An advocacy group is testing out the idea that the combination of bitcoin and orbital communication can help fight news censorship.
Category: bitcoin – Page 40
The title of this post is intentionally misleading. We frequently discuss the traits that lead to value here in the Lifeboat Blog. But today, I was asked a more nuanced question: “What things will hold their value?”
And there is a ulterior motive in being a columnist for Lifeboat. Analyzing the dynamics of durable value leads to some surprising conclusions about the money supply and what a society chooses to use as money. We’ll get to this at end of this post.
We know that value comes from supply and demand. There are no exceptions. But, we have not addressed the properties that make an asset hold value over the long haul. Let’s consider some examples…
Cars
In an affluent, mobile society, most people desire personal, point-to-point transportation — and so there is clearly a demand for automobiles.
But style & technology change rapidly and automobiles deteriorate with use and weather. After 8 to 10 years, their cost and maintenance rise dramatically, and owners lust for a new model. So cars don’t get our award for assets that hold value.*
Popular Toys
In the 1970s, the Cabbage Patch doll from Calico Industries, and later, Tickle Me Elmo in the 1990s created a buyer frenzy that rivaled a lemonade stand in the desert. Shoppers fought each other to grab a limited supply. Clearly, demand was very high. The one shown below is listed at Ebay this week with a starting bid of $5,000. Other, less popular styles can be found for $4.99.
At first, this demand was driven by clever marketing and crying children in the week before Christmas. Demand was driven by a parent’s love. But at the peak of frenzy, demand shifted to buyers without children who felt certain that they could profit from selling the dolls that they snatched up first.
But the demand was not durable. Fads driven by frenzy don’t hold value for the long haul—especially when a manufacturer can simply turn the spigot back on.
Stocks & Bonds
A share of stock represents ownership in a corporation. A municipal bond represents a lien against a city—or the fees generated by an infrastructure project.
In both cases—especially bonds, which are a limited promise—no one expects value to last forever. It is a time-sensitive bet with the intention of expiration, redemption or exchange. So, these things also fail our criteria for durable value.
Houses & Real Estate
Like cars, homes require ongoing maintenance. But, most people weigh the maintenance cost against the benefit of having shelter, rather than comparing it to their gain or loss in value.
On the other hand, real estate value fluctuates in the long run due to things that are difficult to predict — population density, demographics, and quality-of-life issues related to infrastructure: weather, seismic events, politics, and access to health care and education.
Some real estate rises enormously in value over 50 or 100 years. Yet, we have seen boom-and-bust cycles that wipe out substantial wealth. So, real estate does not cut it in our contest for durable value.
Gold
The allure of gold and other precious metals is that their supply is capped — or limited by slow and predictable growth. The asset is difficult to find. It is acquired only from natural phenomena.
So, if we can also make it fungible, divisible, portable and difficult to counterfeit, then it meets most of Aristotle’s requirements for a functional currency. Theoretically, this can lead to widespread demand.
Gold certainly has exhibited its ability to hold value throughout thousands of years. But it is not so easily tested and divided in the field, and the impression that it has intrinsic value is an illusion. That’s because the fraction of gold acquired by investors dwarfs the amount actually needed for dentistry, electronics and even jewelry. In this modern era, even gold is becoming a house of cards, because its value is built upon speculation and emotion.
Oil (aka “black gold”)
With the rise of the automobile and power plants that burn fossil fuel, oil became a reserve currency of the 19th and 20th centuries. But there are two problems with it holding value over the long haul.
First, unlike gold, oil is a consumable in every market. Therefore it is difficult to think of it as an asset. Also, we now live in a century in which energy and transportation is rapidly switching away from oil, while at the same time, new technology is making it cheap to acquire new oil. This (along with a history of violent political theater) dramatically deteriorates its potential as a store of value in coming years.
Money
The supply-demand dynamics of money is widely misunderstood. More than 2,300 years ago, Aristotle defined the properties of a functional currency.
