top: By http://www.elbpresse.de (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)%5D, via Wikimedia Commons

Right: By Ludwig von Mises Institute [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)%5D, via Wikimedia Commons

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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