Cardano (ADA) is NOT Money, but that’s Okay — neither is Bitcoin…

Dear Cryptocurrency Enthusiasts,

I heard the air just go out of the room. How can I dare say such a thing? I mean, why? Why challenge the Gods of Crypto? Because I listen to them when they say really dumb things and I’m a bad little sheep. I crap on their stage and bleat. It’s okay, I’m just a little sheep. Not much to worry about.

After reviewing several recent videos put out by the more vocal cryptocurrency developers and evangelists I wanted to reiterate a few things about what these pro-cryptocurrency, blockchain promoting, initial coin offering gurus and family, might be obfuscating: reality. (There. I just let one go. Plop.)

And this goes for nearly all cryptocurrencies. Bitcoin, Litecoin, Sexcoin, Ether-bum and Frogpennies included.

What? There are no Frogpennies? You mean I was scammed? Again? Dammit man!

I’m no newbie to this financial vehicle. I’ve been around the bend. Lost and gained. And I’m still here. Still playing the game. Still bleating and trading — and winning — for now.

“Freaking gambler!”

Hey…relax.

So, this a reality check, from a fan of cryptocurrencies. (That’s me. Don’t forget that part.)

Is cryptocurrency anything other than a speculative vehicle?

I mean, look at where most of the money is going in cryptocurrency markets.  Most of the investment is going into bitcoin. Currently, bitcoin’s market capitalization is nearing $100,000,000,000.  Each BTC is now (almost) worth – $6000 each. It kind of wobbles there — for now.  Certainly, another milestone for cryptocurrency at large.

But is bitcoin worth anything at all? Go ahead. Torture yourself about energy, electricity and nodes. What type of value, other than a service value, does any cryptocurrency have?

Tick-tock.

How’s the mental argument going? Feeling twisted up yet? Okay, I’ll let you off the hook. It’s better for your blood pressure that way.

Wait a minute… The older guys and gals take this crap in stride. It’s just the younger ones who need to chillax. We’ve — us elders — been around the apple cart a few more times.

“Oh, but times have changed!”

No. They have not. Crooks are always crooks, not matter the century. Dummies are always dummies. Blonds are…  Never mind.

In the cryptocurrency world, there’s a lot of conjecture about the nature of money itself.  So, I’d like to explore that a bit. Remind the wandering souls who left their gamer chairs and headed over the crypto-couchs for beer and saki.

Hopefully, these wandering post-gamer types (Vitalik?) will sober-up before it’s too late — for the rest of us broke investors.

So, let’s get to it.

One of my favorite definitions of money was provided by Ayn Rand. If you don’t know her, consider yourself — sorry — uneducated. Okay, maybe that was harsh. But if you are in the Fintech world, you ought to be ashamed.

If you go to aynrandlexicon.com and look up the word “money,” you will find the seeds of what I’m about to go over, there.

The Lexicon pulls this definition from a piece that Rand did titled “Egalitarianism and Inflation,” from the book titled Philosophy: Who Needs It, page 127. (Go ahead, look it up. You can google it. I’m tired of giving out shortcuts like candy.)

So, let me compare cryptocurrency to money. I think that a lot of people are disregarding this very important definition — to their own detriment.

According to Rand, money is a tool.  A tool that can be used to exercise long range control over one’s life. A tool that can be used for saving. A tool that permits delayed consumption. And, a tool that buys time for future production.

Think on that a moment. Pick up a wrench. Caress it. Did you just fondle money? Well, kind of.

Is cryptocurrency a tool? Can you fondle a crypto? Would you want to?

Certainly, crypto is a type of tool or at least an application, but it requires something a money-tool does not. Cryptocurrency requires energy. Electrical energy. It also requires a computer, software, regular updates, dedicated developers and user cooperation. These are only a few of the cryptocurrency requirements.

In other words, crypto is a “user of tools.”

Can a cryptocurrency be used long range, however? The apparent answer is that it cannot be used beyond a few years, without improvements. So, in this respect cryptocurrency cannot be used to exercise control, in a long-range manner.

Crypto is a shorty sporty.

Can cryptocurrency be used for saving? And by saving, I mean saving something of value (a tool — remember) that one can come back to in a week, a month, a year or longer — and pick it up, dust it off and say, “Wow, it’s still good as new.”

The simple answer, again, is no. Attempting to save cryptocurrency beyond one week might be very risky. Yes, I’ve heard about bitcoin. Probably, before you.

In this respect, cryptocurrency cannot be used to delay any consumption for greater than perhaps a few days. It cannot buy time for the future. Gold, for example, buys one “time” in a sense that one can delay using it for years.

Let’s look at another aspect of money that Rand indicated was a definite requirement.

Money must be a material commodity that is imperishable. Not a banana or pork bellies. Not energy or “trust.” Not nodes or networks. Material…and a commodity. A tough and tumble thing that just holds the fort and takes no prisoners — not even during “World of Warcraft.” (That should probably be Witchcraft. It just fits better.)

Now, you might ask what (exactly) is “imperishable.” And it is clear cut –  it is something that cannot perish or if it does perish it would take some serious effort. Computers and networks and games — they all go “bye bye.” Time kills them.

Cryptocurrency shall perish from this earth — I mean — eventually. Maybe in a few years. Maybe after Fedcoin awakens and the apparatchiks get going. Make a few arrests. Tax people into the poor house. A bit of insurance policy suicide.

So crypto is perishable, but for now, it’s a great fruit. Sort of like one of those irradiated, dehydrated apple chips. It’ll last for a few years on your counter, but once the dog finds it, yum-yum.

If the power goes out in your area, can you spend, save, and borrow a bitcoin? If your country makes cryptocurrency illegal, will you still use it? If, a few years from now, a newer and much better cryptocurrency is invented, what will happen to your preferred cryptocurrency? It just rotted. Perished into the doggy mouth.

Rare. Money should also be rare. Something that is abundant, easy to produce, easy to copy, easy to “fork,” does not meet the definition of rare. Think copy-machine. Think clones. Think, fiat-money.

Artificially reduced numbers on a digital ledger does not meet the definition of money, but it could be a type of functional currency. Reduced numbers of cryptocurrency atomic units do meet the definition of “limited,” but digital information is not in and of itself, rare.

Unless you print this — the words you are now reading (and why you waste you time here, I’ll not ask) — are born of code. Pixels instructed to turn on and off, by a bit of computer code, fed through a electronic processor. Okay, it’s not the best code. Not a crypto-code, but you catch my drift, don’t you?

Codes are not rare. They can be secure, however.

Money must be homogeneous too. Standardized. Similar. A dollar bill looks the same and spends the same all over the U.S. and many other places. (Yes, I know dollars suck — but they spend.)

Multiple kinds of functional money, i.e. cryptocurrencies, are not standardized. Although, many cryptocurrency technologies are similar they are not, for all intents and purposes identical. There is no standard. (Maybe that’s good, actually.)

Money must be easily stored.

Generally, this might mean that money is compact, perhaps stack-able, able to be placed in one’s pocket, transportable and able to be secured.

Yes, I know gold is heavy and past presidents in the US have stolen it from the people — and that it’s really hard to steal crypto.

But you know what’s even harder to steal than crypto? My thoughts. Electronic (and chemical) codes I can relay to you via spoken or written words.

I have secret thoughts too. Try and take them. On second thought, don’t — you might get sick. I’ve seen some pretty messed up things in my life.

Is cryptocurrency easy to store? In some sense, saving information on your computer is quite easy. But is that true storage in the physical sense? And isn’t that what we’re after? The ability to place money in a safe, under your mattress or in a tin can in your backyard?