Earlier, we stated that all value comes from supply and demand. But, it is fair to ask “What creates the demand?” or “What backs the expectation of future demand?” Surprisingly, even if we limit our scope to just one country (USA), the value of government-issued currency has been tied to different things over time:
- Gold
- Promise of redemption
- Legal tender (public must accept it for all debts)
- Settlement of taxes
- The “good faith and credit” of workers
Ultimately, demand is influenced by oversupply and by public perception more than government promises or laws. The perception that the US dollar has no cap and that its supply can be inflated whenever a body of transient politicians decides to raise the debt ceiling may eventually cause its value to collapse. Although it has not happened yet, at some point consumers (or those holding our debt), will begin to question if Americans have the capacity and will to produce and export the goods & services necessary to balance their mass consumption of the past half-century.
And so, government-issued Fiat does not pass our smell test for durable value. Sooner or later, all national currencies collapse. On a personal level, the only question that matters is if you will be caught by surprise—with a fraction of wealth tied to your favored currency.
What has the potential to meet all requirements for holding value?
Wouldn’t it be fascinating if we could find an asset that is a product of pure mathematics? A perfect asset would be fair, fungible, immutable, and capped. It could never be inflated or manipulated by politicians. It would decouple governments from monetary policy. It would be politically agnostic.
If correctly designed, it would be capable of absorbing and incorporating improvements developed by any copycat or pretender nipping at its heels. Most important, it would be open source, peer-to-peer, massively distributed, redundant, and completely permissionless.
This perfect asset would derive trust from mathematics and crowd-sourced consensus. It would not require that anyone believe in a government, a bank, a land mass, or the uncertain supply of precious objects. Authenticity could tested easily and its value transmitted instantly. The history of each unit would be completely transparent. With free tools, anyone, anywhere could trace its history of moving from one owner to the next.
Ten years ago, such an asset was unleashed into the wild by a person or team of developers under the pseudonym, Satoshi Nakamoto. It not only meets all of these requirements, it has built-in immunity from competition. It even resolves a technical problem that troubled Aristotle more than two millennia ago.
I won’t name this radical yet natural evolutionary development in this answer—but, I can confidently state that it passes our test for an asset that will hold value over time. Despite a wildly fluctuating exchange rate with Fiat currency, its inherent value has never dropped. Ultimately, you will no longer asses value based on the exchange rate of an anachronistic currency that fails all of the other smell tests. Instead, you will assess value on how many heads of lettuce you can buy or how much that new sailboat costs.
* A classic car avoids the problems associated with use & maintenance—and it can hold value over a long period. But like a Picasso painting, the market for classic cars has a limited audience, especially for the florescent green ’63 Mustang that I found in in my great uncle’s garage. Additionally, it is subject to the whims of popular perception. Styles go in and out of vogue and so we cannot predict how long that car will hold value. (Please call me if you value my uncle’s Mustang at more than $150,000).
Philip Raymond co-chairs CRYPSA, hosts the Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He is a top writer at Quora.
Carbon offsetting initiatives have been offered by private companies – including British Airways and Shell – for many years. These voluntary schemes give customers the choice to pay a premium, on the understanding that the company will offset some greenhouse gas emissions. Since carbon offsetting became an option, projects around the world have resulted in a saving of approximately 994m tonnes of carbon dioxide (CO₂) equivalent. But given that global CO₂ levels in 2018 were 33.1Gt, it’s fair to say that a lot more could be done.
The UK could become net zero emissions tomorrow if the government wished, but it would cost the tax payer dearly. In 2017, the UK’s total greenhouse gas emissions were 460m tonnes. If, for example, the government used the Gold Standard offsetting scheme, at an average cost of £10/tonne, that would amount to an astonishing £4.6 billion bill. Most would agree this would be an excessive cost for the government to bear, and anyway the public, private and third sectors should share responsibility for tackling emissions.
Local authorities have an important role to play in meeting this target, given their ability to work with residents, charities and businesses to make meaningful changes at a local level. Some local authorities are leading the way by setting ambitious targets: Liverpool City Council aims to become the UK’s first “climate positive” city by the end of 2020. The council has formed a partnership with a private sector organisation – the Poseidon Foundation – to achieve this through carbon offsetting.
