Category: Digital Transformation

In my previous post When the enemy becomes a friend I elaborated on the role of the opposing forces, how governments are dealing with these forces, a cookbook for regulation and the hysteria. We’ll take it from there.

Back to the fight between black and white?

What I miss in the discussion is a respectful exchange of opinions. It seems that “pro” cryptocurrency fractions deny any doubts, almost like defending a religion. Making a “contra” cryptocurrency statement can result into being called an idiot, not having understood the concept of Bitcoin, blockchain, decentralized databases, etc.

Whereas the “contra” cryptocurrency fractions give you any reason why cryptocurrencies are bad. Both fractions persuade each other that their idea of belief is mistaken. What happened to our discussion culture?

Both sides are right in their perspective.

Is cryptocurrency bad for the environment?

Not to be underestimated is the horrendous power consumption, which requires a single Bitcoin transaction. The complex calculations for a single transaction require a couple of hundred kilowatts of electricity. This is comparable to the energy consumed in a house for a week. The amount of energy produced may not be enough in the future to systematically maintain Bitcoin calculations.

On the other hand, how many bank branches do you need in the future? The entire Bitcoin network uses as much as energy as a couple of branches of a major bank.

The underlying blockchain technology will become faster and cheaper and platforms will be more stable and secure. Hence, there are ongoing forces in limiting the impact on environment.

Will cash survive?

For some time now, the abolition of cash has been medially controlled and there are more and more people who are falling into this trap. The aim of the PR campaign against cash is to use virtual money only in the future, because it seems more convenient. The argument “I have nothing to hide” is a kind of blank check to the state to interfere with privacy and a handover to the state as an unsuspecting citizen. Or as Edward Snowden quoted: “Arguing that you don’t care about the right to privacy because you have nothing to hide is no different than saying you don’t care about free speech because you have nothing to say.”

A similar approach by the central banks is to stop issuing larger amount bank notes such as the 500 euro note. Official argument is to fight money laundering, however, the true reason is to abolish cash in the long run.

What the forces in favor of abolishing cash are not telling you is that you will give up your freedom and privacy. I like cash because it represents freedom, free choice and keeps your privacy. Cryptocurrencies, however, have the feature that every single unit or a fraction of a unit is traceable throughout its entire history of existence. You may not know the owner of the account, unless they identify themselves. The governments will introduce new laws not only to disclose the owner of the accounts but all parties involved in a business will be obliged to disclose their identity. The hidden agenda is to collapse the Bitcoin and to come up with a new and fully controlled cryptocurrency.

Conclusion

Monetary systems are changed about every 40 to 60 years. The current system in use is the fiat monetary system since 1971. The acceptance of fiat money is only by law enforcement and not necessarily by trust per se into a currency but rather on what we believe we can buy with it and the expectation that the seller accepts our money. The problem are not the currencies, it is the system which manages the currencies.

More and more people and investors lose confidence in fiat currencies such as euro and the US dollar. These currencies are already on the deathbed when we take an average age of 50 years for a monetary system age of around 50 years. The euro was born with some serious disease without having done his homework and later bypassing agreed rules. The dollar before and after 1971 are like two different currencies because they are backed up with two different systems.

It is not only the expiration of a monetary system in its last days, it is also a power game between new raising nations (China) against old super powers (US). For example, the Shanghai International Energy Exchange (INE) is setting up a domestic trade on oil futures to enforce its own currency by allowing foreign investors to settle their contracts in local currency and not in USD anymore. Eventually they have the ambition to replace the Petro-Dollar with Petro-Yuan.

On the other hand, there are over thousand different cryptocurrencies and around hundred have a usage. Bitcoin is a perfect candidate to be manipulated and destroyed by the ones which plan a PR campaign for a new cryptocurrency, which will eventually replace Bitcoin and will be somehow under the control of the government.

One of the unique characteristics about cryptocurrencies is the ability to have traceable transactions which stay forever in the blockchain ledger. The real challenge for government control is to have access to the owners behind the virtual wallets.

Therefore the banks and the government are pretty relaxed and look at the ups and downs of Bitcoin until it will crash. People will lose all their Bitcoin cryptocurrency money overnight. Once the people become insecure about Bitcoin, government and banks will come up with a new fiat cryptocurrency or pseudo cryptocurrency, as long it is under the control of them.

