• +44 203 603 0672
  • contact@citygoldconsulting.com

cryptocurrency

Is It Too Late To Kill Wild-Crypto?

Sources: ethernodes.org, The Times, Investopedia, Wikipedia, US House of Rep, bitnodes.earn.com, ipvanish.com, www.bitcoinmarketjournal.com

Mark Carney’s proposition that Central Banks club together to create a globalcoin, aka stablecoin was nothing more than a slight of hand, designed to prevent the much weakened US dollar from being replaced by the Yuan, as the worlds reserve currency.

This proposition is not about altruism towards crypto by central banks or world governments; this is about power, pure and simple. The power for a sovereign nation or group of nations to dictate their own financial destiny regardless of whether their constituents benefit or not. Those who control the mints and money presses can in effect do what they want, with little to no sanction.

So, to one Satoshi Nakamoto and his/her/their Bitcoin crypto that was launched with little to no fanfare. Below is an abbreviated Bitcoin timeline:

18 08 2008, the domain name bitcoin.org was registered.

31 10 2008, a link to a paper authored by Satoshi Nakamoto titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was posted to a cryptography mailing list.

03 01 2009, the Bitcoin network goes live with the mining of the genesis block of bitcoin (block #0), which had a reward of 50 bitcoins. The last block is scheduled to be mined in the year 2042.

Feb 2011, Bitcoin hits parity with the US dollar - Maybe it's not a joke.

17 12 2017, 1 Bitcoin = U$19,783.06 - Nope it's not a joke.

30 08 2019, 17,906,175 of 21,000,000 bitcoins have been produced

Bitcoin was launched in response to the economic events of 2008 and this seemingly benign technical innovation blindsided political leaders. A trawl of the internet shows that no major news outlet or political operator seriously considered this financial game-changer for almost two years.

It is is not an exaggeration to call Bitcoin disruptive technology. It has shown that with significant adoption as a medium of transaction and store of value, it has the potential power to disrupt many national financial, economic and monetary agendas. Thus putting Bitcoin and any other crypto-currency on a direct collision course with many governments and regulators.

It is the view of the author that a government trying to kill wild-crypto, in particular, Bitcoin, have set themselves an impossible task, akin to trying to defeat the Hydra of Greek mythology. The crypto-genie is out of the bottle, but many world governments are yet to get the memo and are going to have to go through the five stages of grief before they figure this out.

5 Stages of Governmental Crypto Grief

1. DENIAL – All governments were initially dismissive of the new approach to money and currency; it was considered a flash in the pan. In 2009 most regulators and heads of government were well over the age of 30 and the concepts proposed by the white paper, to merge currency, money and technology in this manner would have been as alien as telling someone in 1930 about fabrics made from oil and other chemicals – nylon.

2. ANGER – Several countries are still in this stage where they can see possibilities and fear the loss of control. For some world governments the solution has been to malign crypto-currencies in general and Bitcoin specifically in an effort to to discredit it. The fears of government and the entire financial services sector are not without foundation. Allowing a crypto-currency they did not create become a legal tender would have severe implications on how they do business, if they are still in business. The government, central banks and law enforcement will lose control over:

  • monetary policy to exert economic influence,
  • how fiat currencies can be transferred,
  • the ability to track currency movement,
  • who profits from that movement of currency,
  • the ability to collect taxes on currency movements,
  • the ability to trace criminal activity using existing tools.

In a wild-crypto economic environment, fiscal controls that have been used for decades could become obsolete as governments lose the privilege to increase or restrict the amount of money circulating in an economy as a tool to stimulate investment and spending, generate jobs, or avoid out-of-control inflation and recession. Unfortunately, history has also shown that the use of these tools when done with a political agenda, can result in the creation of environments ripe for inflation or recession.

Worst affected would be retail bankers in their role as custodians of funds. In this new world, what exactly would their role be? With most decentralised crypto, the owner/holder of the crypto-currency is the banker, and the network keeps a record of who owns what. Bankers would have to lend their money from their reserves rather than that of depositors, and it is highly likely that the concept of fractional reserve lending would suffer a heart attack and die. FINALLY!!

In some cases, governmental reactions to the perceived threats have included banning crypto or restricting its use in the financial sector. Listed below are some of the countries that have banned crypto outright:

COUNTRIES THAT HAVE A BAN ON CRYPTO-CURRENCIES     - Afghanistan - Pakistan - Algeria - Bolivia - Bangladesh - The Republic of Macedonia - Saudi Arabia - Vanuatu - Vietnam

Banning a thing that for all intents and purpose is progressive will only serve to drive it underground making a mockery of the whole banning exercise. Bans don’t solve any perceived behavioural problems.