This update is an adaptation of my recent answer to a Quora reader who was in a panic. She asked:
“What can I do after a hard drive crash?
How can I recover my cryptocurrency?”
In the past, I would address the immediate problem of course. (My answer is below). But to prepare for the next unfortunate event, I recommended a wallet type based on a user’s unique experience, expertise and comfort zone. I guided the reader to weigh trade-offs of important criteria: Security, portability, convenience, and quick access to assets).
I had believed that some types of wallets were better for some individuals, but that they required a background in cryptography—or at least a discipline for meticulous practices. As CEO of the Cryptocurrency Standards Association, I had also believed that simple, unified, and popular standards would emerge very soon. I figured that this would enable users to practice safe-wallet maintenance in their own homes.
I was wrong. Most crypto wallets have not sufficiently evolved to counter the risks and complexities of everyday scenarios —not even for expert users. The problem isn’t the fault of any one vendor or hosted online service. It is that all of these gadgets, apps and services have not gotten together behind a single set of risk standards to a point where they become simple, standardized and compliant-friendly in the real world.
The lack of comprehensive standards and best practices dealing with total loss of access can bite anyone in the tush. Expertise and experience be d*mned. Today, I recommend only two types of wallets. All others are simply too risky to play a role in any financial portfolio. They set the stage for losing your wealth and health in so many plausible scenarios:
- If your electronic device is lost, hacked, stolen or run over by a truck
- If you become incapacitated or die
- If you forget a secret, or where you stored it
- If you have no idea what is “multisig” and don’t care to learn strange new practices
- If an online cloud service or exchange goes dark or mysteriously disappears
Here is my answer to the reader who urgently needs to recover from a disk drive crash. After dealing with that crisis (it’s not at all pretty), I explain what do do in the future…
Question: “How can I recover my cryptocurrency after a hard drive crash?”
Bear in mind that your digital wallet doesn’t really hold wealth or coins. It holds a private key that lets you access your wealth on the blockchain. The key is like a password, but you cannot choose your own and it is too complex to remember. And so, you need a place to store it. That’s all a wallet really is.
If you stored this key on an electronic device (or in a software app or even on paper), but with no way to recover it—in case the device is lost, broken, hacked or stolen—then you are screwed! Your bitcoin still exists, but access to it has been lost forever.
Let’s be extra clear: If the device cannot be repaired or recovered, there is absolutely nothing you can do except lick your wounds and learn from your experience.
Now, let’s talk about next time…
A beautiful trait of crypto is that you can back up your wallet easily. The elegant and secure way to do this is by creating a list of 11 or more common dictionary words and placing this list where you and 2 or 3 trusted friends can always find it. The ability to generate this list of words is a Bitcoin standard. It greatly reduces the risk of loss—but only if you are aware of the feature, make use of it, and periodically practice asset recovery.*
But, we’re getting ahead of ourselves. Let’s back up, and describe the way to store your keys…
There are only two ways that you should stash cryptocurrency until we reach a day when standards, best practice and multisig escrow are second nature, trivial and understood by everyone.
You can either (1) trust a custodial exchange, or (2) use a hardware wallet. In a nod to smart phones and software apps, I will describe something that they are good for in these safety tips. But your go-to wallet should never be an app.
1. Trust a custodial exchange like Coinbase or Bitstamp
Despite what your Libertarian friends have told you (“It misses the whole point of owning crypto!”, don’t dismiss this option so quickly. A traditional bank/brokerage model offers several benefits which are important to some individuals. We’ll get to those in the bulleted list below.
Choose an exchange that is compliant (fully licensed and follows regulations for all activities). They must be well capitalized by reputable investors and subject to random, outside audit. The two mentioned above belong to this very small class of exchange-wallet services.