Are my thoughts money? I think I have nodes too. My neurons are decentralized in my brain for sure. Billions of nodes, just humming along.

Money should not be subject to wide fluctuations of value, according to Rand. This seems straightforward. Sort of like, “Duh!”

My thoughts fluctuate. Crypto pops up and runs to ground often. I wonder, can I trade my thoughts on an exchange?

If you place a government issued coin in your pocket, unless you live in Venezuela, it will probably maintain its value throughout the day, perhaps an entire year.

On the other hand, if you stored a bitcoin on your computer hard drive, next week it could be worth twice as much or half as much.  And this goes for most other cryptocurrencies as well.

Not so for my thoughts. They are worth zilch, until I use them to develop something — say a crypto. There, I just did. Did you feel it? Wanna buy some thought-crypto?

So, fiat currencies are terrible, but they generally hold their value over longer periods of time – a stable value — when compared to cryptos. Especially my thought-cryptos.

What else is important about money?

Well, if you can’t go to the market and spend it, there’s a problem. If you can’t buy a cup of coffee, a soda, or a car – anywhere you normally go – there’s a problem.

Oh, please don’t bring out that BTC ATM map. Just go to the store and let them stare at you like you are a “nerd.” (Hint: you are. But it’s okay. They meet on Wednesdays, I think. Make sure to bring your pencils.)

So, if a cryptocurrency is to become a functional money it must be in demand among those you trade with. Not only the Wednesday “Nerd” Group. Currently, cryptocurrency also fails in this respect.  Let me repeat that, currently. Today.

(Note: Nerds may conquer the universe. Just look at Bill Gates. He’s got his own crypto now. “Way to go Bill, you copycat. No, I know you did not copy Apple…”)

Let’s get back on track, before Billy gets made and shuts this blog down. Really, I apologize Billy. I know you love crypto too.

Using Rand’s definitions, it seems that the only true money is gold.

“Oh not that rock thing again. You’re so retro, dude!”

Straighten up. Get a job, before your dad kicks you out.

Gold has a tangible value, but, as Rand states it, gold is “…a token of wealth actually produced.” Moreover, the transaction itself becomes much safer, much simpler, because it is like bartering.

Let’s recycle.

“No, Mr. Retro. I need to get back to War of the Witchs II!”

Money is a tool.  Cryptocurrency is an application that uses a tool – a computer.

“So.”

Tools can be used over long periods of time. We do not know how long cryptocurrencies will last.

“You mean it’s like a new modified game?”

No. Listen.

“Why?”

One can save a money-tool. If one saves a cryptocurrency application, it may be outdated within the year.

“Yep, just like my computer games. I sort of get it now.”

If you delay using your cryptocurrency, you may lose all your money – all your value.

“Right. You can’t sell used games for squat after a few months!”

The money-tool ought to be imperishable. Cryptocurrency is perishable.

“Games are dead soon after release!”

Right and a cryptocurrency is not a material commodity.

“True. I download my games now.”

Cryptocurrency is not rare, only mathematically limited.

“You got me there, grandpa.”

Cryptocurrency is not homogeneous in the sense that it is standardized among the persons with which you trade. If cryptocurrency were standardized, this might increase its demand.

“Yeah, a lot of dudes can’t stand War of Witchcraft at all! No demand. Puds.”

Cryptocurrency requires a stable value – if it is to escape the bonds of speculation.

“Hey, I made a few bucks with mining Piggycoin a few years back!”

Aside from the fact that cryptocurrencies do not meet the ‘Randian’ definition of a sound money, this does not mean that its value will not increase.

“Like I said, the Piggy was good to me. But my mom got tired of the high power bills and the gizmos making all of that noise.”

Even if governments choose to define cryptocurrencies in different ways, those jurisdictions with the least amount of regulations appear to be reaping the benefits of increased Fintech investments, for now.

“I heard that. But I’m not leaving America for some European paradise.”

Cryptocurrency is also voluntary. Fiat currency is not.

“That’s the point, right?”

Cryptocurrency is also trustworthy, in many cases. Many people trust the math, but some are concerned about the developers who write the code.

“Dude, you are confusing the hell out me. First you say they suck, now you say they don’t?”

Is fiat currency trustworthy? It depends upon the country, the economy and the leadership.

“Oh, yeah. Bummer.”

One thing is certain, however, even with two arms tied behind its back, decentralized cryptocurrency has captured the imagination of the people.

I think that any blockchain adoption by governmental entities, will only serve to solidify the people’s belief in the private use of the blockchain technologies.

I’ve also included a YouTube video of mine, highlighting some of the above issues.

“Dude, can I go back to my games now?”

Sure.

 

Sincerely,

 

Jack Shorebird

P.S. I’m selling my thoughts for one BTC each. Guaranteed to be far more awesome than any cryptocurrency ever mined, minted, spat out, staked, gassed-in or farmed-out. There is a limited supply of my thoughts because one day I’ll be dead. (Shut up, I heard that.) Just leave a reply and we can work out the details. I’m not going to leave my BTC address. That’s just tacky as hell, don’t you think? Hurry, this is a limited time offer — maybe less that 30 years before it ends and my decentralized network will cease to function.

 

(Disclaimer: The above is the opinion of this writer. Any appearance to reality is merely a coincidence. If it bothers you, mine some ‘coin.)

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Is Bitcoin in a Bubble?


The Big Question:

This seems to be the question of the day, if not the decade.

Can cryptocurrencies replace money or are they just another bubble?

The answers vary.

To the optimist, but not necessarily the realist, bitcoin is already money. So, yes, not only will it replace all government fiat cash, but it will free the masses from the tyranny of the state. It will never “bubble” and the way it’s designed, it will only become more valuable with time. Freedom for all forever and all the drugs you want. Gold? It’s a quaint idea. Caveman monetary policy, complete with pretty rocks.

Okay, maybe that was a bit overboard.

To the pessimist, no. Bitcoin is a Ponzi scheme. It is a well-marketed fiat asset trick. Don’t fall for it. It will eventually bubble, crash and burn. In the meantime, it will benefit the criminal element. It must go and/or be regulated as soon as possible. The state should always be the final arbiter of monetary policy, after all.

To the middle-of-the-road folks? Bitcoin can exist along side the current fiat money systems. It should work within the current frameworks of nationalized  monies, however. It can improve things from there. We can create a sound money standard after we iron out all of the regulatory kinks within the new cryptocurrency technology.

Unfortunately, our governments, as they are now designed, will not be able to survive on a diet of sound money and that is why fiat money was created in the first place. To escape the bonds of reality with a legal fiction, all the while, kicking the inflation can down the road.

But why not stop inflation by connecting bitcoin with gold? Make each one represent a certain amount of some rare earth metal? Why not couple gold and cryptocurrency, privately? Because the political environment is fiscally destructive. That’s why.

We know that our centrally planned economies will not allow citizens to derail the inflation machine which keeps our governments in control. It is only when the puppeteers begin to loose control of inflation that the money strings of government unravel, resulting in a revolution against the “evils of money.” Such revolutions do not always end up with a population of free citizens, however.

Cryptocurrency Negatives:

So, let us be cruel to ourselves. Take it on the chin, like a good cryptocurrency enthusiast should.

What is often cited as the main reason that bitcoin (or any cryptocurrency) can never serve as money? There are many reasons actually and here are a few:

  • Unstable Value
  • Trust
  • Fiat
  • Acceptance
  • Taxation
  • Bubble

Now, before we go off spouting all the great things about cryptocurrency, lets define money. I mean, what is this paper stuff we carry in out wallets and what are those electronically recorded digits in our banks? Better yet, let’s just define a good money.