Whether it is the KYC and AML approach or the ownership of the Lightning Network. There will be soon a “solution” ready.  How about calling it “Phoenix”? The Economist put it on the front page. By the way, we missed a small detail, it was already 30 years ago in 1988. Is this a déjà-vu or has the time now came to release the nightmare from the matrix? Some plans need the right moment to be executed. To implement a new world currency, you need a crash or a crisis to have a total currency reset.

Is a government controlled cryptocurrency possible?

With the introduction of anti libertarian laws, government and banks started their war against the real cryptocurrencies. With cryptography, open-source and a decentralized network which is the core of blockchain, the ability to transfer value peer-to-peer immediately and cross border (as long as you have an internet connection), bypassing banks and government control as the intermediaries is not in the interest of established institutions. Governments will not allow private based cryptocurrencies to co-exist alongside government based (pseudo) cryptocurrencies.

The crucial point is: how can you control the money flows? It is possible by disclosing the identity of the sender and receiver of the digital transaction in the blockchain. In other words, who is the owner of the digital cryptocurrency wallet? Governments will ensure law enforcement to have full visibility of the participants in the blockchain. Hence, if they do not have access to real cryptocurrencies, they will enforce laws to have indirect access by getting the required information.

Another potential scenario is that banks will enforce a law to ensure the ownership of the Lightning Network so that participants will use the infrastructure with fast speed and low fees instead the current high fees low speed scenario. They will propagate it with the required digital liquidity required to avoid shortage of digital cash and the advantage of high speed and low cost transaction fees.

Perhaps a different scenario is to introduce another product. Similar to cryptocurrency, but under full control by government and banks. Basically the question would be: how can we replicate fiat money, digitalize it and promote it under a pseudo cryptocurrency product to the masses? A new product, after the Bitcoin crash, which is secure, AML compliant, highly acceptable and a government supported new digital currency. I hope that we will not fall into the trap, however, by law enforcement, what choices do we have?

Prediction

Cryptocurrencies will somehow impact the future, but not only by one. Which cryptocurrency it will be is hard to predict. Candidates today on the stage are Bitcoin Cash, Monero, Ethereum, Zcash, Ripple and Dash. It is possible that cryptocurrencies will keep growing if the critical mass will start moving towards decentralized and programmable money. As long as the speed and fee issues remain unfixed, other mobile payment systems such as Twint will aim to make it easier to transfer money within seconds with almost no fees. But these alternative payment need a bank to be supported and therefore are more or less a replication of the old system.

People want to have simple ways when it comes to use or transfer money. Whether it is cryptocurrency, digital cash or mobile payment systems. A cashless society means giving up your freedom and control though.

We will see how it will be used. I am not referring to Bitcoin as it is used for speculation, I am thinking about daily usage, like Bitcoin cash. There are many possibilities regarding blockchain based solutions or integrating those solutions into mobile payment systems or credit card providers. Like in the cloud, there are many possibilities – private cloud, public cloud, hybrid cloud, etc. The same kind of approach can be used with the blockchain technology. There are many different hybrid scenarios possible. For example, Lombard Odier uses the blockchain technology to process a bond with a result of reduced transaction fees and time for settlement.

We need something that has the good parts of existing currencies, like gold as an accepted value and the convenience of cash. With the usage of decentralized systems, cryptocurrencies take advantage of the network effect. If the consumers will profit from the network effect, cryptocurrencies will become more accepted.

The one which will take the lead will most probably be a new (pseudo) cryptocurrency from a PR campaign, pushed by banks and the government and not a libertarian (real) cryptocurrency from the geeks and the nerds.

Cryptocurrency is only one aspect. The blockchain as the ledger for any asset will definitely change the financial industry. Bitcoin may be lost in significance soon, however cryptocurrency and blockchain will remain.

The cryptocurrency just happened to be the first application for blockchain and the only constant thing is change. Nothing will stop progress.

The post Bitcoin cryptocurrency era will stop people from using cryptocurrencies not approved or not under control of the government. In the post-crash time though, we may live in a world of parallel currencies, each of them used for a different purpose. I would not mind having a local Aarau currency, where I will support my local stores. A parallel currency which circulates within a smaller territory, where the participants support local business and consume local products.