3. BARGAINING – The proposition by Mark Carney to create a synthetic hegemonic currency (SHC) can be viewed as an attempt by a Central Bank head to try and get ahead of the coming changes to retain some form of control. The challenge for governments, Central banks and large organisations like Facebook who are looking to create stablecoins is they have serious credibility issues which puts them in a weak bargaining position.

During the financial crisis of 2009 – 2011 major central banks and governments collaborated to rescue themselves and the world economy but in the process lumbered their constituents with austerity whilst big business seemed to be benefitting with no consequences – No significant captain of industry was convicted of causing or contributing to the near-collapse of local and global economies.

Question: How does a Central Bank bargain or negotiate with a faceless entity like Bitcoin which is currently running on full automatic with no identifiable location or authority?

4. DEPRESSION – Many governments and central banks are yet to cross this river. At this phase in the grief cycle, there will be a realisation that a centralised crypto-currency controlled by a government, central bank or cartel of corporate entities has just as much chance of being accepted or rejected by the public as any other crypto. The track records of economic mismanagement would handicap any government-sponsored crypto.

It is a fact that banning or restricting the procurement, holding, and use of crypto is a journey to nowhere. For every ban on the internet, the world-wide-web community will find a hundred ways to circumvent that restriction. A case in point is the blanket blocking of porn and illegal file-sharing sites such as PirateBay by the Internet Service Providers (ISP) in the UK. Though ISP’s have complied with the strictures of the UK government and copyright holders, customers can still access the blocked sites through the application of virtual private network (VPN) technology which is transparent to the ISP’s. Using these same solutions, it is possible in a country with restrictive policies and legislation for businesses and individuals to continue trading in crypto in relative anonymity.

5. ACCEPTANCE – As yet Bitcoin is not recognized as legal tender by any government. That it can only be used as payment if both parties in a transaction agree to its use as a form of payment is the position the majority of world governments have taken when it comes to Bitcoin. Japan and New Zealand are probably the closest to granting Bitcoin the status of legal tender.

Why Decentralised Crypto Is Hard To Kill

The Bitcoin network which processes all Bitcoin transactions is currently supported by approximately 10,000 nodes worldwide. These nodes vary in size and complexity, from devices as small as a mobile phone and others that are sophisticated warehouse-size operations.

The map below shows the global dispersal of Bitcoin nodes:

Ethereum is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It is not only a derivative of the bitcoin principles, but it is also the second most popular crypto in the market.

Ethereum provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

The map below shows the global dispersal of Ethereum nodes:

Conclusion

A government, central banker or large corporate entering into the world of crypto with the explicit purpose of dominating all other cryptos will have to have the global faith of the public otherwise they will be doomed to failure. Further unilateral sovereign moves against crypto-currencies are pointless unless that country cuts itself off from the internet and the global community.

Question: How does an individual country measure its GDP in wild-crypto when the transactions are invisible and the funds can be stored in and retrieved from a different jurisdiction.

For a government to attempt to destroy the Bitcoin environment, they have to capture the public faith at a global level. No government is in that position, as all governments though not always self-serving must strike a balance between competing agendas while managing finite resources, It is in this balance where they often fail due to priorities based on political agenda’s. Sometimes the government does the right thing but the optics and perceptions of society result in a negative bias within the community.

The way for them to kill Bitcoin is for them to make the economic incentive to use Bitcoin irrelevant — to make the demand for using Bitcoin go away at the source,” explained Ammous. “They need to offer a technology that is better than Bitcoin — that can obviate the need for Bitcoin. Or, at least, they need to try…

Saifedean Ammous

Wild-crypto, like Bitcoin, does not have an agenda and can not be assigned one. As a result, it is entirely reliant on public faith in it to maintain and drive up its value. Furthermore, Bitcoin has to compete against more than 700 alt-coins; this is the epitome of a level playing field. Bitcoin offers a level of transaction transparency most central banks would consider obscene. What is a government to do???

Governments and Central Banks should acknowledge they are going to lose this war and the best they can do is win battles that allow them to stay relevant in the new financial world order.

Previously published LinkedIn on September 3, 2019

[crypto-donation-box]

Bitcoin in Africa: The Ubuntu Way

In February 2020 Anita Posch travelled to Zimbabwe and Botswana to see if and how Bitcoin is used in these two Southern African countries. Below are links to the podcasts Anita created during her trip.

