How do you excite Apple fanboys, terrify Wall St. financiers, and comfort Bitcoin faithfuls? If you’re “Jamie” Dimon, the head of J.P. Morgan, that question is easy. Say “Silicon Valley… [wants] to eat our lunch”.
Ah-ha! But Bitcoin (BTC) is not a product of the Valley, you say? It’s the work of Satoshi Nakamoto? 10 points to Gryffindor! Even so, tax, regulation, theft, and greed will drive Bitcoin to $0*, and build a wealthier world in the process.
Monetary Policy and the Central Bank
A successful central bank can do wonders for an economy. For example, China’s Central Bank announced rate cuts over the weekend, an effort to bounce back to the 7-8% growth (yoy) China enjoyed for nearly a decade.
A decrease to the federal funds rate and the discount rate increases global demand for Chinese goods which helps the rate of growth for the Chinese economy.
Following the 2008 crisis the Fed used Quantitative Easing for preventing a slow to financial activity. When cash stops moving so does the economy. And without a Central Bank acting for the health of its currency we get breadlines and depressions titled “Great”.
If Bitcoin becomes the decentralized reserve so many hope, Central Banks will be powerless during crises. In such a case “too big to fail” becomes a market where financial flexibility is only afforded by the currently affluent.
In the markets, an educated person and one with no formal training can come to the same, accurate conclusion; the markets are irrational and inefficient. But we’re irrational creatures so what’s the harm?
David Gergen, former White House Advisor, could have been discussing finance when he said, “trust remains the coin of the realm”. Trust is key.
Bitcoin uses a distributed ledger called the “blockchain” to record every digital transaction in its network. This system allows users to trust the infrastructure of Bitcoin as a guarantor without knowing the other person.
Yet, anonymous trust makes human emotion obsolete. What’s more, the blockchain’s current incarnation creates a system, and users, which need not behave or appear like humans. And this at a time when everything is becoming more social, and we interact with brands as if they were people (every B2C Twitter Conversation ever).
BTC is currently**** trading at $242.65 USD. That number will continue to fall to zero until the blockchain becomes plumbing.
And now behold what the beauty of the blockchain will bring**! The reasons why this is inevitable lay with psychology, laziness, and a solution that’s just plain better.
Humans want to be part of something. The popular fintech company Kickstarter is a success for this reason, allowing groups of people to bet on the idea of one of their own. Uber, soon to be the most valuable startup of all time, is a success because its platform’s transactions are human. Customers trust the system, interact with the driver, and defend the Company.
It’s a general fact of innovation that the less obtrusive way tends to win out. Watches augment cell phones that replaced house phones. The instant economy replaces carryout. Pills replace needle injections (for common ailments — if you’re turning blue, get juiced immediately).
It’s Just Better
The transition of Bitcoin to plumbing combines connectivity with state backed currencies***. Now dollar-pegged countries like Ecuador can have the infrastructure to take part on their own. The growing migrant workforce can earn wages, buy goods, and send money to their home country without any burden to their family. Microfinance shops can send money to their customers from any currency without ludicrous fees. These guys will finally go bankrupt. And local bankers who sponsor your child’s PTA (and know the name of your dog) can compete against the banks that don’t care about, or can’t scale, the personal touch. What’s more, it opens global finance to the unbanked.
The loan created more growth than the wheel. The blockchain will do more.
And, it will eat Wall St.’s lunch.
If you don't agree or didn't like this blog, here's a video of tiny hamsters eating tiny burritos. Let’s call it even.
***While fiat currencies are not backed by any real assets they are backed by states holding real assets, not the least of which is the land they occupy. Raw materials are more valuable than math-mined numbers.
****Time of original writing was 13/5/2015