A currency accepted by people and not forced by institutions. Something like the Totnes Pound or similar to that. You could start with paper money, which has more a symbolic character and then move to a digital platform to enable businesses to trade amongst themselves in much greater volume than paper money. Eventually, why not moving to a new local cryptocurrency or even launch it from scratch?

A currency which I can trust, which is not used for speculation, a currency which is used for real values. Real value like based on work and not to be confused with watching the raising prices of a cryptocurrency portfolio, hoping to earn easy money when participating in a kind of crypto gold rush.

Would that be possible with a cryptocurrency? Trust is important. Trust generates a win-win scenario.

Will anarchy, libertarianism or mainstream prevail? Stop dreaming! Because then, unfortunately, history repeats again. Two hundred years ago, Napoleon Bonaparte already said “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

Do we all want freedom, stability and the power to the people? The old utopian dream? If you are trapped in the system and you could suddenly lose your philosophy, your worldview falls apart. That hurts. So you may want to keep control, power for a few and keep the profits. It’s your choice to decide what you believe.  When awareness raises, the surrender of ego becomes easier.  It’s all about if you believe in something or not. Be careful believing in something which has been produced by others that you should believe in. As we know, belief can move mountains. Currently the majority believes in a never ending Bitcoin price growth.

At least, we are living in exciting times and are witnessing radical changes. Not only in the cryptocurrency space out there.

What is your opinion on cryptocurrencies? Happy to exchange comments.

In my previous post Cryptocurrency: Friend, Enemy or Anarchist? I elaborated on the role of the central banks, blockchain and the anarcho capitalists. We’ll take it from there.

The enemy – or when the enemy becomes a friend

Some crypto supporters argue that the new currencies are giving hard times to central banks. The banks will do anything from preventing them to take their power away. With the instrument of cryptocurrency, gigantic “artificial” assets can be intentionally vanished into thin air. Take as a counter force only the dollar surpluses of the Middle and Far East economies. The US purchasing power will not be interested in export profits from their effectiveness. Ultimately, one can turn every hype into the opposite with today’s power systems. Cryptocurrencies have no substance, they are not deposited with values ​​such as gold and thus unstable. Compared with the current fiat money debt system, cryptocurrencies have no intrinsic value since they are not credited as debt of the money issuer in the balance sheet. There is no asset in the money issuer visible. Today, however, you cannot trust the overindebted states neither with their corresponding central banks issuing money.

Today’s paper money is no longer deposited with gold and is artificially kept alive. Nevertheless, today’s classic national currencies are based on real productivity and the fiscal capacity of an economy. With digital currencies there is no economic basis, just a kind of euphoric trust and there is this underlying struggling technology which makes it currently difficult to take the lead as the new global currency.

The argument regarding money laundering and the bypass of state restrictions on the movement of capital is as hypocritical as the evasion of controls carried out above the control organs.

Banks are depending on printing money. So where does the Bitcoin come from? The person (miner) who signs the ledger page in the block gets a little reward for that. That is how the money gets into the system. The majority of mining is done from major mining pools though. A single participant will not be able to host his own node nor getting a reasonable reward.

So where is the difference to fiat money? The fiat money today is also created from “nothing”. Commercial banks also create fiat money by signing for example a mortgage loan and crediting the amount to the customer’s account. Because this money originates from a simple and free booking, it is called a bank book money drawn from nothing. The other side of the loan, such as deposits and the refinancing parts also come eventually from nothing. If you take a different approach by arguing with the commonly accepted theory of financial intermediation which is also reflected in the Basel III regulation, it still does not prevent you from a major financial crisis as seen before.

The bank get to lend that money out of interest, multiple times. Henry Ford said that it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Because of the low interests, banks also make money with fee income. Using cryptocurrencies, banks cannot charge fees because they are not required anymore. That is another reason why banks do not recommend to invest your money into cryptocurrencies.

Cryptocurrencies are also currently difficult to regulate. Part of the PR campaign behind the scene is to instrumentalize CEO’s of Wall Street to speak loudly about Bitcoin is a fraud but it can still hit $100K. Of course, you need a bad guy (Bitcoin) to blame it for the crash and then raise the new, government proved crypto or digital currency (like a revived Phoenix from the 80’s). So for sure we can expect another coin to become the global digital currency that has “solved” the problems Bitcoin had.  If this happens, the enemy becomes a friend. Fiat money becomes cryptocurrency.