Money:

  • A tool of humans
  • Used when high level of productivity is reached
  • Desire for long-range control over their lives
  • A tool of saving for delayed consumption and later production
  • A material commodity which is:
    • imperishable
    • rare
    • homogeneous
    • easily stored
    • not subject to wide fluctuations of value
    • always in demand among those you trade with

Source: Ayn Rand Lexicon

Few people ever go this deep, however. The dollar, euro, yen, dinar, peso, franc, pound, lira, rupee, krone, zloty, rand, and the shekel are, for all intents, legal notes. It’s money for the masses. Buts it’s not real money. It’s fiat money, which represents nothing but trust. I trust you, do you trust me? Besides, what choice do we have, right? It’s legal tender. It’s easier to use than chunks of silver, which the government wants to value in fiat anyway.

You can, at least in the US, pay your taxes with fiat currency and most of us trust that the currency is money.

We also know everything is becoming more expensive, but few of realize that the root cause of inflation is not the weather, the wealthy or our enemies. It’s simple math. The more fiat notes we print or e-print, the less valuable they become. This holds true for some cryptocurrencies as well. You simply divide the value, in fiat currency, by the current number of altcoins. This gives you a rough estimate of the fiat value of a particular cryptocurrency, at a given moment in time.

So, it’s easier to understand values with cryptocurrencies, since their creation is usually straight forward. There is no Federal Reserve to manipulate alleged M1, M2 and so on. There are no banks to create endless supplies of fiat. The only inflation regulators in bitcoin, for example, is its code base. It is currently programmed to create a finite number of BTC’s. It’s not manipulated to screw the masses, but to retain its spending value.

Paper money used to represent or hold title to gold or silver. That was why it worked. Why it functioned. Once the paper no longer held title to some form of property, it became fiat. It became dysfunctional. At that point, almost always, economies begin their decline. Some economies decline faster than others of course.

Perhaps if our governments set hard long-term limits on fiat numbers, then our fiat monies might stand a chance. But there are no such limits.

High Hopes:

Many hoped that bitcoin could save our failing economies, tame our ever growing governments, and usher in some new global paradigm of wealth, but not without effort.  If this is your thinking, you are guilty of being overly optimistic and just maybe, a bit naive. Don’t worry, I’m rooting for you because I’m a near-convert myself.

What holds us back from becoming “one with the crypto?” History. It is full of examples of ledger based monetary systems that ultimately failed. It is replete with evidence that all of the fiat based systems failed as well. And the gold-backed systems — failed, but after the decoupling of functional money (paper notes) from the metals. The governments enforced these failures, often by confiscating the one form of money that has never become valueless: gold.

So we have to ask ourselves why have all monetary systems failed throughout history? Now, I’m not asserting that gold became worthless–ever. Fiats did. Ledger systems were scrapped or forced out. Seashells were abandoned. But not a single monetary system transcended all governments, in any cohesive fashion. Bitcoin, though an asset, does.

Asked another way. Aside from gold and silver being an asset for thousands of years, what monetary system, fiat or otherwise, has ever existed beyond the constructive control of all governments, simultaneously?

Bitcoin as an Asset:

The latest thinking is that bitcoin (cryptocurrency) is not money, but acts as like an asset. That is Peter Schiff’s thinking. Schiff works with Goldmoney Inc., based in Canada and he lives in Puerto Rico. Goldmoney(tm) is a company that allows you to spend gold, via a debit card, in many countries, for a small fee. You can also store gold in various vaults around the word. And there are other benefits.

You can find out about more about Schiff’s views easily. He has his a radio show, owns several companies, is an author, but to sum up his financial views I would offer this:

He has repeatedly held bullish views on long-term investments in foreign stocks and currencies in countries with sound fiscal and monetary policies, as well as global commodities including physical precious metals and has expressed bearish views on the US economy and the US dollar.

Source: Wikipedia

So what is an asset?

An asset is anything of value that can be converted into cash.

Source: Investopedia

It’s a bit more complicated than this, but for the sake of argument, all cryptocurrencies are assets, since conversions to some other form of trusted money is the fundamental purpose to both buy and hold bitcoins. I mean, that is the allegation, right? Moreover, as Schiff asserts, companies that accept bitcoin in payment for services or products, ultimately convert it to either fiat currency or some other more trusted asset. Sure they do. After all, what real choice do they have? None.

In other words, the companies that will accept your bitcoins direclty just want to sell you stuff. Of course they do and they are held to the regulations requiring them to report their earnings in a nationalized fiat currency format. A government euro. A dollar. One wonders what would happen if companies and citizens were not required to convert to government fiat money? If they were actually free to use the asset of their choosing for all debts, public and private.

But we are not free in this sense. Not completely.

You Must Comply:

Are we to then shrug and comply? I don’t think so. The future is not made by those in the halls of government. That is not the purpose of government. They are present simply to protect and serve the people. They are peace keepers, not currency makers. Currency and money should be denationalized anyway. Things like bitcoin serve as a reminder of who should be in charge. Even if it fails. Even if it is a bubble.

Under the current circumstances, bitcoin, as asserted by Peter Schiff, is untraceable. This, I’m afraid is close, but not the complete cigar. All bitcoin transactions are public. You can see them zip around the network, but they can be obfuscated for privacy and criminal reasons. And your name is not attached to your account. Other cryptocurrencies are much better at retaining your privacy.

A Common Criminal:

Naturally, Schiff keys in on the criminal aspect. We’ve all heard it. A terrorist or crook will send his bitcoin, instead of carrying cash. At some point the bitcoin will be converted into cash to buy or sell something illegal.

One of the main problems with this criminal tactic are the fluctuations in bitcoin prices. The criminal might have a set price for his product and bitcoin is terrible for that reason. Perhaps it would be better to use what is called Tether ™. It’s a bank backed cryptocurrency that is almost pegged at the US dollar. Better yet, use paper dollars or digital fiats. That’s the routine.

I used to work in criminal justice field, just a few years ago. We rarely came across evidence of cryptocurrency use. Maybe it’s more prevalent now. What we did come across were stolen credit cards, emailed cash, fiat bill, drugs, debit card numbers and so on. Criminals wanted dollars just as fast as they could get them. Not gold or silver coins, but paper fiats. They used the banking system and filed false IRS refunds (very lucrative since the IRS does a terrible job of policing their own refund system) as a way to easily subvert the antiquated, government regulated, fiat monetary system.

This is not to say that cryptocurrency is immune to criminal exploitation, but cash is king — by law. And even criminals love to exploit that law. Some even print their own bills. This is next to impossible with bitcoin.

Bubbles:

The comparison of cryptocurrencies to the Dot-com bubble is also interesting, but old. The idea that investing in cryptocurrency is similar to a fad or is speculative, is certainly a strong argument, however. More and more people are becoming aware of the technology and as a result, more money is flowing in. Is this a new opportunity for those who are already versed in their use and speculation? Sure it is. The first comers are on top of that pyramid, right? But can’t this also be said of a new stock? The more people buy the faster the value of the stock increases, right?

One must realize, however, that as cryptocurrencies become more and more popular, they become more and more risky. They are not stocks. There are few barriers to entry and trades are nearly instant. There are few restrictions. You are free to lose and gain and panic. At least with stocks, you have a broker who earns very high commissions by comparison, and you can execute trades reasonably quickly, in most cases. Oh, and you have no privacy. Every transaction is logged for tax and regulatory purposes, to ensure that you are not being cheated. That never happens…

This new injection of funds into the cryptosphere, ostensibly from a broader base — regular people — and not simply from the brokerage houses that fueled the Dot-coms, serves to magnify the potential bubble. This is a given. If such a bubble bursts, the fallout could eclipse a standard market collapse…in the future. Not right now though. Which is why the heat is not all that hot.