The exchange holds your crypto in their own offline vault and gives you access on demand through an account user interface using two-factor authentication. The process can be frustrating, if you lose your smart phone and haven’t prepared or practiced for such an inevitability. That’s because they must be absolutely certain that access is being made by you or someone that you have authorized
Why would anyone want a service to control their assets? There are good reasons:
- Since their main business is acting as an exchange, broker or market maker, you can quickly shift assets into Fiat or other cryptocurrencies
- Their meticulous record-keeping aids your own end-of-year tax reporting
- A real person can help with confusing or unexpected circumstances
- Just as with a bank or stockbroker, you can designate heirs, a spouse or co-owner, and your anticipated executor or a relative with power of attorney
- A reputable custodian makes it difficult to accidentally lose access to wealth
But what about security standards? With all of the exchange failures, the lack of an insurance framework, and many that have simply lost or fled with customer assets, can you trust an exchange to implement security in the very best way?
Ultimately, a reputable exchange that practices security drills, subjects itself to outside audits and has investors with lots to loose is more likely than you to implement, update and rigorously practice safe methodology. This may change in the future, as standards and practices become more clear, unified and easier to follow. But for now, the traditional bank model makes sense for a great many users. I have owned Bitcoin for ten years, and I have only switched from Coinbase to method #2, below, in the last month.
As with other recent articles, this one was originally published as an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. And just like the previous one in this Lifeboat series (also posted today), this is a Q&A exchange with a newbie—a bitcoin beginner.
The question is simply: “How can Bitcoin be divided into units smaller than one?” While the answer may seem obvious to someone versed in math, statistics or economics, I see this question a lot—or something very similar.
I can explain by asking a nearly identical question; one that the enquirer can probably answer easily. The goal is to provide the tools to answer the question—and in a manner that helps the reader recall and make use of the answer in the future. This is how I approached an answer…
Puzzle me this: Can you divide 100 into smaller pieces? Of course you can! You just divvy it up. After all, it’s just a number.
This article was originally an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. The reader is a “Bitcoin beginner”. If you understand the nature and purpose of a blockchain, the political leanings of Satoshi or the economics of a capped cryptocurrency, then this reviews things that you already know. But sometimes, a recap can be fun. It helps ensure that we are all on the same page…
In a previous post, we have already addressed a fundamental question:
It has nothing to do with how many individuals can own bitcoin or its useful applications. It simply means that—if widely adopted as a payment instrument or as cash itself—the number of total units is capped at 21 million. But each unit can subdivided into very tiny pieces, and we can even give the tiny pieces a new name (like femto-btc or Satoshis). It is only the originally named unit (the BTC) that is capped.
But, this article addresses a more primitive question. (Actually, it is a naïve question, but this adjective has a negative connotation, which is not intended). I interpret the question to be: What prevents me from creating, earning or being awarded an amount that brings the total circulation above 21 million BTC?
The question is a bit like asking Why there are only two solutions to a quadratic equation? — Or (a metaphor): Why can’t you own a new Picasso painting?
In the case of Picasso, it’s because we know the ownership and location of the 1,885 paintings created during his lifetime. The Old Guitarist (shown at bottom) is at the Art Institute of Chicago. Unless there has been a serious error in record keeping, there cannot be any more paintings, because he is no longer around to produce new art.
You cannot create more bitcoin than the 21 million scheduled for release because that’s all the math yields. It is the capped quantity that Satoshi wanted in circulation—because he/she sought to create a deflationary token that could never be gamed by politicians or anyone else.
Consider the alternative. The Zimbabwe dollar had no cap. When the government needed more cash, they simply printed more. (This is exactly what the US does today). Eventually, they had 4 recalls and “official” devaluations. But, of course, the value of a Zimbabwe dollar (just like a US dollar, bitcoin or a Picasso painting) is not established by edict. It floats with supply and demand.
Eventually, 100 trillion Zimbabwe dollars was worth US 16¢. Then, it collapsed completely. You can still find a few 100 trillion dollar notes on Ebay. Ironically, they cost far more than 16¢, because western collectors are fascinated by them. Just as with a Picasso painting, all value boils down to supply and demand.
Of course, no citizen of means used the local currency even before it collapsed. They simply couldn’t trust their treasury. Today, Zimbabwe uses US dollars, rands (SA), British pound and euros.