Fear, uncertainty and doubt (FUD spreading) has become more popular in times of radical changes. Whether it comes from the declining mainstream media or from a raising alternative media. Make your own research and do not believe what others want you to believe in. The political staging and brain wash got smoother over the last couple of years. The rise of awareness also. Are you wasting your time with explanations? People anyway believe only in what they want to hear.

The question remains whether this theater is a political stage by coming up with a rehashed Phoenix story or whether another existing cryptocurrency will take the new lead. And yes, be careful when raising these questions because anything which seems made up or a scam may become suddenly considered as conspiracy.

How to deal with the enemy? A cookbook for regulation.

What are governments doing to regulate cryptocurrencies? First of all, the lobbyists tell the government what needs to be done. The incredible concentration of billions and billions of capital to less and less people created some powerful NGO’s and lobby organizations. They determine. In contrast, the people who think the population can determine live in a fake democracy.

Any regulation will not be able to stop manipulation. We see it currently in the old monetary systems. You can start by bringing the question to the table and asking: is Bitcoin even money? Bitcoin is a financial product like a certificate and not a currency. The value is speculative and influenced by market psychology.

Then you let the national banks arguing that money should be stable in value and of course the Bitcoin is not as the recent price fluctuations show. You will argue that the public has no protection when investing in digital currencies and that the blockchain technology is expensive and inefficient. Lesson number one: make the audience insecure. Then you can start introducing new laws.

Firstly, you announce that you will crack down on speculative trading in cryptocurrencies. For example, the opening of anonymous cyber-currency accounts will be banned.

Secondly, you introduce a new law that will allow regulators, in certain circumstances, to close stock exchanges where such currencies are traded or you impose a ban on stock exchange companies doing business with cyber currencies such as Bitcoin. In the meantime, you ensure that companies whose business models is based primarily on cyber currencies, cannot go public.

Thirdly, you tax investment income from related trades. And by the way, Bitcoin is not a currency, so central banks will demand a VAT on the cryptocurrency.

Apart from the new laws introduced, you keep a constant warning of high losses in this area due to excessive price fluctuations. You claim that the prices of most cryptocurrencies in domestic trading exchange places are much higher than in other countries.

The sooner people get insecure the better you can enforce laws. At the end of the day, money is what the government determines as such. They will ensure that a currency needs a reliable and a legal framework as a foundation, also to enforce demands or taxes. There is no need of algorithms, gold or some kind of imaginary hypes. This is about pure state power.

The hysteria

In 2017, Bitcoin has been the best performing asset across all classes and also on average on the last seven years. The banks don’t even have the tools to deal with this observation. However, it is not new that greed eats brain. Let’s just think of the stock-exchange dotcom bubble, which built up around 20 years ago and then crashed. The ones which were hyping the dotcom mania 20 years ago left on time before the bubble got burst and made good cash. The ones who survived and became famous and successful, like the Amazons, Googles and Facebooks – no one can predict how long they will remain successful. Who will be the next Fintech Amazon, Fintech Google and Fintech Facebook? 20 years ago, we believed that best in breed dotcom companies will survive. We had to realize that not the best products survived but the ones with the biggest power and money have survived.

The same will happen with the Bitcoin. Again Bitcoin and Bitcoin Cash are different things. If I get a real value for Bitcoin Cash, I am getting real value for paper money today as well.

If the profit outlook is big enough, the mind will fail. Do the masses understand in detail cryptocurrencies, algorithms and blockchain? You should invest in things that you really understand. You need to differentiate between becoming a millionaire, a cryptonaire or both if you are lucky.

If the propaganda is big enough, it follows the unsuspecting mass. If then that complete wealth has resolved into nothing, the hangover is great. Most people jump on the train, but have no idea of ​​the matter. Like in the financial crisis ten years ago, has someone really understood speculation objects such as CDS (Credit Default Swaps) and just accepted the pretended intelligence of investment advisors as expert knowledge without skepticism?

The risk of investing always lies in the future, never in the past. With extrapolated charts, it’s easy to refer to the past. In other words, if you had bought Bitcoin for a few thousand euros a year or two ago, you would have earned a horrendous amount today. Then people tend to say “if I just would have invested, then …” An immeasurable greed for quick wealth, without having to work for it leads to the inevitable crash and subsequent complaining why it was not explained and why they have not been warned against it. This is not the first time when human beings make mistakes, but only incorrigible ones make the same mistakes several times.

