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Category: cryptocurrencies – Page 66

Here in the Lifeboat Blog, I have the luxury of pontificating on existential, scientific and technical topics that beg for an audience—and sometimes—a pithy opinion. Regular Lifeboat readers know that I was recently named most viewed Bitcoin writer at Quora under a Nom de Plume.

Quora is not a typical Blog. It is an educational site. Questions and numerous answers form the basis of a crowd-sourced popularity contest. Readers can direct questions to specific experts or armchair analysts. A voting algorithm leads to the emergence of some very knowledgeable answers, even among laypersons and ‘armchair’ experts.

During the past few weeks, Quora readers asked me a litany of queries about Bitcoin and the blockchain, and so I am sharing selected Q&A here at Lifeboat. This is my professional field—and so, just as with Mr. Trump, I must resist an urge to be verbose or bombastic. My answers are not the shortest, but they are compact. Some employ metaphors, but they explain complex ideas across a broad audience.

As you browse some recent Bitcoin questions below, click a question for which you know the least. (Example: Do you know what the coming ‘halving event’ is about?). Leave a comment or question. I am interested in your opinion.

Philip Raymond sits on Lifeboat’s New Money Systems Board, is co-chair of the
The Cryptocurrency Standards Association, and is a most viewed writer at Quora.

I administer the Bitcoin P2P discussion group at LinkedIn, a social media network for professionals. A frequent question posed by newcomers and even seasoned venture investors is: “How can I understand Bitcoin in its simplest terms?”

Engineers and coders offer answers that are anything but simple. Most focus on mining and the blockchain. In this primer, I will take an approach that is both familiar and accurate…

Terms/Concepts: • Miners • Blockchain • Double-Spend

First, forget about everything you have heard about ‘mining’ Bitcoin. That’s just a temporary mechanism to smooth out the initial distribution and make it fair, while also playing a critical role in validating the transactions between individuals. Starting with this mechanism is a bad way to understand Bitcoin, because its role in establishing value, influencing trust or stabilizing value is greatly overrated.

The other two terms are important to a basic understanding of Bitcoin and why it is different, but let’s put aside jargon and begin with the familiar. Here are three common analogies for Bitcoin. #1 is the most typical impression pushed by the media, but it is least accurate. Analogy #3 is surprisingly on target.

1. Bitcoin as Gold

You can think of Bitcoin as a natural asset, but with a firm, capped supply. Like gold, the asset is a limited commodity that a great many people covet. But unlike gold, the supply is completely understood and no one organization or country has the potential to suddenly discover a rich vein and extract it from the ground.

2. Bitcoin as a Debit or Gift Card

Bitcoin is also a little like a prepaid debit card, you can exchange cash for it and then use it to buy things—either locally (subject to growing recognition and acceptance) or across the Internet. But here, too, there is a difference. A debit card must be loaded with a prepaid balance. That is, it must be backed by something else, whereas Bitcoin has an intrinsic value based on pure market supply and demand. A debit card is a vehicle to transmit or pay money—but Bitcoin is the money itself.

3. Bitcoin as a Foreign Currency

Perhaps the most accurate analogy for Bitcoin (or at least where it is headed), is as a fungible, convertible, bankable foreign currency.

Like a foreign currency, Bitcoin can be…

  • Easily exchanged with cash
  • Easily transmitted for purchases, sales, loans or gifts
  • Stored & saved in an online account or in your mattress (Advantage: It can also be stored in a smart phone or in the cloud—and it can backed up!)
  • Has a value that floats with market conditions
  • Is backed by something even more trustworthy than a national government

Unlike the cash in your pocket or bank account, Your Bitcoin wallet can be backed up with a mouse click. And, with proper attention to best practices, it will survive the failure of any exchange, bank or custodian. That is with proper key management and the use of multisig, no one need lose money when a Bitcoin exchange fails. The trauma of past failures was exacerbated by a lack of tools, practices and user understanding. These things are all improving with each month.

So, What’s the Big Deal?

So, Bitcoin is a lot like cash or a debit card. Why is this news? Bitcoin is a significant development, because the creator has devised a way to account for moving money between buyer and seller (or any two parties) that does not require any central bank, bookkeeper or authority to keep tabs. Instead, the bookkeeping is crowd sourced.

For example, let’s say that Alice wants to purchase a $4 item from Bob, an Internet merchant in another country.

a) Purchase and settlement with a credit card

With a credit card, wire transfer or check, Alice can pay $4 easily. But many things occur in the background and they represent an enormous transaction overhead. Alice must have an account at an internationally recognized bank. The bank must vouch for Alice’s balance or credit in real time and it must then substitute its own credit for hers. After the transaction, two separate banks at opposite ends of the world must not only adjust their client account balances, they must also settle their own affairs through an interbank-settlement process.

The two banks use different national currencies and are subject to different laws, oversight and reporting requirements. Over the course of the next few days, the ownership of gold, oil or reserve currencies is transferred between large institutions to complete the affairs of Alice’s $4 purchase.

b) Now, consider the same transaction with Bitcoin

Suppose that Alice has a Bitcoin wallet with a balance equal to $10. Let’s say that these characters represent $10 in value: 5E 7A 44 1B. (Bitcoin value is expressed as a much longer character string, but for this illustration we are keeping it short). Alice wants to buy a $4 item from Bob. Since she has only this one string representing $10, she must somehow get $6 in change.