What about the US dollar? Only the most arrogant citizens believe that we control such a vast consumer market (and that we are such a huge debtor) that the world must continue to value our paper. But is this realistic? Is it sustainable? Does U.S. debt ever have to be repaid with real sweat and real products sought by creditor nations? Of course it does. The alternatives are unthinkable: We would go the way of Zimbabwe, the Roman empire—or worse. Think of the Wiemar Republic between world wars.
The US dollar has no cap. A trillion or so new dollars are printed ever year, in a series of emergency measures that transient politicians call “raising the debt ceiling”, or an “emergency requisition”, or humanitarian, infrastructure, disaster relief, military necessity, debt repayment—or whatever. This leaves us 20 trillion in debt and with no path to recovery. Our own president openly asked why we can’t just print even more money to square up with our creditors.
With Bitcoin, we will never face that problem. Will adopting Bitcoin as legal tender interfere with a government’s ability to tax, spend or enforce tax collection? Not at all! But one day, it will decouple governments from control of their money supply. And that will be a marvelous thing—for both individuals, organizations and governments. It will force nations to balance their books—just like every household, business, NGO and municipality.
When this happens, governments can still raise money (from taxes) and they can even borrow. But just as with an individual or corporation, they will need to find:
- Creditors (or shareholders) who truly believe in the ability to repay
- This means they are creditors that believe in a nations institutions & ethics
- And this leads to a conclusion: What better way to move our institutions and ethics in the right direction than through the accountability owned to our creditors.
Bitcoin is the embodiment of radical technology, but it is not a radical concept. It is the simple and functional embodiment of free-market economics. It addresses a market need that Aristotle fervently researched 2050 years ago, but failed to resolve. Gradual adoption is analogous to denationalization of telephony, airlines and package delivery services. Imagine the positive fallout when this occurs! Hopefully, we will around to witness a society in which governments are decoupled from monetary policy & control!
Related:
- Why is Bitcoin Capped at 21M units?
- Can Bitcoin Flourish with a Capped Supply?
- Spell it Out: What, exactly, backs Bitcoin?
- What gives Bitcoin Value?
Philip Raymond co-chairs CRYPSA, hosts the Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He is a top writer at Quora.
A new section: Bitcoin ATM business model
has been added. Jump to “2019 Update”
The good news is that building a Bitcoin ATM is easy and less expensive than you might expect. But, offering or operating them engulfs the assembler in a regulatory minefield! It might just be worth sticking to selling bitcoin on PayPal (visit this website for more information on that). You might also wish to rethink your business model —especially user-demand. That’s the topic of our 2019 update at the bottom of this article.
A photo of various Bitcoin ATMs appears at the bottom of this article. My employer, Cryptocurrency Standards Association, shared start-up space at a New York incubator with the maker of a small, wall mounted ATM, like the models shown at top left.
What is Inside a Cryptocurrency ATM?
You could cobble together a Bitcoin ATM with just a cheap Android tablet, a camera, an internet connection, and [optional]: a secure cash drawer with a mechanism to count and dispense currency).* A receipt printer that can also generate a QR code is a nice touch, but you don’t really need one. You can use your screen for the coin transfer and email for a receipt.
Good Article
According to futurist and author Daniel Jeffries, there are five key factors missing for crypto to fully succeed as a technology. Will Libra be the end of the traditional financial order as we know it? Does it pose an existential threat to people’s freedom?
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Blockchain will make sure green pledges aren’t just green wash.
When a country or a company makes a promise to reduce carbon emissions, respect fishing quotas or cut toxic output, how can we be sure they’ll keep their word?
The truth is, it’s often extremely hard. But a new initiative — Global Ledger — led by a group of World Economic Forum Young Global Leaders (YGLs) aims to change that.
Using data from a nearly-infinite array of observation devices — drones, cameras, nano-satellites and soon-to-be-ubiquitous Internet of Things applications — reliable and unbiased information can be gathered and then stored using blockchain technology, which ensures data is verified and almost impossible to manipulate.