The misleading certainty of the Bitcoin is the mathematical limitation of the money supply unless you divide it in smaller units such as Satoshi (like cents). It also claims that the inflation risk would be eliminated. The price of the encrypted currency thus results from the pure demand. The inflation of the money supply, as created by the national banks, is thus eliminated. However, the number of potentially unlimited and different cryptocurrencies is not.

There are currently over 1’000 different cryptocurrencies and no one knows how the wild growth will develop. The total amount of money is therefore not limited according to the character of cryptocurrencies. A collapse of the Bitcoin can be quickly staged by the banking system itself. With a PR campaign by the banks and mainstream media, a new pseudo cryptocurrency can be staged medially to deceive the masses to jump on this new cryptocurrency. The new price fluctuations can then destroy confidence in the Bitcoin.

The mass media heats up the hysteria by putting the spot on the highly speculative transactions with the possibility of total loss. You keep warning on the excesses that would produce bitter losers and it worst case you can lose all of your money. In the meantime, you can start a new PR campaign for a government controlled quasi cyber currency which will be introduced after the Bitcoin crash.

What is your opinion on Bitcoin and cryptocurrencies? Happy to read your comments.

In the next posting, I will give you my thoughts about the impact on cryptocurrencies on the environment, whether cash will survive, if a government controlled cryptocurrency is possible, a conclusion and prediction.

In my previous post: Cryptocurrency: To Bit Or Not To Bit I elaborated on the Bitcoin as the first cryptocurrency Icarus, Bitcoin Cash and the usage of cryptocurrencies. We’ll take it from there.

The role of the central banks

The central and private banks will not give up their power. During the recent years and especially since the financial crisis 10 years ago, central banks are printing money in order to get out of their debt and stimulating investment activity. Once the government starts to print money, we all know that there will be inflation and no happy ending. The real time bomb we are sitting on is when the inflation starts to be a galloping inflation and the fiat money will be per law the only accepted medium of exchange. People will run after real assets such as gold. However, gold ownership will probably become illegal as history has shown.

One of the positive things about cryptocurrencies is to challenge this monetary system unless it is a kind of deliberately big show from the so called globalists. Our current monetary system is not old. It literally started in 1971 when US President Nixon abolished the gold standard. From then on, the world currency, the dollar, was just a paper currency that could be increased at will. This had profound consequences for the entire monetary system. The value of foreign exchange was no longer linked to a fixed anchor.

Unlike the gold standard, which imposed some restrictions on central bankers because they always had to put gold in their currencies, the central bankers suddenly had a free hand in their monetary policy. The time of tight rules was over. The tide change can be observed well in the current monetary policy.

Fiat money is created through creation from nothing. Today’s coins and notes are fiat money because their manufacturing costs are negligible relative to their nominal value. For gold coins, which have a commonly accepted inner value, this would be different.

For example, the ECB just prints billions of euros to buy government bonds, which eventually will inflate the money supply. The abolition of the gold rule was one of the causes for the financial crisis 40 years later because states have been able to pile up debts largely unhindered.

But there is also some truth in the opposite. Having kept the gold standard would resulted in a rigid fiscal corset which was also an effect in the great depression during the last century. A loose policy allows more flexible intervention.

The money released from gold has risen far more than the value of goods and services produced. In this way, huge imbalances and speculative bubbles have formed in the world that led to the catastrophe by 2008 at the latest. Also the mutual monetary policy followed since the 1970s some chaotic rules. The central banks intervened around the globe to steer their own currency.

Ten years after the last financial crisis, the central banks keep the interest around zero or even in the minus, claiming that this is necessary to have incentives to invest into the real economy. However, fact is: the investors put the money back into the casino like financial system, focusing on short term profits by feeding the speculative bubbles instead of aiming for sustainable growth.

In contrast, people in favor of Bitcoin say that it can be trusted because there is nobody that can inflate the entire money supply and it is predictable and agreed upon.

The argument against cryptocurrencies regarding money laundering is that nothing is traceable and Bitcoin can be misused for weapons, drugs and so on. However, the same applies to fiat money, regardless of KYC and AML.