Bitcoin Transaction

With Bitcoin, there is no bank or broker at the center of a transaction. The transaction is effected directly between Alice and Bob. But there is a massive, distributed, global network of bookkeepers standing ready to help Alice and Bob to complete the transaction. They don’t even know the identities of Alice or Bob, but they are like a bank and independent auditor at the same time…

If Alice were to give Bob her secret string (worth $10), and if Bob gives her a string of characters worth $6 as change, one wonders what prevents Alice from double-spending her original $10 secret? But this can’t happen, because the miners and their distributed blockchain are the background fabric of the ecosystem. In the Bitcoin world, Alice is left with a brand new secret string that represents her new bank balance. It can be easily tested by anyone, anywhere. It is worth exactly $6.

This example is simplified and without underlying detail. But the facts, as stated, are accurate.

Conclusion

For Geeks, Bitcoin is the original implementation of a blockchain distributed ledger. Miners uncover a finite reserve of hidden coins while validating the transactions of strangers. As such, Bitcoin solves the double spend problem and enables person-to-person transactions without the possibility of seizure or choke points.

But for the rest of us, Bitcoin offers a very low cost transaction network that will quickly replace checks and debit cards and may eventually replace cash, central banks, and regional monetary authorities. The safeties, laws and refund mechanisms offered by banks and governments can still be applied to Bitcoin for selected transactions (whenever both parties agree to oversight), but the actual movement of value will be easier, less expensive and less susceptible to 3rd party meddling.

  • Bitcoin is a distributed, decentralized and low cost payment network
  • It is adapted to a digital economy in a connected world: fluid & low friction, trusted, secure
  • More zealous proponents (like me) believe that is gradually becoming the value itself (i.e. it needn’t be backed by assets, a promise of redemption, or a national government. In this sense, it is like a very stable, foreign currency

Additional Reading:

Philip Raymond sits on Lifeboat’s New Money Systems Board and administers Bitcoin P2P, a LinkedIN community. He is co-chair of CRYPSA and host of The Bitcoin Event. He writes for Lifeboat, Quora, Sophos and Wild Duck.

Recently, I was named Most Viewed Writer on Bitcoin and cryptocurrency at Quora.com (writing under the pen name, “Ellery”). I don’t typically mirror posts at Lifeboat, but a question posed today is Quora_Most_Viewed_splashrelevant to my role on the New Money Systems board at Lifeboat. Here, then, is my reply to: “How can governments ban Bitcoin?”

Governments can enact legislation that applies to any behavior or activity. That’s what governments do—at least the legislative arm of a government. Such edicts distinguish activities that are legal from those that are banned or regulated.

You asked: “How can governments ban Bitcoin?” But you didn’t really mean to ask in this way. After all, legislators ban whatever they wish by meeting in a congress or committee and promoting a bill into law. In the case of a monarchy or dictatorship, the leader simply issues an edict.

So perhaps, the real question is “Can a government ban on Bitcoin be effective?”

Some people will follow the law, no matter how nonsensical, irrelevant, or contrary to the human condition. These are good people who have respect for authority and a drive toward obedience. Others will follow laws, because they fear the cost of breaking the rules and getting caught. I suppose that these are good people too. But, overall, for a law to be effective, it must address a genuine public need (something that cries out for regulation), it must not contradict human nature, and it must address an activity that is reasonably open to observation, audit or measurement.

Banning Bitcoin fails all three test of a rational and enforceable law.

Most governments, including China and Italy, realize that a government ban on the possession of bits and bytes can be no more effective than banning feral cats from mating in the wild or legislating that basements shall remain dry by banning ground water from seeking its level.

So, the answer to the implied question is: A ban on Bitcoin could never be effective.

For this reason, astute governments avoid the folly of enacting legislation to ban Bitcoin. Instead, if they perceive a threat to domestic policy, tax compliance, monetary supply controls or special interests, they discourage trading by discrediting Bitcoin or raising concerns over safety, security, and criminal activity. In effect, a little education, misinformation or FUD (fear, uncertainty and doubt) can sometimes achieve what legislation cannot.

Reasons to Ban Bitcoin … a perceived threat to either:

  • domestic policy
  • tax compliance
  • monetary supply controls
  • special interests

Methods to Discourage Trading (rather than a ban)

  • Discredit Bitcoin (It’s not real money)
  • Raise concerns over safety & security
  • Tie its use to criminal activity

Avoiding both a ban—and even official discouragement

There is good news on the horizon. In a few countries—including the USA—central bankers, monetary czars and individual legislators are beginning to view Bitcoin as an opportunity rather than a threat. Prescient legislators are coming to the conclusion that a distributed, decentralized trading platform, like Bitcoin, does not threaten domestic policy and tax compliance—even if citizens begin to treat it as cash rather than a payment instrument. While a cash-like transition might ultimately undermine the federal reserve monetary regime and some special interests, this is not necessarily a bad thing—not even for the affected “interests”.

If Bitcoin graduates from a debit/transmission vehicle (backed by cash) to the cash itself, citizens will develop more trust and respect for their governments. Why? Because their governments will no longer be able to water down citizen wealth by running the printing press, nor borrow against unborn generations. Instead, they will need to collect every dollar that they spend or convince bond holders that they can repay their debts. They will need to balance their checkbooks, spend more transparently and wear their books on their sleeves. All good things.

Naturally, this type of change frightens entrenched lawmakers. The idea of separating a government from its monetary policy seems—well—radical! But this only because we have not previously encountered a technology that placed government accountability and transparency on par with the private sector requirement to keep records and balance the books. [continue below image]…

What backs your currency? Is it immune from hyperinflation?

What backs your currency? Is it immune from hyperinflation?

Seven sovereign countries use the US Dollar as their main currency. Why? Because the government of these countries were addicted to spending which leads to out-of-control inflation. They could not convince citizens that they could wean themselves of the urge to print bank notes with ever increasing zeros. And so, by switching to the world’s reserve currency, they demonstrate a willingness to settle debts with an instrument that cannot be inflated by edict, graft or sloppy bookkeeping.