Currently, the amount of money in the cryptocurrency system is peanuts compared to the banking sector. Sure, lawsuits and investigations happened after the Dot-coms, the housing bubble — after any number of market implosions. Bailouts are always an option for government to soften the blow of poor investment decisions. But when banks collapse, governments step in and the insurers pay up. Then the arrests come. Fines and Senate Hearings, when the circus comes to town.

Brokerage houses are known entities. The mortgage companies and banks are all around us. If bitcoin fails, the loss is real. It will hurt millions, but in the scheme of things, it will be very small. Currently, if all the cryptocurrencies listed on coinmarketcap here went to zero overnight, it would only be half as bad as the Washington Mutual insolvency in 2008. One bank compared to over 1000 cryptocurrencies.

Diversification:

Diversification may not help. One might be safer with a mutual fund or an ETF but not a cryptocurrency. Why? Because there are few, what I will call base-cryptocurrencies, bitcoin being one. When bitcoin drops in value, nearly all cryptocurrencies lose value. So, loses are often magnified. When bitcoin recovers, so do the others. Tether cryptocurrency is one exception. It usually hovers around one US dollar in value, but it has little upside. Conversely, if say Ripple (tm) devalues, bitcoin may not.

The tie-in with bitcoin and all other cryptocurrencies happens because it was a first comer and trusted. If you want other cryptocurrencies you will often need to trade for them using your bitcoin. If you want to convert back to fiat, it is often best to use bitcoin. This is changing, however. Other coins are slowly earning a type of base-currency status.

Anti-Money:

The Fallout:

What do you suspect will happen to the hundreds of international cryptocurrency market exchanges, when (and if) the bubble bursts? Do we even know where they are? How about the US based exchanges? Will their doors be closed, their assets frozen? Will your bitcoins be stuck in Europe or Asia? Will you keep your BTC at home on your hard-drive or some other device. Will cryptocurrency developers in the US then be shuffled off to prison?

How about the giant bitcoin mining farms in China and the world over? Shut off? Scrapped? Bitcoins Confiscated? What about the cryptocurrencies that do not use the ‘farms?’ The ones like Peercoin ™, which is essentially PC based?

What of the decentralized cryptocurrency exchanges that exist only between you an unknown parties over the internet? Will these applications be shut down and their unknown creators sought?

The fact that Amazon ™ lost 90% of it’s stock value over as many years, as Schiff indicated, is his example of what can happen to bitcoin. The nearly constant ICO’s (Initial Coin Offerings), the new cryptocurrencies popping up like so much graffiti, will not survive, even if they use the latest blockchain technology or some variant of it. There will be a saturation point, no doubt. Already, there is talk that if you are in “blockchain” (your company invests or develops this type of new tech) you don’t make any money.

Some companies can exist in the red for years, but at some point they must turn a profit or fail. The only other option is to ask for a loan. In any event, even Amazon ™ has not failed, but it has real products as well as software. (Bitcoin is software. An intangible asset.)

The Beginning of the End?

Flipping houses before the market imploded was all the rage before 2007. It still happens today, in Florida, where I live, but not nearly at the pace of a decade earlier. When friends quit their jobs back then, bought huge homes, new cars and lived the life, only to be financially destroyed later, it was rough. The house flippers paid the price. After the building boom things slowed and housing prices dropped. We can argue all day about how and why the crisis began. One thing is certain, however, irrational exuberance was the norm.

Is that beginning to happen with cryptocurrencies now? In a sense, flipping cryptocurrencies doesn’t really happen. You can’t buy one, improve it, unless you are the developer, sell it and walk away. You can however, buy one at the bottom, when it’s cheap, then trade it for bitcoin or Tether, when it increases in value. Unfortunately, the tax headaches in some countries makes this type of arbitrage unprofitable. If you ignore the taxes, you are chancing fines or worse.

But what of the P/E Ration? I mean, we can calculate the price to earnings ratio of a stock, but how would you do that with bitcoin? Can we ever know when and if it is overvalued? We can see when underlying government fiat money is devaluing by comparing it to something like gold. When more fiat buys less gold we have inflation or more correctly, currency devaluation. When less bitcoin buys more fiat dollars, what is occurring? Is bitcoin becoming more popular or is it acting like gold? Is it becoming like a peoples’ barometer of their own fiat money — worldwide?

The Aftermath?

After this cryptocurrency bubble bursts, if it does, what might remain? Cryptocurrencies which offer a type of service, like Ethereum ™? Ones that offer fiat trading via third parties, and other services, like Stellar ™? Newer models, such as Iota ™ or Neo ™? It’s your guess.

Worse case? Your country outlaws innovation or co-ops it, then slowly destroys it.

The best case scenario, for now? Bitcoin keeps growing and more nationalized fiat  currencies fail. The cryptosphere becomes indispensable, trusted by people everywhere, and nations begin to compete by adopting sound monetary policies.

In the meantime, don’t fall for the hype. Do your homework if you are curious about cryptocurrencies.

And a parting thought. At some point, technology will be able to create physical items upon demand. If we are then able to create gold by recombining atoms and molecules, an abundant resource nearly everywhere where we look, on the cheap, how will we then design a voluntary, sound monetary system?

 

Good Day,

Jack Shorebird.


 

 

Clif High: “The Charlatan”

Updated: September 19, 2017


Hello, crypto enthusiasts. Thanks for stopping by.

As usual, I’ve been scanning the net for the scoops. Watching the crypto-markets for the fizz and pop. And here’s the latest curiosity I’ve managed to dig up from the fintech ether.

And mind you, the people (person) I may cite herein may not have one of the cleanest resumes, but damned if he doesn’t get your spaz juices flowing.

He’s sort of like a preacher. Magnetic personality, but a bit high and mighty. That should warn you.

The personality I speak of is Clif High. And he’s a bit of a, how can I say this nicely — an unusual chap? But I’m not one for killing the messenger, even if he is a bit burnt, if you catch my drift. Actually, he is way past unusual and often his predictions are way off the mark.

And yet, he has a cult-like following. That should warn you — I repeat.

That’s why I’ve been chomping at the bit. Kind of mulling this whole thing over for months. Trying to align my belief in a gold backed (silver backed) monetary system with the alleged future facts (and ideas) Clif High is constantly bringing to the table.

Clif’s detractors are all over the spectrum, but many are simply fuming.

Years of $600 an ounce silver predictions, that have never materialized.

But I can’t really do it justice and I do not work for Clif. Don’t know him from Adam, as it were. Yet, the guy is able to explain, in words and ideas — in a few seconds — in a way that resonates with the listener.

  • Bitcoin (cryptocurrency) may, within the next 10 to 20 years, undo thousands of years of stagnant and centralized money control
  • This new world of crpyto can serve as a shot-in-the-arm for economies, for wealth, technological development and so on

But his often oblique remarks to explain why this is, are rather wanting. For example, why can bitcoin (or a particular cryptocurrency) succeed? Here’s what Clif implied:

  • The U.S. split from Great Britain when about 3% of the people wanted it
  • Only about 1% or less of people, now want bitcoin or cryptocurrency
  • If this margin reaches 10%, the governments of the world, which are always behind the times, will be unable to stop it

That, the iron is heating up and you may be able to make some serious cash, if you invest soon. That’s my crypto-take, but be careful of the pumpers. Clif has been accused of being a pumper many times.