At the end of the day, you could argue that cryptocurrencies are de facto as real as the promise to pay the bearer of the sum on a paper money note backed by the government. Also because both systems do not have an underlying value such as gold. There is a small difference though: the banks and the government will never allow independent anarcho capitalists to take over their field of interest and power. How can I have faith in the markets when they are manipulated, especially the financial and currency markets? The blockchain tries to open the door to give back the financial freedom to individuals, but it will not succeed. At least not in the near future.

Blockchain

The interesting thing about the disruptive blockchain is the ability to process secure and direct transactions in the World Wide Web without the involvement of intermediaries. The blockchain is not only the underlying technology for cyber currencies but can be used for contracts, wills, transport papers, financial transactions or any other object representing an accepted value. Today, we are still using the payment services offered by trusted intermediaries such as Postfinance, UBS, Credit Suisse, Visa, MasterCard, PayPal, etc. The blockchain, however, ensures that suppliers and consumers connect directly and comprehensibly to every party in the network without the need of a third party player.

The blockchain is based on a decentralized database, which is distributed in a peer-to-peer network of participating computers, also called a digital ledger. A distributed system has the advantage that the majority cannot be controlled by an attacker, it cannot be manipulated or hacked. In this network, parties participate in a blockchain based solution and follow the rules of this blockchain.

Bitcoin is the first example which made blockchain technology popular. Using a blockchain means giving up control since you are trusting an algorithm. You are trusting mathematics to issue money instead of a human decision. As we know, human beings can become corrupted and can serve different interests.

Will cryptocurrencies do the same to the banks like the email did to the postal industry? What changes is that you do not need a permission from the bank to transfer money between each other.

Anarchist or Libertarian?

Blockchain can be used for any exchange of values, not just cryptocurrencies. Once when everybody agrees that the balances in the blockchain are valid, the system works. Anarchists love the blockchain, not only because it is based on an open source software, but also because it promotes the non-aggression principle. Even if you try aggression it is no longer going to change who owns what because it is in the blockchain. No government approves the transactions, you are the sole decider which transactions go out and go in. This has some fundamental impact on governments – they cannot longer collect taxes from people who are not voluntary willing to pay taxes on it. The free market will be the ultimate decider. As opposite to the fiat money, which is under control of the banks, the libertarians rather have people to get a little bit of reward to keep the system safe and secure. It is very appealing to people where the government doesn’t get to say how you can spend it.

We will see governments struggling for survival as they realize that they do not have longer a meaning to collect taxes. Since cryptocurrencies depend on the blockchain, are these new currencies the new anarchists? As an attack on sovereign states? The cryptocurrency is based on libertarian principles and its supporters oppose any regulations. However, if it becomes too colorful for the states, they will put a stop to the cryptocurrencies with regulations. First with a media campaign and then with laws. That would be poison for a hyped cryptocurrency such as the Bitcoin, because many people then become insecure and this would be a serious risk of an intended crash.

It looks like the original idea is now getting perverted. The geeks and the nerds have a different worldview and find more their fulfillment in the matter, like a kind of virtue. As I worked with developers in the past, they are simply from a different planet and different from the people with a pure business and profit mind set. If you mix both groups together, you could create a tremendous new era of freedom, stability and power to the people. However, in most scenarios, greed can quickly open doors to corruption and history starts repeating itself. On the macro level, we are in the end of an economic cycle. Whether it was a political system such as the communism in the twentieth century or an economic system based on compound interests and debt, they all collapse about every 70 to 80 years or so.

These times in particular invite us to stay fearless, to consider our behaviors and habits and to have a strong backbone. A crisis normally helps to become who you really are.

Bitcoin is eventually not really an alternative currency. Proper money always either has an intrinsic value (like commodities) or it represents a debt (like fiat money) and cash. Bitcoins, however, have neither an intrinsic value, nor do they include a liability or exchange promise.

Perhaps that is one of the reasons for the people believing in Bitcoin. It is because no government or banks is backing the digital currency up. They love Bitcoin because it is a digital asset, enriched with this kind of democratic flavor (open source) and safety (decentralized network). They don’t care that Bitcoin can never become money.

What is your opinion on Bitcoin and cryptocurrencies? Happy to read your comments.