But here’s the problem: Although the US dollar is more stable than the Zimbabwe dollar, this is a contest in relative trust and beating the clock. The US has a staggering debt that is sustained only by our creditors’ willingness to bear the float. Like Zimbabwe, Argentina, Greece and Germany between the wars, our lawmakers raise the debt ceiling with a lot of bluster, but nary a thought.

Is there a way to instill confidence in a way that is both trustworthy and durable? Yes! —And it is increasingly likely that Bitcoin is the way to the trust and confidence that is so sorely needed.

Philip Raymond sits on the New Money Systems board. He is also co-chair of Cryptocurrency Standards Association and editor at A Wild Duck.

Suggests a mechanism to be adopted for any
cryptocurrency that would alter the fee layer to
help fund a new public good.

From ABIS concept

In 2013, following a period of reflection and visioning, I imagined the possibility of completely altering the financial system as we know it. This vision, known as ABIS, will now see its first-ever implementation.

The implementation is now being issued in BCN’s GUI Wallet with the release of v. 1.0.8, where the transaction has been re-envisioned to allow the user new ways to explore the possibilities of transactions and realize greater giving potential, initially through two use cases involving unique forms of donations:

abis-donations

  1. Random donations — a percent of the sum depending on the available outputs. The user will be able to select the approximate desired amount for donation: from 0.1% to 10%. If there is a change input close enough to the target, it will be used as a donation.
  2. Donation mining — the user who is mining in pools from the GUI Wallet will be be able to specify donation address and percentage of donation mining shares (0–100%) that will be contributed for any donation.

This wallet is now available for anyone around the world to utilize and can aid those seeking to facilitate voluntary donation processes, and it is possible that more use cases for further microgiving possibilities may be added to the graphical wallet in the future.

Social Dimensions and Notions of the Transaction Have Limited Wallet Design Universally.

Most wallet software is designed with certain assumptions about what transactions are. If most in society have developed an assumption about what a transaction is, the manifestation of what our cryptocurrency wallets become (and the format in which the graphical user interfaces are developed to facilitate transactions) will tend to follow such a trend.

If a transaction (in which one sends, or transfers resources) remains limited notionally only as an exchange of currency for goods, services, or other currency, there is a problem in terms of the capacity which we are allowing ourselves to develop and enjoy from decentralized systems.

Certainly, this problem has not solely been in Bytecoin (BCN) but can be seen in any other cryptocurrency wallets as well, and of course, in all currency systems. Legacy systems — those which utilize fiat currencies and rely heavily upon central banks — simply do not have the flexibility to transmit very small amounts efficiently. Cryptocurrency systems are better poised to handle small amounts, but how they handle them will differ depending on the type of cryptocurrency being utilized.

Up to this point, some technical challenges exist which have kept cryptocurrency and wallet developers from tackling the issue, as mentioned in the BCN developer’s blog post, ‘Future of Slacktivism: How 1,000,000 Likes Can Save Lives’. Thus, cryptocurrency wallets do not yet emulate natural giving systems to the degree that they could.

The problem is that, around the globe, we have not yet re-envisioned the transaction to allow the user new ways to explore a transaction’s full potential and offer the option of greater giving potential. However, we now have the means to do so.

The initiative taken by the Bytecoin community to address this issue has resulted in software that is arguably the first of its kind ~ resistant to financial censorship (utilizing BCN’s installable desktop graphic wallet, which has anonymity preferences for transactions which the user can alter on a sliding scale ranging from greater to lesser anonymity), and now, allowing compassionate options for any user, which allow small donations to be sent and received anywhere in the world without any need for an intermediary.

Because the entire concept is fully voluntary there are really a nearly infinite range of choices, essentially limited only by the technology, fees, and network limitations. The user is contemplating who to provide a micro-donation to and at what level and at what threshold the microdonation(s) will be broadcast, based on their wallet settings.

And I hope that we would in this model of giving become more like the bees that share pollen as they bounce from flower to flower (indeed, the acronym of the concept, ABIS, stands for “Ants, Bees, Information, and Systems”).

An interesting commentary from recent events comes from the transcript of Pope Francis’s remarks to US Congress on Sept. 24, 2015:

‘We have the freedom needed to limit and direct technology’; ‘to devise intelligent ways of… developing and limiting our power’; and to put technology ‘at the service of another type of progress, one which is healthier, more human, more social, more integral’

We have the tools now at our disposal, and these tools are vital to have, but even more vital is having compassion and the desire to extend what we have to others, and to build systems in ways which do not rely upon coercion, violence, and the perils of institutional power.

ABISprotocol
PGP 0x6c70abf8a7486f02

Money is the primary mechanism for storing and exchanging value, especially in our daily purchases, and it’s heading rapidly into a faster, smarter and more mobile future. Nevertheless, the constant in the midst of change will remain levels of human trust in the proliferating forms of money. That’s because we have an ancient and abiding partnership with money and no relationship is ever sustainable without trust.

It’s a time of accelerated innovation in this field due to the rapid global expansion of digital banking, especially online and mobile financial services. However, while payments and transfer of money shift inexorably towards mobile devices as the consumer technology of choice, digital currencies expand in scope and number and online shopping begins to enter a golden age, cash is still the most successful and popular form of money ever. Its trust level, as public money backed up by a promise to pay from the government which minted and manufactured it, remains extremely high. This is evidenced by the way the Greeks turned to cash during their fiscal and monetary crisis which rocked the whole European Union, as well as by cash’s current 8.9% per annum average global growth rate. Cash is undoubtedly one of the most successful social technologies in history.

