The Moment Money Begins to Change Forever


Gold is a stupid yellow rock.

That’s how Square CEO Jack Dorsey’s friend described the favourite safe-haven asset of the older crowd.

And I might add the favourite for a lot of my (ahem) more mature co-workers here at Port Phillip Publishing.

But for anyone under the age of 40, there’s only one non-conformist, ‘stick it to the man’, monetary revolution going on.

And it ain’t in gold.

It’s bitcoin.

And Dorsey’s payments company, Square, just made a big announcement about it.

Square’s smartphone app has just made it a whole lot easier for its users to jump on the crypto bandwagon.

The majority of whom are on the younger side of 50.

In the past week they have introduced the ability to buy and sell bitcoin. All at the click of a button.

It’s fast, easy and convenient.

And it brings bitcoin within easy reach of millions of users.

People who may have been curious, but put off by some of the technical details involved in buying bitcoin.

It brings bitcoin to the masses.

But this could just be the first step…

Dorsey, who is incidentally also the founder of Twitter [NASDAQ:TWTR], has expressed openness to the idea of allowing bitcoin to be used by merchants as a means of payment.

He said in an interview with Forbes:

One of the principles at Square was we’re going to help the seller make the sale. That means whatever form of payment comes across the counter, be it physical or digital, we’re going to enable them to accept.

Do you realise how just huge this is?

It changes everything…

In the future, you might be able to pay any way you want.

Whether that is dollars, yen, bitcoin, ethereum, digital gold, shares…pretty much anything of value that can be digital represented.

Japanese IT firm Fujitsu is also onto it. It unveiled a new payments technology designed to enable transactions between blockchains.

Here’s how they describe it:

Fujitsu Laboratories has now developed an extension of smart contract technology which inter-connects multiple blockchains by recording the series of related transactions on each chain in a dedicated blockchain, or a “connection-type chain,” to link to the currency exchange into a single transaction process that can be automatically executed. It has also developed a transaction control technology to synchronize execution timing of the transaction process on each chain.

In other words, you can pay me in one form, and the system will convert it into the currency I want to receive it in.

This could revolutionise the concept of savings and spending.

And the implications are actually a lot deeper than anyone might realise.

You see… 

As you might know, our fractional reserve model of banking relies on savings in bank accounts in the national currency.

This is then lent out a number of times (a multiplier) based on how much the regulator tells the banks they have to keep in reserve (around 10% in most cases).

What happens if my smartphone wallet contains cryptocurrencies, some shares, some digital gold and some US dollars?

But no Australian dollars?

I don’t know the answer to that, but it certainly changes the concept of fractional reserve banking.

In the new world I could theoretically hold my money in a spread of assets, and spend whichever of them I choose at the time of purchase.

I never need to hold dollars, unless I want to.

It’s a complete revolution in what money is.

Because money can and does change.

Living through money’s evolution

You’re in a unique position in history, living your life in a world of rapid change.

You ancestors’ lives would remain fairly static from the day they were born until the day they took their last breath.

Nothing much would change visibly to them in their lifetime.

Not now…

The exponential growth of technology in the 20th and now 21st century means change is more visceral than ever before.

You see it. You live with it. You have to deal with it.

That worries some people.

They hark back to the mythical safety of a past ‘golden era’ that wasn’t real. But seems safer.

A desire to move back to gold is a part of that yearning.

It fits in with the ‘gold is the true money’ myth that many people cling to.

But fiat money, which is the money you and I both use today, has been a resounding success. The gold standard ended because, quite simply, it didn’t work anymore.

Gold was literally shuffled from one side of a warehouse to another based on what country was exporting or importing more goods and services.

Fiat was better. So money changed. And it’s set to change again.

Like any system, fiat money has a fatal flaw.

Its reliance on debt responsibility. On people being willing to wear short term pain for longer term stability.

The world of debt proliferation is putting an end to its usefulness.

I mean, what value does paper have if it can be printed at will?

The post-GFC years of ‘money printing’ and propping up the economy with government debt have had the effect of making money less valuable, and less trustworthy.

It’s broken as a feasible store of value. And not just in the usual trouble spots of Zimbabwe and Venezuela.

The US and China both have huge debt problems. And debt problems are fiat problems in the current system of money.

We simply can’t trust our government to manage the money supply.

They have too many vested interests to look out for. But reality will catch up eventually with the fiat system.

I’m sure you’ll know trust in western governments is pretty low right now. And without trust, fiat money is worthless.

I say it’s time to move on to trust in something else.

Not backwards to gold, but forwards.

To a trust in indisputable maths. A trust in decentralised power structures. And a trust in technological innovation.

That means bitcoin and cryptocurrencies.

And more and more companies like Square and Fujitsu are starting to see it.

Good Investing,

Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

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