These are very positive statements in a lot of ways, in my book. But based on zero facts, unless one considers a Webbot and ESP as factual.

Why does Clif seem to ignore the implications of the PBoC (People’s Bank of China)? They have been waffling for years, but recently they’ve turned over an accusatory leaf. Crypto is a financial threat, they say.

The suggestion here, and not only from me, is that Clif High or who ever he is — is a fraud. That he sells bunk and snake-oil to the hopeful people. That he mixes fact and fiction so well, the facts tend to lend him a sort of a credibility.

So we listen. Anti-gravity forklifts. They are coming.

Turkey will unleash a global financial meltdown, very soon.

Major earthquakes were suppose to have diverted rivers in North America and precipitated nuclear meltdowns in August of 2017. (Whoops, on that prediction.)

We listen to Clif’s hollow-moon babble. Just believe.

And we trust that just maybe he’s onto something about crypto’s? Swamp-land anyone?

Maybe, if you buy his reports, you’ll make millions. He appears to be rich, right? Have you seen any pictures or videos of his home(s)? His camper? His rented cabin(s)?

Maybe his Webbot thing was garbled by bad data like he said, which is why he currently focuses on cryptocurrency. Suspicious, don’t you think?

Wild and woolly nonsense. The lot of it.

I hope that Clif’s inexplicable descriptions, his references to the unusual and seemingly unproven, are not, in some ways, infecting his ability to maintain his rationality. But one needs to be rational in the first place.

As far as I can see, his “predictions” have raised eyebrows for several years now. But are his prognostications simply too general? Too crazy? Do you really need to ask yourself that question?

And his alleged Webbot? Where is it? In his brain? It’s not “open source.”

And yes, there are other experiments like the Webbot, predictive markets, and the wisdom of the crowd ideas. Estimations based upon predictions are akin to gambling, however. It is not like life a life insurance actuarial table predicting deaths per thousand, based on past data.

Clif talks about silver prices skyrocketing — for a time — constantly. This is not something new. Given the devaluation of fiat currencies worldwide, this scenario is possible, but is it probable? Could anyone with the ability to read and understand basic economics, also make this observation?

Gold is just sort of okay, as far I can judge by Clif’s statements. However, he’s not too enthusiastic about it.

New tech that will create matter from energy is only a few years away, Clif implies. So why mine gold or silver in say, 15 years — anyway? If we will be able to manufacture gold and silver with relative ease, why invest in any metal?

Potential limited nuclear wars are on the horizon. Really? Is anyone not worried that North Korea or some other rogue nation might push the button?

But by and large, the outlook is very positive, in Clif’s assessments? Really?

How can anyone be happy about earthquakes, nuclear bombs, market crashes and hollow-moons? One cannot — unless what? Unless one is not telling the truth. Unless one has created a  “Webbot” of lies.

Clif has apparently spoken about of Cloakcoin. Is he pumping it? Is he using his “cult following” to make money by influencing the crpyto-markets? That is the allegation. In fact, if you check Clif’s past, some have alleged that he has been practicing “pumping” for years.

Please — you be the judge. Give this guy a listen. Tell me that he does not, in some weird way, make you very positive about the future of our world and at the same time, make you feel that hell is about to be unleashed.

You’d better listen in and buy his reports to survive and profit — so he can. I think the reports are about $100.00 (US) each now. There are complaints about those too. Irrational babble.

Here’s a recent talk. It’s long — a YouTube interview with Clif.

The Interview.

Here’s a rebuttal video. It’s a bit abrasive.

Rebuttal.

Conclusion and my prediction without using a Webbot:

Clif’s popularity will remain among the wingnuts, but based on his continued irrational statements, the vast and silent majority, will begin to ignore his rants.

Clif has recently stopped posting his own videos, choosing instead to be interviewed. It is an effort to stop others from allegedly taking soundbites from his videos and twisting the message. Or is it something else? Perhaps pressure from video providers to stop reporting “fake news.”

Even his recent remarks about Carbon 60 consumption has been debunked by others.

And Clif mentioned that his brother had Schizotypal Personality Disorder.

Enough said.

Follow Clif at your own risk.


 

 

Bitcoin, Ethereum, Litecoin July 19, 2017 — Roundup.


An unbiased and quick look at some big players…

The good news:

  • Litecoin is undergoing major updates to Litecoin Core 0.14.2
  • John Mack, a former CEO at Morgan Stanley venturing into crypto
  • The “dean” has advised that crypto is replacing gold

The bad news:

The “other” news:

  • A rare look inside some of China’s bitcoins “mines

The videos:

  • Jeff Bewick continues his upbeat and wacky video series about bitcoin
  • Andreas Antonopoulos explains the current state of bitcoin

Based upon the last 24 hours of news, the cryptosphere is decidedly negative, with concerns over bitcoin and Ethereum, mounting.


Image: Flickr

Morgan Stanley…bitcoin…a poster child for speculation

blockchain_illustration
Wikimedia

It’s fashionable, right now, to bash Fintech — especially bitcoin. So get your blockchains while they are hot!

This is the latest on the banking/investment front. When bitcoin (BTC) loses value, the traditional financiers let it be known that it just will not work and, in all honesty, they might be right — in the long term. But so too will the US dollar devalue — probably sooner than we think — unless a rabbit is pulled from the proverbial hat, in the short term.

Bitcoin may be the reigning prima donna of the crypto market but Morgan Stanley is not impressed.

Source: Morgan Stanley thinks bitcoin is nothing more than a poster child for speculation – MarketWatch

In a nutshell, the Marketwatch article, by Reporter Sue Chang, at first tells us that bitcoin has soared by over 250% in the last year. “Great!” we say, but then she drops the bomb. She cites Morgan Stanley’s analysts and James Faucette in particular. Bitcoin is on a wild ride and it’s probably not a legitimate currency we learn. I guess that all depends upon how one defines legitimate, because nearly anything can be a currency — or as I have indicated in the past — “functional money.”

On the other hand and we need to face the music. There is, according to Faucette, virtually no merchant acceptance. Again, virtually is another one of those weasel words. And we are so surprised. Aren’t you surprised, dear reader?

Sure, I can’t buy a gallon of milk at the corner store with my BTC, but I can buy a TV or a chair or even bike, on Overstock.com. Microsoft, Virgin Galactic, Steam are other well known vendors and the list goes on. So are we really losing vendors? Yeah, probably. Okay then, why?

According to the article, bitcoin does not appeal to retailers — and that is one reason it is not so good. Let’s examine that objection. Why does bitcoin appeal to the country of Japan say, but not the local supermarket in New York City? Is it because we, as a nation are less technologically advanced? Probably not. Is it because the regulations in the United States, the tax laws, the trading laws, the money laundering laws — you name it. The short answer? It certainly puts the kibosh on the whole thing, does it not? Only the big players, such as Coinbase or Subway Sandwiches, with a bevy of lawyers and tax accounts, seem brave enough to wander into that quagmire. On the other hand, the small players and the hidden ones (not all criminals by the way) can also wade into that pond.

Hoarding was another objection. Sure, bitcoin has appreciated. People are holding it, but there is still a lot of BTC available. One can’t simply worry that there will only ever be approximately 21 million BTC’s in circulation. It would be like saying, if we put cash under our mattresses, hoarded large denomination fiat bills, we would somehow make it less usable. The thing is, there’s plenty of cash out there. Too much actually. In a manner, hoarding can serve to increase and stabilize bitcoin values.