In short, the future of money will be mobile, faster in execution and settlement, and yet as heavily dependent on trust as ever. In my view, for that very reason, there’s unlikely to be a cashless world in this century. Nor is such a scenario desirable, unless you’re a fan of a Big Brother society largely dominated and dictated by multinationals more powerful than many national governments. A cashless world would subvert the economic freedom of citizens to choose the form of money and payment they want and, if that weren’t bad enough, it would lead inevitably to even further marginalisation of the world’s poor. Besides, cash is already universally trusted, instant in execution and mobile in nature (that is, just as portable as a smart phone).

That said, digital banking is here to stay and provides massive levels of convenience and efficiency. Financial institutions the world over are fiercely focused on developing omnichannel (“every channel”) strategies to provide seamless customer experiences across all their banking channels.

In addition, a great “money race” is now on to dominate the world’s vast payment markets between the global card brands, the banks, the technology providers (such as Apple and Samsung), the Internet giants (e.g. Google. Amazon, PayPal), the social media giants (including Facebook, WeChat and Twitter) and, of course, the major retailers.

Having sketched a broad context for understanding what’s happening in the world of money and payments, here are ten megatrends to consider. This will be followed by six additional movers and shakers to watch in the coming months and years.

Megatrend #1: The smart world is coming

The smart world of smart consumers, some wearing smart technologies like the Apple Watch, smart devices and smart homes, is on its way. This will take place within the Internet of Things (IoT ). Gartner forecasts that the 3.9 billion smart devices connected to Internet at the end of 2014 will increase to about 25 billion by 2020. A key device in the smart world is likely to be the phablet. It should become the dominant mobile device. The number of phablets is expected to increase from 27 million in 2012 to around 230 million by the end of 2015. Business Insider, for example, predicts phablets will outsell smartphones by 2017. Money will gain multiple new forms as it adapts to this new smart world. Old and new forms of money will co-exist, resulting in much greater choice and convenience for consumers.

Megatrend #2: e-commerce is rising, along with digital shopping

Fortune Magazine recently rated the Bank of Internet, an online bank, as the 56th fastest growing company in the world. Online buying is growing exponentially across the globe. For example, WWW Metrics (http://www.wwwmetrics.com) expects Australians to spend $10 billion more online in the next five years than they do currently. The ease and convenience of online shopping cannot be disputed. Although it will never completely replace high-street shopping or lead to the rise of ghostly and abandoned shopping malls, it will probably enjoy good year-on-year growth for a long period to come. This megatrend will increase the importance of digital money.

Megatrend #3: There is a shift to mobile internet and mobile commerce

Today, mobile devices outsell PCs and laptops in a game-changing shift to mobile-based internet. It is therefore not surprising that mobile shopping is growing at 4 x the rate of online shopping. For example, Finextra has reported that 37% of e-commerce originates from a tablet or smart phone. Global mobile purchases are expected to rise from $150bn in 2014 to $214bn in 2015. Mobile money is going to be a big part of the future.

Megatrend #4: Debit card use is on the rise

The rise of mobile commerce does not mean the demise of cards. Retail Banking Research (RBR) have reported that there are now 12 billion payments cards in the world, which were used last year to make 235 billion payments, totalling $20 trillion. The debit card is the king of these cards, representing 68% of the global card market. This share is expected to rise to 72% by 2020. By contrast, credit card share is predicted to decline from 23% to 20% by 2020. Prepaid cards, at the bottom of the scale, have a mere 5% of the market. It is clear that card payments will dwarf mobile payments for the foreseeable future. It will be a long time indeed before mobile payments get close to card payments and cash payments. Nevertheless, the future is very bright for mobile money.

Megatrend #5: In-store NFC payments are being outstripped by mobile commerce in the mobile payments space

Near Field Communication (NFC) based payments – often called “tap and go” or “wave and pay” — have a slow adoption rate but should pick up a head of steam within the next five to ten years. They’re unlikely to grow at the brisk rate at which mobile commerce is growing. Deloitte estimates that only 7% of smartphone users use mPay at POS (Point-of-Sale). By 2018, in-store NFC payments are forecast to reach only about 4.5% of card volume. For the near future, NFC won’t be used much by customers in retail stores with high Average Order Values, but more at coffee shops and fast food chains with lower Average Order Values. Nevertheless, by 2020 there could be 2.2 billion NFC enabled phones and there is a good chance NFC may become a dominant technology as a result of global EMV compliance, with Visa and MasterCard building NFC into the migration path.

Megatrend #6: The omnichannel, customer-centric world has arrived

What Steve Jobs did so well was to introduce the “zen” feel of consumer technology after decades of boring, inert computer hardware and software. Now, there’s no turning back. All channels must be intuitive, all channels must complement one another, there simply must be a seamless omnichannel experience. This is the key to retention of the digital customer. This means money will become more zen-like, especially in an era when Customer Owned Devices (CoDs) have given the connected consumer more power, compared to more static self-service banking through traditional ATMs. Self-service terminals gave the customer access to banking services after hours 24 × 7 but they are banked-owned devices. Now consumers do their banking on their own technology. They demand a personal, smooth, convenient level of service purged of any old-fashioned “clunky” technology experiences. Money cannot afford to look and feel old-fashioned. Thanks, Steve. (By the way, polymer banknotes used in Canada, Australia and being introduced into Britain from next year, may well be the new look of cash, given the increased longevity and security they provide for notes.)

