Sam here. I’ll be hijacking Money Morning all of this week. (Sorry Greg!) I’m doing it for one simple reason. We’re about to launch a new project, which we’ve been working away on for around six years now.
I’ve been pestering my Publisher Kris Sayce about this project since I started at Port Phillip Publishing, back in 2013. Finally he agreed it was the right time to get it up and off the ground.
And now, this Wednesday, we’re launching it. We’re incredibly excited. We think it could prove to be the most important new advisory service in the history of Port Phillip Publishing.
Keep an eye out on Wednesday for it. But before we launch this new service, we wanted to warm you up to the ideas and opportunities we’ll be looking at in it.
And today we thought we’d cast the net back to 12 April, 2013 and republish a (slightly shortened) piece on cryptocurrency. We’re going that far back because it’s one of the earliest instances of us writing on this topic for Port Phillip Publishing.
It not only gives you an insight as to what our new service will be about, but it also demonstrates just how far bitcoin and other cryptocurrencies have come. We’ve been following this topic for years, and even for us it’s sometimes hard to believe how quickly it’s progressing.
So here it is, an insight into our views on bitcoin and cryptocurrencies from four years ago…
Bitcoin and the monetary revolution in cryptocurrencies
It’s my firm belief physical money, coins and cash, are on the verge of extinction. Not just that your ‘paper money’ will exist in digital form, but it’s only a matter of a time before the primary global currency is a ‘cryptocurrency’. A cryptocurrency is a currency like bitcoins, rooted in cryptography and created digitally. More on that shortly.
I also think we might just be at the beginning of a whole new monetary system, one controlled by communities of people, a peer-to-peer regulated system.
In finance, it’s a given that old antiquated business models can’t survive unless they innovate and evolve. And one of the most ancient, old-fashioned systems in operation is the monetary system.
Sure there are fancy financial tools like MBS’s, CFD’s, derivatives of derivatives, monetary easing, and a whole raft of other complexities. But simply, economies are driven by demand and supply. And money is just an intermediate in financial transactions.
Now I don’t know about you, but I’m sick of unpredictable markets, governments printing money to buy things they can’t afford and incurring debts they’ll never pay off.
Not to mention stealing money from hard working people. It just makes me wonder how long society will put up with it?
The key question when it comes to the monetary system is, ‘Is there a better way?’
Obviously precious metals like gold and silver are alternative ways of storing wealth, because historically we’ve attached value to them and they’re a finite commodity.
But as for your money in the bank…have you ever wondered what it really is? I can tell you it’s not sitting in a vault so you can just go and pick it up all at once from your local branch.
It’s really a bunch of binary numbers, a whole heap of 1s and 0s that exist on computer networks and servers.
What’s important to understand is that this new wave of crypto-currencies is not too different from how your money currently exists. But what makes crypto-currency better is a central bank can’t just come along and ‘print’ more of your crypto-coins and devalue your wealth.
So what does the future of money look like? As technology and innovation advance, so does the way we transact, bank and deal with money.
Not your typical wallet
If we look back at the 1950s, the bulk of people were paid by cash or cheque. If they decided to bank their money, they had to physically go to the bank.
If they needed cash for the weekly groceries, they had to get the money from the bank teller. Because of this money would shuffle about the world physically transported from A to B.
It was inefficient and security was an issue.
But people started to tire of always going to the bank for money. So in 1969 (in New York) you could use a coded card to withdraw money from an Automatic Teller Machine (ATM). Today there are an estimated 2.2 million ATMs worldwide.
With ATMs came bank cards, debit cards and credit cards. This meant people didn’t have to carry cash around anymore. In fact we didn’t even need the cash in our account, thanks to credit. We could simply use a plastic card to buy things.
Then thanks to the internet, we could simply transfer funds to other accounts or merchants. We had no need to physically go to a bank anymore. So bank outlets have slowly been shut down.
You can also have a ‘wallet’ on your phone to store your bank details to pay retailers. You can even touch your phone with another phone or merchant terminal to instantly transfer or pay money. This is thanks to a tiny piece of technology called Near Field Communications (NFC).
And there’s evidence to suggest Western countries will stop using cash and coins completely. The American Institute for Economic Research has found that in Sweden [in 2013] only 3% of money in circulation is made up of physical money. In the US that figure is 7% and falling.
Think about the last time you went grocery shopping. Did you pay with cash or card? When was the last time you bought plane tickets with cash, or a cheque?
It’s not about bitcoins, it’s about a monetary revolution
Today we have Netbank, EFT, BPay, PayPal, NFC as part of our day to day vocabulary.
All of these are faster, alternative ways of processing money. They’re all digital and they’re all driven by complex algorithms that make up electronic financial systems.
And over the last couple of years a legitimate currency alternative has come to the fore. The beginning of a monetary revolution. And if you haven’t heard of bitcoins by now, then you’re about to.
Let’s for a moment sweep aside the insane price movements of Bitcoin, which have seen the value of one coin peak on Wednesday at US$266 and plummet to an intraday low of US$105.
[Ed note: That’s no typo. Those figures are hundreds of dollars. Just four years ago. Mind blown yet?]
The technical explanation of Bitcoin deserves about 10 articles worth of information. And I’ve been following them since 2010, when the price was US$0.05, so I’ve seen the ups and downs and get how they work.
Bitcoin at its heart is a decentralised digital currency. To be more technically correct, they are a cryptocurrency (a currency created and based on cryptography). A centralised financial system does not control or regulate them. A community controls them, and transactions (although visible) are shrouded in a veil of anonymity.
This is partly the reason for its recent price movement. And when you look through the hype and hysteria surrounding bitcoin, you can see an underlying need for an alternative solution to the current financial system.
Do you think bitcoin would have seen so much activity if the world had been in financial harmony? I doubt it. I doubt they’d be US$266 a coin, more like $7.
The current hype surrounding bitcoins started when the Cypriot government decided they were going to steal money from bank deposit holders. This sent the price of bitcoin through the roof as fear grasped southern European states and the world realised no one’s money is really safe.
Because if you were a Cypriot and held Bitcoin there’s no way any government or bank could have taken or stolen your bitcoin. And even if they wanted to, they wouldn’t know which Cypriots had them because of its level of anonymity.
Bitcoin might just be the alternative non-government financial solution the world has needed, particularly over the last five years.
And I see a future where a crypto-currency (likely bitcoin) will be the primary global currency. Others will exist and sit alongside bitcoin. Already there’s a RuCoin which is a Russian evolution of Bitcoin, Terracoin and Litecoin. All are various cryptocurrencies which are used, stored, traded like normal currency. Bitcoin is just the first.