The objection to bitcoin’s accelerating costs and slowing transactions time is a legitimate concern, however. We will know, probably within the next 30 to 60 days, if bitcoin will adopt new perimeters allowing for faster confirmations, but the applications — the coding — is still being hashed-out. And there are associated centralization of power risks as well. Only a few developers control the code, but don’t forget, anyone can copy (clone)  the code and “improve” it.

Surprisingly, the apparent objection that bitcoin’s own skyrocketing — I would say its volatility — worth, is somehow a minus, is ludicrous. Speculators are certainly present, but as I have submitted, the fact that regulators stand in bitcoin’s way, is the primary culprit. The Great American Regulatory Wall, against mass adoption — that it the goblin.

Government oversight is needed, they say. And that, my friends, is the big snow-job. It is not required at all. The real reason bitcoin cannot, in this environment, ever be allowed to function unhindered is that it threatens the dollar. It threatens all fiat currencies in existence. That is plain. When a digital currency, not printed into oblivion does that, no debt-based economy can abide it. Even Japan, mired in its eternal economic crises, probably hopes that cryptocurrencies can save their century.

Is bitcoin funny money? That’s another implied objection and it’s an ignorant one at best. If so, then the dollar is funny money. A reserve note that represents a slowly failing — bankrupt system. Most intelligent people know this already. We just have little choice. We are required, by law, to use this debt based system. Is it moral to force people to use a monetary system that has no real value? Even less of a perceived value than bitcoin? That’s a no brainer, right?

Morgan Stanley is the sixth largest bank in the United States. Banks take our fiat dollar deposits and create more fiat dollars — out of thin air. Now I’m not against honest banking services, where money is real — like gold and silver — and where fractional reserves are quaint memories, but to attempt stay the high road in a FED-made swamp? What magic is this? Answer? The emperor is naked.

And finally, we the people also know, us speculators and hoarders alike, that bitcoin could fail. The blockchain tech might fork. China might continue to build BTC mining farms and essentially own the network.  But, my Morgan Stanley late-comers, the Fintech field is just getting started. I’d keep an eye on the Fintech start-ups and the giant Cloud Servers owned not by the banking system, if I were you.

I’d hate to know what they think about Monero or Aeon. Kind of reminds me when the car replaced the horse. Many objected back then. It was certainly a learning curve.

Thanks for reading. Let me know if I bored the hell out of you.

 


Image: Wikimedia

Cryptocurrency Outlook

Coins

What is store for the cryptocurrency near-future? More ICO’s (Initial Coin Offerings) or a slow realization that public blockchains are risky?

In the realm of the digital, cryptography is definitely a contender for your money. Not unlike your retirement plans, savings accounts and the cash hoard under your mattress. You might also be surprised that cryptography is changing more than finance, however.

Cryptocurrency is creating its own financial vortex. An ever growing singularity threatening to unravel, not only the monetary systems in place today, but the social systems upon which they rely.

What would happen if the state money you have in your bank went the way of the Dodo Bird? Would you use gold, silver or a cryptocurrency to get you through the bad times? Perhaps a lesson is unfolding right before our eyes.

The average Venezuelan could tell you about bad times. Their economy continues to nose dive as their monetary system crashes. Social services, food, water, medicine? All hard to come by. And it is a result of policies that made their money evaporate. They simply “printed” too much and it — their entire social system — is dying as a result.

…cryptocurrency can be hidden much easier than silver coins.

Is bitcoin  propping up the average Venezuelan citizen today? Certainly, it is helping. Government agents cannot reach into the Bitcoin Bank and take your money. They can, however, force you to give up your passwords and make you transfer your funds to them. Unless you use a third party service. One in another country that refuses to release your funds.

In short, cryptocurrency can be hidden much easier than silver coins.

More specifically, it is in cryptocurrency that many of us place our hopes and dreams. But are our hopes misplaced? Is this new fin-tech space a mere blip in the larger scale of the Information Age?

If bitcoin cannot be “over-printed,” by design, what is it really? A steadily valuing asset, so long as we keep using and buying and trusting it? Trusting a digitized currency?

Many of us already know the risks involved with Bitcoin or any cryptocurrency. You can stand to gain, maintain, or lose your proverbial behind. Billions of dollars of real money have been made during this ongoing; and certainly speculative run up. Values continue to climb, then retreat, and most unfortunately, the system itself, especially the most popular cryptocurrency of all, bitcoin, is showing signs of strain.

We can make comparisons all day. The Dot.com bubble. Tulip Mania. Speculation. A craze. Decentralized money. Be your own bank. Smart contracts. The World computer(s) galore.

Every Tom, Dick and Harry has a new idea…

Every Tom, Dick and Harry has a new idea for a new cryptocurrency. Just as every new company has new stock. Whole countries are “testing” the waters, allowing the new non-state monies freer reign.

And choices are great. Eventually, however, the most efficient tech will surpass the rest. Just as large home computers gave way to tablets then smart phones, the fastest and most secure systems — the most trusted — will win.

Reliability is also key. You can fix it if it breaks, but you might lose your customer if it breaks for long. For example, I really liked Peercoin when it first came out. An unknown  developer (Sunny King) who sort of kept his or her distance. An energy efficient system. It seemed more decentralized, even if it was not private — meaning others could see my balances and purchases. All the same, when Peercoin broke — forked — I was ticked off. Never again did I invest. Well, maybe once or twice, but I steered clear of the software. Just traded it.

Central Control…

Central control is another concern. Central authorities like our various governments often step in to assert that money must be controlled. To protect us. Bitcoin itself was the antitheses to centralized control. Today, to state that Bitcoin is decentralized would be stretching it.

Large computational warehouses churn out Bitcoin’s life blood. Many are in China. The sheer amount of electricity used to continue this process is staggering. And China is by no means a free country, but are any countries truly free these days?

Power consumption. If we use the United States as an example it is estimated that Bitcoin miners worldwide use nearly the same amount of electricity as nearly 300,000 homes. An argument for Bitcoin’s value to be sure. Even so, this very fact makes the giant Chinese Mining warehouses targets.

Is Bitcoin money? Does it have a real value? Why does it continue to thrive? These are all great questions and many have chimed in — attempted to answer them. In truth, there is no simple answer.

So what happens next?

Will whole regions compete with their favored cryptocurrencies? Will the public blockchains rule or will private ones begin to take market share? Will governments give certain companies special rights to sell their wares, so long as they are complaint with all of the reporting requirements? Does this latter situation not break all the rules of cryptocurrency?

And the “next” is already occurring. The herd is moving in the fields, but the fields are fenced-in. Slowly, the acreage will be sectioned off. A divide and conquer strategy.

Will it be bad? Not initially. Not until the authorities begin to demand changes to the code to allow several things. Easier snooping and taxation. Eventually, not unlike Peercoin, the social engineers will ask the ultimate sacrifice: faster inflation. That will spell the end of it.

There are no places to hide. Yes, companies can hock their wares — sell their crypto-goods — with governmental permission. They can report all account holders and take names. They can play the game.

Many of us will use these trusted public blockchains. Many of us will unknowingly use the current banking systems, unaware that they will soon be using Ripple or maybe Stellar Lumens or some other well researched, official and “approved” system.

There are a few cryptocurrencies remaining that, as of yet, have refused to comply with authorities — completely. They also have better reputations that most. Monero and Aeon. Their developers remain, mostly, anonymous. A good and bad thing. As a result, there are fewer markets. Fewer places to purchase these relatively private cryptocurrencies. But they are far more secure and private than most other competitors.

