Interviews And Articles by Nick Breeze
- Published: 02 September 2014 02 September 2014
by Nick Breeze
Many people who consider themselves financially savvy have touted the wisdom of buying up gold with their extra cash to insure against any looming financial catastrophe. The inevitability of another crisis means that some sort of wealth refuge acting as insurance against currency or stock market shocks, is simply prudence in excelsis.
Enter stage-left, amid the chatter in the global village, the biggest of all the “cryptocurrencies”, Bitcoin (BTC). Bitcoins appear nothing more than an encrypted sequence of numbers representing a certain amount of an anonymous, digital currency, created by techies and constrained by a complex algorithm, with no need for a central bank.
This virtual currency is mathematically generated based on a virtual “mining” process that can only go up to 21,000,000 BTC’s. With this limit to actual creation of BTC’s, inflation is kept in check because the intrinsic value of the coin is limited to the divisibility of the total known amount.
Bitcoin can also be traded between individuals face to face, or with those in far off foreign lands, using a digital wallet. The transfer of BTC’s from one wallet to another is relatively underwhelming but those who use it think differently. Exchanges are popping up everywhere allowing traditional currency purchases of BTC’s, either in large quantities or small fractions of a single coin.
So is it used as a real currency? There is a taxi driver in Hereford, pubs in London, online ecommerce stores, professional services, and now even Virgin Galactic will promise to take you to space in exchange for your BTC’s. Property agents are getting into it, as well as street market traders. The attraction might be anonymity for some but for the mainstream techno consumer, it is the long-term philosophical view that a decentralised monetary system offers more value and security than the central banking system.
Another question often asked is whether gold is about to be replaced by Bitcoins as the new store of wealth for contrarian investors? At a time when London buses have just stopped accepting cash and the bulk of our conceptual reality is relocating to the interconnected digital landscape, it does seem unlikely that we’d enter into another era of hoarding physical gold to manage our affairs.
Currencies function because we trust them. If we don’t trust them, we don’t want them. The abuse of the American dollar through quantitative easing to bail out careless bankers, leaves many people distrustful of the value attributed to such currencies.
In the case of the USD, it might take only a sea port refusal by China to accept payment for goods in anything but their own currency (or anything but dollars!). That could cause widespread belief that the greenback is worthless and lead to the exchange value of the dollar collapsing. This, so called, “reserve” currency would become the little brother to the big beast of inflationary failure, the Zimbabwean Dollar.
How much more sense does it make to implement a decentralised monetary system that is secure, democratic and, by design, finite, to avoid the temptations of bankers and policymakers to make bad judgements at the expense of the masses?
Right now, the most dated object I keep about my person is my leather wallet. My barcoded library card has relocated to my key ring, whilst my car key has relocated to an App on my phone. My smartphone is a powerful multi-use computer performing endless tasks combining, personal, professional and social. Strikingly, all my plastic cards from the Oyster to the credit and debit cards are still little changed from their prototypes that I recall from my childhood in the late 1970’s and early 80’s.
So will it work? Will we transition? It seems from my research, that Bitcoin is already working and people are transitioning already. It’s value has risen compared to mainstream currencies. The emergence of new exchanges, directories of traders, service providers, and a vibrant idea sharing community of entrepreneurs, mean that this is a very exciting area that looks set to change our perception of money and value.
However, I doubt very much that there will be a day or a month where one currency fades and another becomes the norm. What we tend to see is the bell-curve effect where those that see the potential jump in early and lead the charge. Eventually the benefits and widespread use expand out to the herd, increasing confidence and reducing fear. Government legislation will form alongside, in what we hope will be a more durable, robust and fair monetary system.
Let’s watch and see.
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