Megatrend #7: The bank branch is being reconfigured

In this increasingly digital world, in which non-banks can provide money and financial services, banks need to resist disintermediation from these new players by redefining the relationship to their customers. I’ve already indicated that the smart banking experience is going to be paramount. Accordingly, banks are redesigning their branches, to provide a balance of digital and traditional services, employing customer-facing technology. Assisted self-service, including remote video banking and in-person assistance, is proving very popular in this new world. At the same time, respect is being shown for the role of Customer Owned Devices and the kind of experience they offer to customers. Banks are saving costs and improving efficiency through increased automation, especially deposit automation. Self-service automation now accounts for 2/3rds of branch transformation technology, according to RBR. The costs of cash are being pushed down through cash deposit acceptance and through recycling ATMs, which are enjoying phenomenal growth in China, for example. RBR states that automated deposit and recycling ATMs make up 40% of global shipments in our industry. The bank branch of the future must be highly automated, smart, offering both in-person teller assistance and video banking.

Megatrend #8: The ATM is evolving into an indispensable value-adding 24×7 customer touchpoint

As CEO of the ATM Industry Association since 2005, I can attest that there is no global movement away from the ATM. ATM shipments have been growing y-o-y since 2010 following the global economic crisis of 2008–9. In fact, the ATM is central to both branch transformation and the omnichannel approaches. It is a highly trusted customer touchpoint found in great locations. I foresee deployers focusing more and more on valued-added services at the ATM, from ticketing to bill payments, while deposit automation and recycling ATMs will continue to reduce the costs of cash on a global scale (cash handling can account for 30–40% of the total cost of operating a large ATM estate). Besides, ATMs are main distribution channel for cash (for example, in the UK 72% of cash is acquired through cash machines) and cash demand is growing (see Megatrend #9 below).

Megatrend #9: Global cash demand is rising at 3 x the rate of economic growth

In an ATM Industry Association study of growth in currency in circulation in thirty countries, representative of advanced and developing economies, over a five year period from 2009–2013, it was found that global cash demand is growing at an average of 8.9% p.a. This is 3 x the rate of global GDP during this time. The study was based on central bank statistics in these thirty countries in annual reports. This figure accords with a prediction by the leading retail banking research house, RBR, that annual cash withdrawal volumes will grow by 7.9% between 2013–2019. In the BRICS countries, which contribute 20% of world GDP with 40% of its population, currency grew y-o-y in this period at 11%, compared to 4.5% in the Eurosystem. If you want to get a feel for cash production in the world’s number one economy, check this out: in the USA, 6.2 billion banknotes were printed in 2014, about 24.8 million per day!

As mentioned earlier, recent turmoil in Greece pushed up demand for cash. For example, in May, 2015, €45 billion in banknotes was in circulation, which equates to just over €4,000 per citizen.

For years now, I have noticed a widening gap between fact and perception regarding cash. Despite being under threat from some governments and other agencies seeking to create a cashless society, as well as a largely hostile media, cash is holding its own as a dominant payment method in the brave new world of digital banking and shopping

Megatrend #10: Remittances and financial inclusion are growing in importance

Today, there are still 2 billion unbanked people. 38% of adults do not have access to basic financial services. That is why financial inclusion is going to be so important a tool for addressing the growing wealth gap between haves and have-nots, which is neither sustainable nor just. However, there is hope: mobile money! While 28% of US households are either unbanked or underbanked, mobile penetration is at 90% of households. Just look at how mobile phones transformed the landscape in Kenya. The renowned MPesa mobile money transfer and payment system gained 17 million users in just 8 years. Mobile phone owners who had never had a bank account in their lives could suddenly conduct secure, fast and convenient financial transactions.

Tellingly, cash in circulation continued to grow strongly during these years of exponential MPesa growth. Today cash transfers and use of vouchers are set to revolutionise global humanitarian aid as more effective than goods. In a time of migration crises, rising natural disasters and extreme weather events, giving cash and vouchers to people in need, trying to survive in an emergency, is the civilised way to go. Physical aid, hamstrung by tough logistics, seldom empowers those most in need in a timely fashion.

What’s also important to the world’s poor is the ability to send remittances. In 2014, there were $440 billion in recorded remittances. Now big names like PayPal are entering this growing remittance market. Money can mean survival. The world would be a much better place if we could take remittances and money transfers to a new level. That’s money in action.

Now think about the following innovations likely to further change the world of money in the near future.

Movers and Shakers #1: Samsung Pay is likely to become the leader in mobile payments within months of its launch

Samsung Pay is going to blow Apple Pay (sorry, Steve) out of the water and here’s why. It combines NFC and MST (Magnetic Secure Transmission) communication, so it can be used at 30 million merchant locations worldwide. Apple Pay is stuck in the slow-moving NFC space. In addition, Samsung is partnering with a network of big players, including global banks, card brands, PayPal, etc. Samsung Galaxy S6 is seen by many technology gurus as the world’s leading smartphone. Finally, the new payment app will be linked to smart TV through a partnership with PayPal to enable payments on the TV platform, using a secure virtual keypad, in thirty-two countries.

Sadly, Apple Pay has a high drop-out rate with 48% of 1st time users not using it again (source: Tremont Capital). While I see the Apple Watch making a major statement and becoming a status symbol among young smart consumers, Apple Pay is probably doomed to play second fiddle to Samsung Pay.

Movers and Shakers #2: PayPal is moving into retail stores and remittances

PayPal, which has 130m online accounts, has agreed to buy online money-transfer company Xoom Corp.for $890m. Xoom’s online service lets users send money internationally, often via mobile phone, charging $5-$10, as well as pocketing the difference in the exchange rates; the service may also be used to pay bills. At the same time, PayPal is also partnering with Discover Financial Services to enable PayPal payments at retail stores. Is PayPal going to become the world’s biggest “bank” of the digital age?