It reminds me of Prohibition in the United States beginning in the 1920’s and even the current laws against drugs today. What happens when people are told that they cannot buy and use something they want? In the end the price goes way up. A sort of “valuation wave.”

Is this what is in store for Monero and Aeon?


Image: Flickr

 

 

 

Bitcoin: Intrinsically Speaking

To be Intrinsic or not to be intrinsic. Is that the question?

No. That is “noise.” It is another attempted “nail” from our friendly coffin maker. The one who wants to copy the “block-chain” and deny your private use thereof. The reference by Ayn Rand, perhaps one of the greatest thinkers of our time, is rather concise. It deserves to be explored, even in the face of her other definitions of money.

Why? Because it helps us to understand that cryptocurrency can function as money.


Why is it important, in Fintech, to understand “functional money”?

Because many economists imply or otherwise provide tortured explanations about how cryptocurrencies have or retain an intrinsic value.

Actually, they don’t have such a value. They cannot. But this is not a problem.

Cryptocurrencies do not require an intrinsic value. They are not gold in the rough.

Should one attempt to prove such a value, one often winds up in a trap of reasoning, logical, but unwinnable arguments or the proverbial blind alley. Frustrated. But the faithful preach the gospel. Bitcoin has intrinsic value, they say.

On the other side of that coin, the intrinsic value thinkers advise that there is only one true money—or maybe several. Gold, silver and perhaps copper.

Gold can be an “unconsumed” good. A hard currency. It can be jewelry and so on. Therefore, it is the only money. But we all know that other items can function as money.

Gold is not “backed” by anything. It is simply a sought-after material for its rarity, properties and uses. The old story that gold has been money for 5000 years rings true.


What does this mean as it relates to all cryptocurrencies? Do cryptocurrencies need to be artificially rare?

No. Their number can be infinite. Again, they have no intrinsic value.


 Would cryptocurrencies devalue, if the numbers kept rising?

Not if they were “backed” by “unconsumed goods.” This would not be unlike you having an unlimited number of blank checks. So long as the one you write is “backed,” the check is good.

Blank checks in your desk at home have no face value. Excessive numbers of cryptocurrency “blank checks” are unimportant.

What is important is that the cryptocurrency, like a check, is backed by an “unconsumed good” ; that at least one or more atomic cryptocurrency unit holds title to the “unconsumed good.”

Does this mean that a cryptocurrency cannot hold the title of “functional money?”

Not necessarily. It simply means that any cryptocurrency, is not an “unconsumed good” — in the physical sense. Given this definition, cryptocurrency, with few exceptions, is not functional money, yet. But neither are dollar bills or euros. Dollars, for example, are backed by nothing.

Trust value is transitory and can dissolve quickly, even if governments make their fiat currencies official money during economic disasters, such as what is occurring in Venezuela, where the money remains dysfunctional. It will act like what it is: paper — but be worth even less.

India is another example. Making higher fiat denominations unofficial in a thinly veiled attempt to confiscate the wealth from all of its citizens.


Are cryptocurrencies “goods” in any sense of the term?

Again, does it matter?

But they have no substance.

Litecoin, as an example, is for all intents and purposes, software. Yes, the codes that represent Litecoin can be stored on paper, and paper is a commodity, but the ledger or balances are transmitted electronically.


If a cryptocurrency is not a good, then why are they considered intangible assets or goods?

The legal codes describing digitized music, by way of similarity, as an intangible good or asset, do not lend software music any real substance. These types of laws allegedly justify regulations and taxation. These laws should instead seek to clarify copyright.

But the test here is the consumed part. Let us get back to that.


Can any cryptocurrency, be consumed in the same sense that gold is consumed?

If we “use up” an item, we consume it. But, within economics, if we buy an item, we are also consuming. So yes, you can consume a cryptocurrency, in a sense.


Cryptocurrency as a service?

Some economists will differentiate between goods and services. Digitized music, for example, has no substance and is therefore classified as part service and part good.

Cryptocurrencies do not need to be goods or services. They merely need to function as a medium of exchange. And they do, to a point.


So why did Ayn Rand not simply advise that money had to actually be an “unconsumed good?”

As civilization advances, we no longer need to carry our commodities along with us. This entails risk. Gold coins in a purse attract unwanted attention. So we stored our unconsumed goods at home or in a bank, but again, there are risks involved. Burglary and confiscation, to name a few.

In any event, we used checks (functional money) to transfer title of our goods back and forth. Cryptocurrency can function as money, if it represents, holds title to or is backed by an unconsumed good. Preferably a good like gold, with a stable value.


What is the real issue?

The debate, then, is not the lack of intrinsic value of a cryptocurrency. The debate is how to accomplish and establish, voluntarily — the “backing.”


Why can’t you simply divide the number of atomic units into the total investment amount to arrive at the value of any particular cryptocurrency?

Like dollars or yen, the temporary, constantly fluctuating, value of any currency or good is also a function of supply and demand. In the cryptocurrency sphere, it is rather simple to calculate current base value using this method, and then trade when one sees that the formula indicates undervaluation or just the opposite.

Again, unlike real goods, such as apples, Bitcoin can change in “monetary” value very quickly.

In any case, the idea that monetary inflows lend cryptocurrencies intrinsic value is incorrect for a variety of reasons. These include the inherent price instabilities and potential lack of demand when the next best altcoin hits the market.


Can a cryptocurrency “back” itself?

Cryptocurrencies have many attributes, but in the scheme of ‘money’ they are quite new. A young project on the financial stage.

Untraceable or private cryptocurrencies may be best suited for cash-like use, so long as they are as secure as possible. Attributes, such as these, should increase the perceived value of the currency for now. But perception is not the “intrinsic.”

Bitcoin, on the other hand, is traceable and could decrease in value for this reason — even if it is “tweaked” to “repair” these shortcomings.

In any event, to state, at this stage of the game, that a cryptocurrency can somehow obtain an intrinsic value and all the necessary attributes of money, is unknown.


Which Cryptocurrency will Succeed?

Just which cryptocurrency is on the “Bleeding Edge?” AEON, Monero, Zcash? Will it be those that are currently backed by gold and silver? Will Bitcoin keep its position?

For all the research into Fintech, the ongoing debates about value, the idea of voluntary use and privacy, the search for security through anonymity and trust, we may be witnessing the next best cryptocurrencies to hit the markets since 2009.

But always remember: do your homework. Fintech is a work in progress. You may need to leap to the next best cryptocurrency as you watch this whole thing flower.

Perhaps it’s time to think outside of the box and beyond the blockchain. Perhaps, and until we live in a world were cryptocurrencies aren’t so heavily regulated as to make it nearly impossible to give them the title of “functional money,” we need, in addition to the current technology, something more.

But you have to ask yourself, even if Bitcoin is transparent, does that not make it stronger?

 

Thanks for reading.

 

Photo:Source

Trust-Mining

 

To Pre-Mine or not to Pre-Mine? That is the question.

Is it really?

No. It’s “Trust Mining.”

Pre-mining: To create or mine cryptocurrency in advance of public release.

One of the arguments against any cryptocurrency launch is the idea of a pre-mine. There has been a tremendous amount of discussion about the topic. But these discussions are scattered all over the net. This is an effort to place some of them in one place.

First, before we get into the weeds, we must answer the basic question…

Does a Creator of a Cryptocurrency have a Right to Pre-mine?

This is the first question many seem to overlook. They list numerous reasons against the practice, but gloss over the fact that the decision to pre-mine is the right of the creator of the cryptocurrency. Whether a software application is given away or sold, the creator — the developer — has the option to pre-mine or not to pre-mine.