In the next posting, I will give you my thoughts about the opposing forces, how governments are dealing with those forces and the Hysteria behind cryptocurrencies.

Bitcoin, the first cryptocurrency Icarus

Bitcoin started out as a peer-to-peer electronic payment system using cryptography. Potentially to replace official money from the central banks and also make banks and other intermediators obsolete when transferring money.

That was quite a revolutionary approach towards central banks, commercial banks and the whole finance industry, where you no longer need an instance, neither to the currency nor for the control. Even Paypal and credit cards could be replaced. A great new platform where you can transfer money directly from one person to another person.

The idea using a worldwide, decentralized and transparent platform, which keeps privacy and has no restrictions seems alluring.

A real revolution, right? Not only the millennials are praising cryptocurrencies as the alternative to an unequal and corrupted traditional banking system.

The reality, though, looks quite different.

Small anticipation: as everyone perceives reality according to his or her belief system, let us stay open and leave our preconceptions behind. Bashing and disabusing each other doesn’t take us further and doesn’t help raising our awareness.  

Have we not seen this before in the 18^th century during the French Revolution? When in the course of events, their initiators are easily left on the track and the original idea turns negative after the positive approaches, suspends or destroys itself? The revolution devours all its children.

Let’s have some practical look. In theory, the transaction fees should be small, but since you can only buy Bitcoin via regulated partners, the fees today are often more than 10% of the transfer amount but will decrease in the long run. For one reason, the transaction fees have risen because of the block size. The participants who paid the highest fee are put into the fast track like when you go through security at the airport. The current fees are problematic and make Bitcoin useless as a currency. However, there are a couple of hundred other cryptocurrencies that have no transaction fees and do not require any financial institution in between.

With an increasing participation of users and when the adoption spreads, the blockchain will not only get longer but also the handling will get slower. To confirm a single transaction can take more than 2 hours. That is the situation today and will improve in the future.

These transfers should be fast and free – that is what we think about peer to peer, right? Why using a cryptocurrency when it works worse than transferring cash?

The speed and transaction fees problem is with Bitcoin, not so much with Bitcoin cash. The mass media is an expert on mixing those two different cryptocurrencies to put Bitcoin in a bad light. Apropos light, the answer we hear to fix the speed problem is the Lightning Network. This should make the transactions faster in the future. But will the transactions then no longer be confirmed on the blockchain, opening another door for manipulation?

There are other cryptocurrencies, which have resolved the speed and can be used feeless. Those Fintech 2.0’s etc. have learnt from early adaptors such as Bitcoin.

Apart from speculation, which is the major use of Bitcoin today, how many participants are really using Bitcoin as a payment system instead of old money? Would you accept Bitcoin? We should avoid mixing up the concept of cryptocurrency per se and Bitcoin.

How will technology adapt and make transaction low cost and fast? Today the Bitcoin network is restricted to a sustained rate of 7 tps due to the bitcoin protocol restricting block sizes to 1MB. Will the problems be solved if we just increase the block size to 8 MB?

How about cybercrime, tax evasion, money laundering and the ups and downs of the Bitcoin price? The higher volatile price is due to the fact that there are no restrictions and therefore things are happening much faster, whether it is an up or down.

Where do you store your Bitcoins? You can’t even touch them, right? How about the security of your digital wallet? How about lost passwords and someone else using your private key to get the authority to receive the Bitcoins unlocked? Today, public key encryption and passwords are also used in online banking, it’s not new and could be hacked too. There is no refund unless you can retrieve the value from a different source in a wallet you control.

Will the address format change help to reduce the confusion between Bitcoin and Bitcoin cash?

It is also obscure, that we do now know who or which group is behind the inventor of Bitcoin, Satoshi Nakamoto, which is only a pseudonym. Why hiding? Is there something we should not know about?

When Satoshi left in 2010, the main developers became part of an institutional environment. The company Blockstream became the main provider for the development of Bitcoin Core, the software which eventually validates transactions in the blockchain.

Did you know that almost half of the Bitcoins are held by the founders? Have you thought about what happens when they decide to cash in?

Bitcoin Cash

Let’s assume the temporary problems have been solved and a transaction is confirmed within a second with (almost) no fees. So how does it really work?