Movers and Shakers #3: Zapp is likely to become a successful domestic mobile payment solution in the UK

Zapp in the UK, introduced by VocaLink, which is part of LINK, the powerful national ATM network, is one to watch. The system will use NFC, which is widely deployed in the country, but will works on the ACH system, which means it will exclude interchange while enjoying fast settlement. It is available to 18 million UK account holders and is strongly supported by all the major banks and retailers. Sounds like a winning formula to me. Money, after all, has a strong national identity and dimension. It isn’t as intangible as it may seem, even in the electronic age.

Movers and Shakers #4: Digital currencies and blockchain technology are here to stay

There are now over 500 decentralised digital currencies in existence. Some central banks are even considering issuing a national digital currency as a back-up currency. There is also talk of future digital currencies which could be asset-based, such as linked to gold or property assets. In Greece after its monetary crisis, it was decided to install 1000 Bitcoin ATMs.

What is becoming clear to operators and to regulators is that the blockchain technology behind bitcoin, which is incredibly robust, has other potential applications, for example, programmable money and currency exchange. Expect to see digital currencies and blockchain technology revolutionise the nature and uses of money.

Movers and Shakers #5: Social media giants are expanding their role in the payments space

Facebook purchased What’s App, with its 500m subscribers for $22bn to add to its own users — 1.19 billion monthly active users, 874 million mobile users, and 728 million daily users. That’s a huge move and it has implications for the future of money. Users can now send or receive money in Facebook Messenger after adding a debit card to the Facebook account. Then you can open a chat with the friend you want to send money to, enter the amount you want to send, click next to your debit card and then click Pay.

Meanwhile, WeChat, with 600m active users, has a mobile payments app for customers to buy in-app items or services. It works for both in-store payments (where retailers will likely scan a QR code generated by your order inside WeChat) or for purely online purchases that’ll be delivered later.

Social media will completely change the face (excuse the pun) of money. They will make it more personal and intimate.

Movers and Shakers #6: Current C is a model of a mobile payment app from a retail consortium

Finally, don’t write off the major retailers. They, too, want a piece of the payments action. Merchant Customer Exchange (MCX) is a company created by a consortium of U.S. retail companies, including Walmart and 7-Eleven, with $1 trillion in annual sales. The consortium has developed a merchant-owned mobile payment system which works through a digital wallet and a smartphone app. To make a purchase, the user scans a QR code shown on the cashier’s screen, or has the cashier scan a QR code from the phone’s screen. The payment settles on the ACH system for speed and efficiency.

These 10 megatrends and 6 movers and shakers together sketch the picture of a battle of the titans for control of the ever-expanding global payments market as it gets transformed by the new digital options opening up for billions of increasingly connected consumers. When the dust settles, only the strongest, most trusted forms of money will still be standing.

Michael Lee’s second book on the future, Codebreaking our Future – deciphering the future’s hidden order, was published in 2014 (http://www.amazon.com/Codebreaking-our-future-Deciphering-fu…atfound-20). He is also author of a trilogy of science faction novels available on Amazon, Voyage of the Moon Dream, Heartbeat and Rocket Ride of the Secret Cosmonaut (http://www.amazon.com/Science-Faction-Trilogy-Cosmonaut-Hear…moon+dream)

This short post is not about Bitcoin. It’s about a new method of organizing and arbitrating communications that is at the heart of Bitcoin

We hear a lot about the blockchain. We also hear a lot of misconceptions about its purpose and benefits. Some have said that it represents a threat to banks or to governments. Nonsense! It is time to form a simple, non-political, and non-economic explanation…

What is a Blockchain?

The blockchain is a distributed approach to bookkeeping. It offers an empowering, efficient and trusted way for disparate parties to reach consensus. It is “empowering”, because conclusions built on a blockchain can be constructed in a way that is inherently fair, transparent, and resistant to manipulation.

This is why blockchain-backed systems are generating excitement. Implemented as distributed and permissionless, they take uncertainty out of accounting, voting, legislation or research, and replace it with trust and security. Benefits are bestowed without the need for central authority or arbitration. The blockchain not only solves a fundamental transaction challenge, it addresses communication and arbitration problems that have bedeviled thinkers since the ancient Egyptians.

Related:

—Philip Raymond, CRYPSA Co-chair
Cryptocurrency Standards Association

When my daughter was just starting primary school, she would look inside a book for the pictures before reading the text. She was old enough to read without pictures, but she wanted to get a quick synopsis before diving in. “Look, Dad! a bunny is carrying a giant clock into a rabbit hole.”

White Rabbt-01This is my first article without pictures. At least none of Bitcoin, because the copper coin metaphors are tired and inaccurate. At the user level, owning bitcoin is simply your stake in a widely distributed ledger. Ownership exists only as strings of secret code and public code. There is no physical coin.

Since the only pictures in this post show a white rabbit with a big clock, let me give you the quick synopsis: The answer is “No”. Bitcoin will not end government, nor its ability to tax, spend—or even enforce compliance.

But there is an irony: Most lawmakers and regulators have not yet figured this out. They perceive a great threat to their national interests. That’s why Andreas M. Antonopoulos runs around the world. He briefs prime ministers, cabinets and legislators with the noble purpose of demystifying and de-boogieing Bitcoin.

Does Bitcoin Help Tax Cheats?

I accept the need for taxpayer reporting, measurement, and compliance initiatives. After all, it’s human nature to dislike paying taxes. Many individuals dodge taxes, if the perceived risk of being caught is low. Sociologists also point out that people are willing to cheat a system, if they perceive it to be sufficiently big or impersonal—i.e that their individual contribution is meaningless.

[ASIDE]: For this reason, Akamai Technologies ends their free-soda-&-snack policy whenever an office grows beyond 30 people (I learned this during a job interview a few years ago). People who would normally respect the policy begin pocketing free sodas for their home or friends, if (a) they no longer know everyone, or (b) they perceive the extra burden is just a drop in the corporate bucket, and not a burden on their office peers.