Whether you agree with that statement or not is immaterial. Facts are stubborn things.

All the calls to make such a thing illegal demonstrates an underlying motive. That motive is to steal another’s idea. If you don’t like the Pre-Mine, change the channel. A developer can do anything he wants with a piece of code, absent making it reach into your bank account or similar.

Remember, cryptocurrencies are “voluntary.” You use them only if you so choose. So stop your whining.

Is it a Good Idea to Pre-Mine?

It depends if your application is open source or not and how it is updated or changed.

Ripple and Stellar are companies and therefore centralized — and Pre-Mined all of their cryptocurrencies. Both have had some reasonable success and have rights to their respective blockchains.

Ripple is integrated with the current financial world, whereas Stellar is attempting to appeal to the masses. Neither has come close to the success of Bitcoin.

Bitcoin was not Pre-Mined, but Satoshi Nakamoto did begin to mine first and then others became interested. This is not the official meaning of a Pre-Mine, however.

If Satoshi had set aside in apparent million “BTC,” before anyone knew what he was doing and then he attempted to release the application to the world, the success of Bitcoin would have been in doubt.

As it was, Satoshi launched a “cooperative” venture and asked anyone who was interested to download and begin mining. And we know the results. Whether Bitcoin will exist long term is another question.

When others began to copy the Bitcoin idea — literally or not — the idea of a Pre-Mine entered the Fintech vocabulary. It has been considered deceptive, if the launch of a cryptocurrency did not advise that a Pre-Mine existed.

If a Pre-Mine was publicized before launch, it was the decision of the people to mine or not.

The “Dump” Risk?

This is perhaps the best argument against Pre-Mining. The fact that at any moment, the creators can flood the market with their own coins — sell at a profit — and essentially crash their own coin. A few days later, they then announce a new coin and the process begins anew.

This scenario appears to diminish with time, however. It’s the early days, where pumps are in hyper mode, when a Pre-Mine Dump would be tempting.

For example, if there was a 10% Pre-Mine that would mean 10% of all the coins ever to be mined are now in someone’s wallet. No big deal right? What a minute. What if only 20% of the total coins have been mined? That would mean the Pre-Mine is currently 50% of the total. If a dump were to occur the ‘coin’ could crash, as the developers cash-in.

Those unlucky enough to be holding their ‘coin’ after a major dump of Pre-Mined coins, are in fact, fleeced. Many such comments litter the net about “Bag Holders” with “dead” coins after a big Pre-Mine dump. AuroraCoin anyone?

But if I Pre-Mine and do a Giveaway, won’t that help?

So far, the answer appears to be “no.”

Closed source coins like Stellar and open source ones like AuroraCoin have tried. Stellar has been trending lower for over a year. Again, their long term success is in doubt.

To give crypto-coins away, as effort mask the fact that you will dump in advance is also a deceptive practice.

Then there are the pure Proof-of-Work Coins. They are or can be 100% Pre-Mined. If you trust the developers fine. Sunny King of Peercoin fame may be onto something, but the old proof is in the pudding, right? Peercoin has been trending lower since the “Great Bitcoin Pump,” but so has Bitcoin.

 If the Developer does other Good Things with the Pre-Mine, won’t that Help?

Maybe.

Stellar uses the Non-Profit angle to assist the uneducated and the alleged, underbanked. If you want to pour your hard earned money down that potential black hole, be my guest. I gave at the office, thanks.

But many other cryptocurrencies use the Pre-Mine for upkeep and updates. The danger here, is that “they” are often in full control of their semi-centralized blockchains. I’m thinking about DASH here. (Not Dashcoin – DSH.)

DASH does have a voting system when proposals are made to change the ‘coin,’ and the system reflects a business-like model. DASH also, allegedly, had a Pre-Mine. And they have been in an uptrend for over six months. Pre-Mining, which DASH developers have explained as a glitch in the early works, has not yet hurt the crypto. But their innovation may have overcome the bad taste of the early coin hoarders. Again, only time will tell if the ‘coin’ has staying power.

What is a Pre-Sale?

Some cryptocurrencies Pre-Mine millions of coins and then sell them off to investors to generate revenues, before the official launch. In other words, the coins are actually released to the public, beforehand. This is not as bad as withholding sale and should not be considered a “pure” Pre-Mine.

But let us not mince words. He who controls a Pre-Mine, even a sale thereof, controls the ‘coin.’ This may be why, among other reasons, that Ethereum now has a partner (okay competitor) called Ethereum Classic. It is also instructive that the original developers of ETH turned their clock backwards to ensure that a funds were not diverted inappropriately, due to a problem with some “code” as it were. If that’s not centralization of monetary power, I don’t know what is. Certainly Janet Yellen noticed.

No Pre-Mine

If you want to have others adopt your private currency, in some meaningful way, then you need cooperation. You need miners if you are going that route. Miners that support your blockchain. Stakeholders in your system. Producers of your coin. Users of your API’s. Investors in the wonderworks. Speculators to drive everyone else mad. And all the rest.

If others feel that you have the investment advantage, your level of cooperation may be diminished. Starting everyone at the same place — at square one — seems to be relatively ‘cooperative.’ It shows that you believe in your product enough to start right alongside everyone else. To get into the fray, for better or worse, with those who you wish to adopt your plan and support your network — your blockchain.

In this sense, the developer is the artist. Everyone is invited to make a copy of his/her/their work and use it. Occasionally, the developers make improvements upon their works. Or they work as a team and use some form of voting system to approve or disapprove changes. There are many variants.

The Pre-Mine with a Side Show

Perhaps a lesser explored reason for Pre-Mining is to show the actual cryptocurrency in operation. The “red herring” idea or “selling the sizzle, not the steak.”

The cryptocurrency enthusiast is curious about all of functions built into the newly designed ‘currency,’ such as faster transaction times, blockchain savings, secret messages, private markets and the like. But when you check the website and the hacker news, you find that there was a huge Pre-Mine. That should be a warning to you — unless you truest the developers.

The Fee-Mine Concept

One way developers avoid Pre-Mining, is to code in a fee based system using the native currency. Each time you send or mine the cryptocurrency the developer receives a small portion of the proceeds, which they can then divvy out among the miners.

Trust Mining

We all know that cryptocurrency has no intrinsic value. It is not necessarily durable. All the aspects of a sound money are certainly not imbedded within. But to come as close as we can to a sound money system might be the ticket.

After all, the dollar is a mere piece of paper. The United States has what many refer to as shadow gold standard. But like a cryptocurrency, if the dollar loses its trust, say when the printing presses shove out “QE4” forever, all bets are off.

Multi-Mining:

In a sense, Ethereum and now Ethereum Classic are attempting to provide an intrinsic-like value to their cryptocurrencies. The do this by having the native “primary” coin function or fuel many other side processes, colored coins, self-executing contracts and applications. The list goes on.

But these “primary” coins only function within their own ecosystems.

In contrast, one of most stable monies and currencies of all time, gold, has uses other than its monetary use and outside of a captive blockchain.

Utility Mining:

Perhaps one of the best ways to establish a cryptocurrency is to allow it more versatility…more utility. A ‘coin” that has more than one use. Like gold has more than one use. A coin that when mined, can be used “outside” of its blockchain for other utilitarian or even decorative purposes. Off blockchain uses that will allow for private transfers as well as public receipts.

Thus far, many seem to focus upon the many blockchain uses. Perhaps it is time to look at another facet. A cryptocurrency that can function off-blockchain or not require a blockchain at all.


Photo Source: By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)%5D, via Wikimedia Commons

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