Source: https://bitcoinundco.com/en/bitcoin-in-africa/

Part 1: Zimbabwe: Ideal Conditions for Bitcoin? – Bitcoin in Africa: The Ubuntu Way

Part 2: Zimbabwe Living in a Multi-Currency World – Bitcoin in Africa: The Ubuntu Way

Part 3: Using Bitcoin in Zimbabwe – Bitcoin in Africa: The Ubuntu Way

Part 4: If Bitcoin works in Zimbabwe, it will work anywhere – Bitcoin in Africa: The Ubuntu Way

Part 5: Afriblocks, Lightning Network, COVID-19 & Answering Questions – Bitcoin in Africa: The Ubuntu Way

Part 6: The Future of Bitcoin Is Big in Africa – With Alakanani Itireleng

bc1qm9sc8chn3ehq5jnvlhc9q470dnejnn8uede4vz

Reserve Currency Bitcoin?

Sources: The Guardian Bloomberg FT Wikipedia The Balance Investopedia Coin Telegraph The Money Project

The current fiat monetary and financial systems are broken. If anyone is in any doubt about that, a look at the economic chain reaction triggered on 9th Aug 2007, will quickly disabuse any ideas of comfort and safety.

Recent comments by Mark Carney, current Governor of the Bank of England at a meeting of Central Bankers in Jackson Hole, Wyoming (23/08/19) is the first admission by a significant member of the global monetary establishment that things can not continue as they have and merely putting a band-aid on an issue that requires stitches will only result in more uncertainty.

Carney’s proposal is a total revamp of the global economic order. A move away from sovereign based currencies like to the US dollar, Euro, Pound and Renmimbi (Yuan) to a shared global electronic synthetic hegemonic currency (SHC) that would work through a network of central banks – in short a centrally managed crypto-currency. The concept is based on the recently proposed Facebook currency called Libra.

Question: Which countries qualify and on what criteria to be in the SHC club, does this not leave developing countries exposed?

Fundamental to Carney’s conception of the SHC is the removal of the US dollar as the reserve currency of the world, a position that it has held since 1919 and was ratified at Bretton Woods in 1944. That position was further strengthed by US, Saudi agreements made in 1945 and 1979 that created the ubiquitous petrodollar and its recycling revenue generators.

With US debt increasing and China having overtaken the US as the biggest manufacturer in the world, the position of the US dollar as the world’s reserve currency is under serious threat from the Yuan. The last 100 years of the US Dollar as the world’s reserve currency has shown that in the wider sphere of geo-political economics it is possible to weaponise a global reserve currency.

Question: Would the West agree to be economically dictated to by the Chinese government?

Of additional concern is the acknowledgement in economic circles that the US dollar has lost over 90% of its real value in the last 100 years, as such should it really be held in such high regard? The recent antics by President Trump have driven this point home to many governments around the world as they have watched the erratic behaviour of the US dollar on world markets in response to the equally erratic pronouncements from the White House.

One conclusion that can be drawn from Mr Carney’s proposition, to introduce an SHC, is that it would be a slight of hand that would best serve the West as a means of minimising the influence of the Chinese Central Committee on Western financial and economic policy. The dominance of the Chinese in global economics is viewed with badly concealed trepidation by Western governments as the Chinese do not always play by the same rules or have the same outlook.

Question: Would the Chinese government agree to be neutered for greater economic stability?

A hegemonic currency would have a number of challenges that it would have to overcome for it to become an excepted form of tender. Here are some of the reasons an electronic currency designed and built for and by the world’s largest Central Banks would struggle to get traction with the global (predominantly Western) constituency:

  1. The credit crunch of 2008 saw the erosion of TRUST in many Central Banks in the developed world. One of the core function of a central bank is to supervise and regulate banks and financial institutions – this did not happen, rules were relaxed, ignored and in some cases bent, broken or thrown away – the result was the sub-prime debacle.
  2. “What the Bank of England does in QUANTITATIVE EASING (QE) is it prints money to buy government debt, … So the Quantitative Easing has enabled governments, this government, to run a big budget deficit without killing the economy because the Bank of England has financed it.” (Stephen Hester, chief executive officer of the RBS Group 2013). Since the Financial Crisis, a number leading Central Banks including the UK’s Bank of England and the US Federal Reserve have used QE as a way of resolving some of the fiscal and monetary challenges they have faced in trying to stabilise their economies. The flip-side of this is that it has reduced the buying power of those currencies.
  3. Once the Financial Crisis was in full effect those same Central Banks in cahoots with their respective governments then proceeded to use PUBLIC FUNDS to provide:
  • liquidity support;
  • interbank lending guarantees;
  • and recapitalisation of distressed banks.

This resulted in a further loss of trust by the public as it dawned on them that the brunt of these costs would be paid for through AUSTERITY and taxation on them (the public).