I suspect that most early proponents of Bitcoin are partially motivated by a desire for low taxes and privacy. While I don’t feel that these individuals are bad for the cause (after all, I am one), I feel that it is unfortunate that they appear to be the overwhelming majority of users & supporters. Let’s dismiss, for the moment, the fraction of voices that want to completely end government and taxation…If you believe in any taxes at all, then government needs compliancy mechanisms, including methods that measure, verify and ultimately arbitrate or prosecute offenders. (Don’t blame me…I’m not even the messenger here. Just an observer).

My point is that in their effort to control a country’s monetary supply (and the interbank loan rate, etc) and in their effort to ensure taxpayer compliance, a great many governments view Bitcoin as a threat. In the past, I felt that my job was to evangelize the public on the benefits of cryptocurrency, and to a great extent, that’s what CRYPSA is all about. But in recent months, I have become confident that Bitcoin will become ubiquitous. It doesn’t need me to be an evangelist. The freight train is now rolling downhill. But…

Andreas Antonopoulos-01s
But as an engineer, author, speaker and occasional consultant, I have found a new calling. Like Andreas Antonopoulos (my idol), I have found a calling in de-boogieing Bitcoin to lawmakers and regulators. I demonstrate that (a) cryptocurrency represents far more of an opportunity than a threat to a national interests, and (b) the future is coming at ya’.
So, either: Stand pat; Get out of the way; or Hop on!

I can give an audience filled with old-school conservatives compelling reasons to “hop on”. Ultimately, blockchain technology coupled with true, permissionless, p2p transactions will shake up established mechanisms and enforcement protocols. They will force new ways of thinking. But cryptocurrency will not end the reign of government—nor even end the ability to tax, enforce and spend. It will simply change the way they do these things. It will also change the way we conduct polls, vote, arbitrate disputes, perform scientific research and much more.

Bitcoin and the blockchain are not just technologies. They transform the way in which many tasks are performed. But it’s not just about efficiency. These technologies offer mechanisms to level the playing field. TWhite Rabbt-02hey bring fairness and representation to processes that were opaque and perhaps even relied on the excuse of opaqueness.

Ultimately, Bitcoin may render certain government departments redundant. Nations will begin to question their need to directly control monetary policy. The impact at the department level is no reason to fear Bitcoin. Overall, it represents great opportunity and not a threat. In my opinion, the changes will benefit everyone.

Bitcoin is not an us-against-them instrument. It is win-win. Of course, perception counts. Misunderstanding potential and confusing it for a threat is a fundamental problem. I share CRYPSA’s passion to help make it a very short-term problem.

Philip Raymond is CEO and Co-Chair of CRYPSA,
The Cryptocurrency Standards Association.

For most of us, figuring out the value of something that we want, comes from research. If you want a new set of wine glasses, you check the price online. Perhaps you consult a catalog. If the set of 8 stemware goblets that you like are a current model from a major company, there are probably many places to buy them. If there are multiple Ebay sellers and many recently completed sales, then you can establish the value with precision.

I’ve written a lot of Bitcoin articles on this Lifeboat Blog and elsewhere, so, let’s dig a bit deeper this time. Let’s talk about from where value really comes.

Supply and Demand

In the end, an item’s value is a direct result of supply and demand. It’s no different with a currency. And let’s be clear: Despite a raging debate, Bitcoin is a currency and not just a payment instrument. How can I be certain? Try this mental exercise—

Amazon_Gift_CardWestern Union money orders and Amazon Gift cards are each trusted monetary instruments. They facilitate cash transactions. But are they currencies with inherent value? If so, there would be no need to denominate them in units of fiat currency.

A money order is only worth something before it is redeemed. The gift card is only worth $500 when it is purchased or received as a gift. As the $500 is depleted, it becomes worthless. Eventually, it is just a piece of plastic. But like a dollar bill, a bitcoin can be circulated over and over. You may believe that its value comes from the government, but more realistically, its value arises from brand recognition and from pure supply and demand—not from a trusted redemption authority.

Bitcoin isn’t the first ethereal stash of bits with value. But it is more durable than others. The latest Pixar film on DVD or On Demand from your cable service provider has value. But piracy reduces the value dramatically. The supply is no longer scarce (no matter the demand) because of the ease and willingness to replicate digital files in any quantity. A Picasso painting is very rare, but it is so scarce, that we cannot gather enough data points to establish a stable value. Even worse, it’s not portable, divisible or fungible and it is nearly impossible to validate in the hands of the average person.

But, commodities like iPhones, Doritos tortilla chips—or even non-branded things, like Idaho potatoes, have a large and fluid market. These things have very measurable value and we can track the change in value over time.

People like to think that money is different than other commodities. In practice, it differs only by its handling characteristics: Compared to a Bitcoin-08Picaso painting or a new iPhone 6, currency has these properties. It is:

  • portable
  • fungible
  • divisible
  • widely recognized
  • resistant to forgery
  • backed by something tangible

Bitcoin has all of these characteristics. In fact, it surpasses your national currency in every way. But many people are confused about that last niggling detail… Aristotle called it “intrinsic value”. They worry that there is no gold—or at least the promise of a stable government—to establish and stand behind the value of a bitcoin unit (BTC). The concern is understandable, but it is wrong.

Recall that value arises through supply and demand and not simply because of authority or promises. The real question is “Can we trust that the supply is limited and that the demand is durable?”. That is, will my coin be recognized, coveted and honored in the future?