To demonstrate how Bitcoin can be used, take your phone and transfer Bitcoin to the other phone where you want to send the money to. The receiver can be next to you or anywhere in the world as long as you have access to the internet. There is no bank or intermediate to process this transaction and it is instant. For example, Bitcoin cash can be used as an alternative and convenient payment system. The potential for Bitcoin is in Bitcoin cash, which is for easy, almost free, almost unstoppable usage of transactions. Other cryptocurrencies in this area are Dash, Zscash and Monero which specialize in privacy and are also under attack from governments for supposedly enabling crime and money laundering.

In order to insecure the investors, politics and central banks are mixing up Bitcoin and Bitcoin Cash, which is not the same and has currently different objectives. In this context, Bitcoin is a social experiment and is mostly used for hoarding digital gold and speculation.

The higher the price is rising, the louder the admonishing voices we hear from politicians and central banks, calling for a regulation of Bitcoin. They call the term “digital currency” misleading: A means of payment should indeed have a stable value. That value is based on what people are willing to pay for it, but how can we see a stable value when the price goes up and down? These properties are missing from the Bitcoin. Are they also missing for Bitcoin Cash or just Bitcoin? Because of speculation, Bitcoin Cash is influenced by Bitcoin. The currency is extremely volatile and therefore it is difficult to price a value in Bitcoin, making the currency useless today for peer-to-peer transfers.

Cryptocurrency usages

Some people store cryptocurrencies like virtual gold. The more practical approach is to use cryptocurrencies as an alternative payment system. You can use it both for storing and exchanging values. Something has value when it is useful and not infinite in amount. For example gold. Cryptocurrencies are useful when you can transfer value. Whether it will be Bitcoin or another cryptocurrency dominating in the future, we don’t know. To remain successful, people have to use it and need to have trust in it. If you have instant reliable transactions available across the globe with nobody able to prevent them, it has more usability. It also needs the network of the community to use the cryptocurrencies. As long the community agrees on a secure network such as the blockchain, every transaction is recorded in a public ledger. This supports the idea of carrying out payment transfers across borders.

In 2017, two major US exchanges have launched futures on the Bitcoin. Venture capital firms such as Founders Fund invest in the digital currency. Investment banks are opening trading floors for digital currencies.

What does this mean?

The cryptocurrency has arrived in the classic financial world. The original idea is currently undergoing a perverted phase until things will be back to normal.

The majority of people perceive Bitcoin as an investment and trading vehicle and less as a payment system. Many have started just to buy and hold Bitcoin coins. They are just waiting to get rich. If you invest now, you are still buying in on the ground floor, right?

The current ups and downs in the price makes Bitcoin the perfect object of investment, although a very risky one. In terms of payment system, cryptocurrencies are also a victim to extreme fluctuations due to speculation and with a still high portion of fees and speed issues that makes the concept quite useless in everyday life.

Bitcoin – do you see the nice Tulips in your head?

Unfortunately, Bitcoin became a speculative object and reminds of the Tulip mania, where over 300 years ago, the speculative bubble produced flowers that cost more than a house. Bitcoin and tulips are like twins. You wouldn’t blame the tulips, right? Nor you should blame the Bitcoin. With the limit of 21 million issuable coins, the supply is fixed and also reflected somehow psychologically in the increased price. Of course you can break down Bitcoins in smaller units and argue the supply issue is irrelevant. Let’s see whether your smartphone screen has enough space for the zeros before and after the comma to show your Bitcoin amount even in Satoshi. Same happened in the opposite direction to the German hyperinflation one hundred years ago, where you paid over 100 billions for a piece of bread. Daily handling becomes difficult when struggling with all those zeros in an amount.

People use Bitcoin like a hoard of coins which is poison to a floating and liquid currency. But so do the gold lovers. I cannot go to the supermarket and pay with gold coins. I may do so after the crash for a limited time until gold permission will become illegal by emergency laws. I am just hoarding gold because I am Swiss…

Will the other one thousand cryptocurrencies become the same or different from Bitcoin? We will find out after the crash of Bitcoin whether speculative-free libertarian “peer-to-peer” payment system will succeed in the post Bitcoin era.

What is your opinion on Bitcoin and cryptocurrencies?

In the next posting, I will give you my thoughts about the role of the central banks, the blockchain, the anarcho capitalists, the role of the government, the hysteria, the impact on the environment and whether cash will survive.