Bitcoin and The New World Currencies

In 1988 the Rothschild-owned financial publication Economist ran with the cover “Get Ready for a New World Currency In 2018”. We are on the pinnacle of a major shift to a global economy which will eliminate hard cash and may change our financial world as we know it. Cryptocurrencies are a disruptive economic innovation that have the potential to revolutionise the current economic structure and change how banks and economic institutions operate. Bitcoin is the most popular form of cryptocurrency which enables digital transactions between two parties without the need of an intermediary institution. Every transaction is digitally recorded in blocks which act like ledgers. Once a block is filled a new block is created. All blocks are connected to each other using hashtags and a linear, chronological sequence of these blocks forms a blockchain. Every transaction is digitally recorded to keep security at a high level while keeping all transactions anonymous. The information of the parties involved in the exchange is not revealed. The money can only be traced when it is converted into cash. This public way of managing transactions with no institutional or government intermediaries has created the possibility of a huge financial revolution. The economic powers which lie with the governments and financial institutions are at stake which has made them wary of cryptocurrencies.

The Indonesian Central Bank on December 7, 2017 issued a regulation banning the use of digital currencies in payment systems. The Indonesian authorities are investigating the use of Bitcoin within the holiday island of Bali, amid warnings by the central bank over the risks posed by Bitcoin. Causa Iman Karana, head of Bank Indonesia’s representative office in Bali stated, ”We found out from some postings on social media that Bali appeared to have become a haven for Bitcoin transactions. The next step is we will ban them as mandated by the law. Along with the Directorate of Special Crime Investigation unit we will enforce the rule that all transactions in Indonesia must use Rupiah.” Karana added that the ICB went undercover at the end of 2017 to investigate scores of businesses in Bali which offered Bitcoin payment services. Two cafes were found to still be accepting Bitcoin payment but 44 businesses previously offering the service had stopped. This rhetoric against Bitcoin and all cryptocurrencies falls more in line with the Chinese bans than the more lenient Australian position. The economic revolution is no longer just the dream of anarcho-capitalists and free marketeers waiting for the world’s flat currencies to collapse. It is now the accepted future for currency and exchange. How it will be implemented and accepted is still to be worked out. It is advised not to speculate too heavily at this time according to the counsel of most economists and financial advisers.

It has been a little over nine years since Satoshi Nakamoto, the once anonymous creator of Bitcoin, published a paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. Ignored for many years, Bitcoin and other cryptocurrencies have since risen to prominence and economists, traders, financial gurus, central bankers and other financial authorities are taking notice. Bitcoin recently rose to above US$ 19,000 for the first time, growing from US$ 1000 in January 2017.  In February 2018 it dropped to around US$ 6,000, creating rumours that the crypto bubble was finally bursting. Meanwhile Ethereum has risen 9,000 percent in the last year.  Although the huge growth and profits of Bitcoin have been making all the headlines, its greatest contribution may be the technologies behind it. The original concept of Bitcoin was to create an electronic currency that would allow electronic payments to be sent from one party to another without the need for a central intermediary using blockchain technology.

Blockchain, or distributed ledger technology, is a public ledger of all cryptotechnology transactions. Digitalised and decentralised, it is shared on an anonymous network of cryptocurrency users refer to as nodes. The blockchain is continually growing with what are called completed blocks, which are the most recent transactions. Each anonymous transaction is time stamped, verified by users and linked, or “hashed’ to the chain of blocks in chronological order, similar to the links on a chain. Each block on the chain is connected to the rest using hashes. Each hash is unique to the block, so if a block were changed in any way after it was added, then the hash would also change. Since each block is connected using the hash of the previous block, then changing one block or hash would make all the subsequent blocks and hashes incorrect as well, essentially creating a digital wax seal; a public and permanent record of each transaction which cannot be altered or erased, eliminating the need for any centralised records to verify and track transactions such as a bank does.

Cryptocurrency mining essentially involves solving complex math problems to confirm the transaction and add it to the general ledger. Each transaction must be verified by “miners”. Each time a new block is confirmed by the miner [or hashed] the miner is rewarded with a small amount of the cryptocurrency, creating an incentive for the miner to continue participating in the blockchain and keep all the transactions flowing.

Blockchain technology has many benefits outside of cryptocurrencies. Foremost is its approach to security. It is as close to being unhackable as possible. According to Alex Tapscott, CEO and Founder of Northwest Passage Ventures, as quoted in ComputerWorld, “In order to move anything of value over any kind of blockchain, the network [of nodes] must first agree that the transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened. To hack it you wouldn’t just have to hack one system like in a bank, but you’d have to hack every single computer on that network, which is fighting against you doing that.” Besides the obvious security advantages, blockchain technology offers tremendous opportunities to industries by eliminating inefficient business processes such as replacing outdated accounting and payment networks in the financial industry. It will reduce errors and repetitive confirmation steps, and eliminate delays in processing caused by the traditional practices involved

in the harmonisation of records. Goldman Sachs recently published a report stating that blockchain technology could potentially save stock markets up to US$6 billion a year. Central banks and monetary authorities are exploring the implementation of blockchain technology to create their own digital currencies. Digital currency would eliminate the cost of handling cash and allow for it to be easily tracked as it moves through the financial system, reducing customer risk, fraud on all levels, and securely implementing the execution of monetary policy. Does the current financial system really want to police itself in this public manner? Should digital currencies remain global and in the public realm, unfettered by banks and nation states? A central bank-issued cryptocurrency is in itself an oxymoron. What is the purpose of a cryptocurrency where money may be issued without control like current fiat* money? The value of cryptocurrencies for citizens is that supply cannot be manipulated. In summary, blockchain and cryptocurrencies will have a very significant impact on financial markets as competition will not be generated through currency wars which create artificial currency depreciations and valuations. Economic values will be based on who is offering the best monetary policy.

There are many sides to a coin. The answers will emerge with time and transparency by the global financial community. How nation states respond to public global currencies will vary. But nothing can deter the fact that change is coming to the global economy.

*Fiat money- Paper money or coins of no intrinsic value, but made legal by fiat [order] of the government. Its value is derived primarily from the relationship of supply and demand.

Comments

comments



Karen Davis is a NYC artist and writer.