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Bitcoin the app, not the money

Posted by John Reed on

I wrote a book on monetary stability. It’s called How to Protect Your Life Savings from Hyperinflation & Depression.

Because of that, a whole lot of people thought I would love bitcoin.

That sort of went like this.

What is it?

A digital currency.

All currencies are digital.

Not like this. It’s anonymous.

Cash is anonymous.

But you can’t send cash digitally.

True, but if bitcoin is anonymous whom do I sue if I buy some and don’t receive them? Would the lawsuit be John T. Reed, plaintiff versus Anonymous, defendant?

How much you own is in computers all over the world.

So are Russian and Chinese hackers

The FBI hates it.

I could not care less about that. How can I be sure my bitcoins arrive and are safe and that it won’t be overprinted like the U.S. dollar?

There’s a limit on how many can be mined?

Mined? What the hell does mining have to do with a digital-only currency.

You have to solve a complex mathematical formula to cerate them but there is a finite limit on how many can be created.

Solving math formulas bears no resemblance to mining. Why is there so much bullshit associated with this? People don’t like bullshit when their money’s involved. Have the hackers agreed to the limit? Do the hackers keep their word if they do agree? Do you even know the hackers who are inevitably going to attack this or are they as anonymous as the currency?

To make a long story short, I concluded bitcoin and the basic idea of it—blockchain or distributed ledger technology is an interesting, possibly better, cheaper, faster way to move money nationally and internationally.

The current way to move money internationally is SWIFT wires that are neither cheap nor fast. They cost about $45 in my experience, and often take days to arrive. I think they are a racket operated by the banks for the banks. I was actually in international banking briefly and it was just when SWIFT was invented: 1977. At that time, I was assigned to study it. I did. I said it was just a better fax machine.

In today’s world, where we can have Skype conversations worldwide in real time for free, taking days to move money across borders and charging $45 for it is a colossal joke.

As bitcoin has matured, the kooks who were so excited about it at the start have receded and Wall Street investment banking and venture capitalist types have taken over. Smart money.

This technology has the potential, and likelihood, of putting SWIFT, credit cards and debit cards out of business.

Above, I told of the $45 SWIFT wires. When you buy one of my books, I have to give Shopify 2.9% of the gross plus 30¢ per transaction. Blockchain technology holds out the possibility of those figures dropping to near zero. All that matters is the company that moves your money into my account can make an adequate profit and return on equity. The fact that it is a lot less profit per transaction than the old (current) way of moving money does not mean the old ways is in concrete and will last forever.

There are a whole lot of businesses that got rich selling stuff for a fraction of what it used to sell for, like iTunes versus vinyl records.

The big mistake was thinking bitcoin was money. No one ever thought SWIFT wires or credit cards or debit cards were money. They were just a way of moving money from person A to person B.

Money is three things:

  1. a store of value
  2. a medium of exchange
  3. a unit of account.

Bitcoin can do B and C just fine. But it is crap as a store of value as those who paid $1,240 for their bitcoins in December 2013 learned. Each one is now “worth“ $230.

Fundamentally, the banks and credit-card companies have been running a con on us. It does not cost 2.9% of the amount to move money. I do not need to know if my customer’s credit is good—as is being done by the credit-card merchant account bank when you buy my books with a credit card. All I need to know is that your money’s good—the digital equivalent of the Old West practice of biting on a gold coin to make sure it was soft and therefore gold.

These new and better ways of moving money are a really big deal. 

The anonymous part of this technology is total bullshit. Ask “Dread Pirate Roberts” who is now serving life in prison for his creation and operation of the Silk Road web site.

What will make this work ultimately is that you trust the process and you will do that because trustworthy entities like banks will start offering this and guaranteeing it.

The September 28, 2015 Forbes magazine had an excellent article on this: Money’s New Operating System


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