The Case Against Bitcoin as a Currency

Here are some frightening facts (frightening for some cryptocurrency enthusiasts and early adopters): Bitcoin is manufactured out of thin air. It lacks the underpinnings of a traditional currency. Referring to that last item on Arisotle’s list above, Bitcoin seems to fail the test of intrinsic value, because it lacks at least one of these properties:

  • A fractional reserve requirement
  • An edict to remit taxes in Bitcoin
  • A promise of a trusted authority
  • Any claim of pegging it to the value to some essential commodity (intrinsic value)
  • Bitcoin doesn’t even offer a perception of uniqueness. The formula is open for anyone to copy. You could create a competing ‘Bob-coin’ tomorrow.

In the absence of at least one of these things, detractors claim that Bitcoin lacks a foundation—and so it is effectively worthless. But value does not come only from authority. It comes from trust and is goverend by supply and demand.

snoop-03
The dollar is backed by trust — Not gold, math, nor even history

In fact, math may be a more trusted ‘authority’ than the directors of your national treasury and reserve board. Supply and demand leads to more tangible value than bankers, especially if the math leads you to believe that the demand will continue to outpace the supply. In fact, this is the primary reason that you are comfortable with a $20 bill in your pocket. You have a pretty good idea, that next week, it will still buy 2 movie tickets or 2 pizzas.

Bitcoin has achieved a “two-sided network effect” (Google the term and the economist “Marshall Van Alstyne”). It has captured the public imagination more than Picasso. It cannot be manufactured. With a reasonable understanding of wallets, it cannot be seized, stolen or lost.

The ability to mine new bitcoins is capped with a total supply of 21 million units, and so there is no opportunity for governments to inflate it through mismanagement of taxation or spending. They cannot even inflate it with good intent (for example, when they need to repair a bridge or provide for the poor). Instead, the ability to pay for these services (and all other government functions) forces them to live within a balanced budget. Spending cannot outpace the revenue generated by taxes and bonds. In a Bitcoin economy, the bonds will more likely be paid back by user fees rather than the future debt of unborn generations.* You get the point: Because governments no longer control the printing press, they cannot make hollow promises and then kick the problem into the next administration. With a limited money supply that everyone recognizes as money, governments are forced to live within their means.

What About Uniqueness?

The last item in the list above decries Bitcoin’s lack of uniqueness. You cannot mint your own bitcoins of course—but you can create an equivalent bitcoin ecosystem yourself. If your name is Bob, you can call it Bobcoin. Many countries and organizations are already doing this.

This is really no different than the US Dollar or your own national currency. The government note is difficult to counterfeit, but so is your own signature when placed on a fancy printed currency (Let’s call it a Bob-Buck). The problem is that the dollar is widely recognized, trusted and accepted, but few people other than your kids are collecting Bob Bucks.

You would face the challenge of spurring adoption. Whether it’s Bob Bucks (paper) or Bobcoin (cryptocurrency), how will you get the world to covet, mine and trade your new currency? That’s the point of a two-sided network. It becomes increasingly more difficult after one method rises to the top—especially if that method is open, transparent and extensible. Bitcoin is open. It is subject to worldwide scrutiny. But this works both ways. Bitcoin can also add incremental improvements that are part of any pretender to the throne.

Bitcoin is not just a transient coin-du-jour. It evolves and so it will not die.

How Can the Value be Measured?

I get this question a lot, and so I am adding the answer here. There is no need to measure the value of Bitcoin or define debt. Its value floats with supply and demand like a true world currency. Because the supply growth is capped and well understood, it is resistant to manipulation. As time goes by, it becomes far less likely to exhibit wild swings in value.

A few years from now, if Bitcoin spikes or tanks by 10% in a short time, you will be more likely to wonder “What is affecting the dollar?” (or Euro), rather than “What is affecting Bitcoin”. Consumers will budget for the cost of a new car or refrigerator in BTC rather than dollars or Euros. You will even see catalogs that print prices in BTC and honor them for the life of the catalog or online sale. After all, in an international market, it makes sense to quote a price in units with no geopolitical boundaries, just as we quote time in UTC (formerly called GMT).

Are these predictions crazy? They are not even bold. For us, here at Lifeboat Foundation, they are rather obvious. If we can be accused of dreaming, it is because we are ahead of the game. Look ahead, yourself. The signs are clear…

If Bitcoin has Value, What is the Value?

As Bitcoin adoption moves past enthusiasts and early adopters, the capped supply of coins (21 million, max) will be spread thinner and thinner. This doesn’t play out like a classic shortage, because unlike a supply squeeze on food or medicine, you can work with a smaller piece of the pie each year. The piece needed to pay for a car or an iPhone simply gets smaller as the unit price floats higher and higher.

Last year, I set up an equation to predict how high Bitcoin will float in 5 or 10 years. It involved a lot of WAGs (wild *ss guesses). Although I am a pundit, I am not a mathematician, and so the attempt was incomplete. No need to rehash that exercise.

Passport-s-TAs Hysteria Withers, Bold Becomes Mundane

Eventually consumers, banks, brokers, and governments will recognize that Bitcoin is a far greater opportunity than it is a threat. It pulls the world together by decoupling currency controls from national agenda, inflation, manipulation and loss (You can back up your Bitcoin. Try doing that with your paper money or a defunct bank).

Philip Raymond is CEO and Co-Chair of CRYPSA,
The Cryptocurrency Standards Association.

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* This is just one reason why an eventual transition to Bitcoin (as currency, and not just as a payment instrument) is in the national interest. It demonstrates to citizens that monetary policy is backed by more than growing debt, inflation or the promises of transient officials. It returns any government or economic entity to a non-inflationary, limited-supply pie. The pieces of pie can grow in value, but the pie cannot be watered down by printing more ingredients, counterfeit or even by enemy action.

Further Reading