The days of sovereign siloed currencies are numbered. However there is a endemic lack of trust and transparency in Central Banks as they are all directly or indirectly managed or manipulated by political masters and the creation of a SHC is not panacea to this condition

Question: How independent from sovereign politics would the body that controls the SHC really be?

Using the European Central Bank (ECB) and Eurozone as a yardstick there are significant challenges to consider on the issue of INDEPENDENCE:

  • The eurozone currently suffers from deep divisions between member states over the appropriate level of centralisation. There is no reason to expect that tribal politics will not play a part in any SHC, as board members may still have to answer to the politicians in their home countries who will have their own agenda’s.
  • The prospect of anti-globalisation or nationalist movements pushing to leave the SHC at some point in the future could send markets into a tailspin, requiring swift reaction from a national Central Bank or SHC authority. In 2019 Europe is experiencing the discord created by the UK vote to leave even though the UK did not adopt the Euro, there are enough financial and economic ties for it to have a significant impact on both sides of the relationship.
  • Financial markets could easily be rattled if sovereign states, covertly or overtly apply pressure over monetary policy decisions, similar to the concerns over Donald Trump’s very public disagreement with the chair of the US Federal Reserves over what policies to apply and whether to continue an unecessary trade war.

Many of the points mentioned above would not be an issue if a crypto currency such as Bitcoin (BTC) were to be adopted as the globalcoin. It has no centralised management and control and therefore political pressure would not have anywhere to focus.

Mr Carney in his speech about the current fiat system of currency did not directly address the concept of fractional reserve banking (FRB). Would this disappear with the appearance of the SHC? Technically it is possbile to build the FRB capability into an electronic currency, this begs the question, why do this when FRB is one of the pillars of the cyclical inflationary spikes and dips that plague the existing fiat system? It is difficult to see how electronic money such as BTC would allow fractional reserve banking trades to occur on a publically accessible blockchain ledger with a known maximum size of 21 million whole units.

A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. What is not possible is to create more than the 21 million coin limit.

The origins of BTC mean that it does not have a political or sovereign master and therefore it can not be influenced or weaponised, the way the US dollar has been by the the US government. Therefore illiciting a more level playing field in the geo-political landscape. Developing countries which produce most of world’s raw materials but rarely realise the true value of their efforts would able to negotiate in parity with those who require the raw materials.

BTC has some features that a central bank or goverment with an agenda weould find hard to swallow but would ultimately be of more interest and benefit to the final consumer:

  • So long as one has access to the internet, in any format, (mobile, desktop or portable) one can send and receive bitcoin and it does not recognise IP address or borders as part of the transaction process. In a nutshell, BTC is borderless. A Central Bank created SHC would more than likely not have this capability in order to allow it to be weaponised.
  • Since its inception no one has been able to find or create a backdoor into BTC that changes the final volume of coin that will be created; the speed at which it is created and the amounts paid out for mining. Further, the blockchain ledger is designed such that any external introduction of fraudulent transactions will be quickly identified and ignored by the system.

Question: Would a government or Central Bank allow for the creation and use of an electronic system to which they do not have a backdoor?

  • Sanction and censure is not possible when using BTC as all users are anonymous on the bitcoin blockchain. From a political persective this is a significant challenge, how does one nation state impose economic sanctions on another nation state or individual?
  • Though anonymous, BTC is transparent allowing anyone to look up the contents of the blockchain and see the transactions in progress (confirmed and unconfirmed). Would a central banking authority put ALL transactions out in the public domain even if they are anonymised?

In conclusion it is clear that the govenors of the largest Central Banks know that something has to done as the situation is unsustainable and for the financial security of their sovereign states, political masters and own positions it would be prudent for them to try and build a solution themselves as opposed to being runover by circumstance.

Bitcoin offers a more trust worthy framework for a currency, that can not be interfered with but it is not perfect, it has its own challenges, but trust is not one of them, because transparency is built into the system. Which government would be willing to surrender most of its fiscal levers to the system? Despite all the positives in using Bitcoin it does have some weaknesses in relation to flexibility but the system was built with trust and transparency as its foundation.

A synthetic hegemonic currency means some are in the club and some are outside (mostly developing countries). There are many fundamental questions that would need to be addressed first. What level of transparency would be available to prevent this new trading tool from being designed on the existing archaic frameworks and subsequently being weaponised for the benefit of those who created it. Mr Carney may have opened up a real pandora’s box by broaching this subject. The challenge is not in building the technology for such a system, it is in unpicking 11 centuries of power and control from governments and Central Banks.

THERE IS ALWAYS GOLD AS THE ONE TRUE RESERVE

Previously published LinkedIn on August 28, 2019

[crypto-donation-box]

1