Bitcoin: Fad, fraud or the future?
Patrick L Young is CEO of niche crowdfunding platform HanzaTrade and an advisor to fund managers throughout the world. Born in Ireland, he is an active investor in the “New Europe” amongst other emerging markets and is an active Co Founder of grassroots startup group "Mission ToRun." Home Page: http://patricklyoung.net Twitter: @FrontierFinance
Bitcoin offers a fascinating peek into the future of money. In essence, simple, it’s also ludicrously complex and therein lies the opportunity for many a correspondent to rant about its remarkable merits or incredible pitfalls.
So, let’s take a deep breath and try to examine Bitcoin as dispassionately as possible.
Digital currencies have been with us for some time but the path has been littered with failures. Take Beenz, an early casualty of the dotcom bubble hailed as the digital alternative to cash which failed to gain traction. The core tenets of cybermoney are not new. Any reader whose insomnia is bothering them can refer to my own discussion of the topic in the 1999 book “Capital Market Revolution!”
The genesis of Bitcoin is fascinating: computers do inordinately tricky sums and are awarded Bitcoins as a result of their computative endeavours according to formulae created by the mysterious Satoshi Nakamoto.
Meanwhile, a major depositary for Bitcoin is Japan’s secure-sounding Mt Gox, formerly the rather less fiscally oriented: “Magic: The Gathering Online Exchange” for swapping fantasy playing cards. Understandably this concerns some investors.
To appreciate Bitcoin, consider Copernican theory. The metaphor struck me while preparing to discuss Bitcoin and cryptocurrency during the financial innovation forum @YMarkets early June in Nicolas Copernicus’ birthplace, Torun, Poland.
Copernicus, was a true renaissance man, economist, apothecary and much else beside. However, he is most famous astronomically: discovering heliocentricity, aka the sun sits at the centre of the universe and everything else orbits accordingly. Historians will recall this didn’t sit neatly with established church doctrine. Apply Copernican logic to money and we can see where Bitcoin fits into the fiscal jigsaw...
As recently as the late nineteenth century, Central Banking came to the fore. National banks became the epicentre of the financial universe as protector of the currency. Today the Federal Reserve at the epicentre of a globalised financial universe.
With Bitcoin money no longer revolves around the central bankers. Bitcoin is the epicentre of a new post-Copernican financial universe:
Bitcoin, like the internet before it, is a technological advance removing redundant middlemen. Naturally this engenders terror in the hearts of the financial establishment. Such are their delusions of grandeur, some central bankers find it gauche to be deemed mere cogs in the chain. The internet merely seeks a path of least resistance (just ask a travel agent - if you can find one). Money can live without central bankers.
Bitcoin has succeeded as the breakthrough digital currency. People have begun to appreciate that cryptocurrency can replace central bank farmed money. This is a Copernican revolution in cash: a decentralised asset whose owners are not held hostage to the whims of government.
Bitcoin is a fascinating speculative asset with finite supply where judicious long-term investment ought to make sense. However, the innate volatility of Bitcoin makes it less useful as a tool for exchanging goods. Real-time transactions work but with often significant weekly dollar oscillations, Bitcoin is not a tenable solution for invoicing business to business transactions settled over 30 or more days...
Bitcoin is the Model T Ford of money; revolutionising the mass money market and rendering obsolete the blacksmiths, er, bankers. Nobody wants new Model T’s today...although modern cars use the same core precepts as the ‘Tin Lizzie.’ Bitcoin is the breakthrough cryptocurrency. Its legacy will be as the parent of a portfolio of diversified Electronic Trading Units. Bankers are now in a long laboured decline. Peer to Peer transactions are the way forward. This is not a riot mob revolutionising finance, rather an expanding crowd expecting fair finance, sensible money and an end to overpaying for banker intermediation.
History will record Bitcoin as a core foundation of our financial future.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.