Why We Aren’t Using Debit Cards at Subway Turnstiles

MetroCard.SVGThe world of finance is changing.  When is the last time you wrote a check?  Could you find your checkbook if you had to?  When is the last time you used cash?  In Manhattan, where I live, the only time we use cash is when we leave the city or purchase something for under $5.  I get cash at an ATM once a month.  Remember when we were asked if it was a debit or credit card?  Not anymore.  I am seldom asked to sign receipts.  Swipe! The transaction is complete.

Paper and coin, what is referred to as fiat currency, is used less and less.  Most financial transactions are now virtual.  We store virtual currency in a virtual bank account which I inspect virtually, online.  I keep stocks and bonds in the same way.  If I want to pay someone from my virtual bank account I have the option of sending them a virtual check which they deposit in their virtual bank account.  If we ever need proof that the virtual money represents the ‘real’ thing, we go to the bank and ask to get paper and coin currency as proof.  But we seldom need to do that anymore, so comfortable are we with the concept of virtual money.

So why all the fuss over a new asset class, cryptocurrency, another form of virtual money?  “What is Bitcoin?” “What can you do with it?” “Bitcoin doesn’t represent anything.” These are the statements I’m hearing.  What is money? What can you do with it?  Buy things? What do you want to buy, a house? a car? You can do that with bitcoin now.  “What if it disappears?” “What if the government declares it to be illegal?” It won’t disappear.  It’s now a global phenomenon larger than General Motors or Walmart or Exxon Mobil.  Some countries did declare bitcoin illegal, at first.  Now most of them have changed their minds.  In fact, we will need this form of currency.  That’s the real story here.  Cryptocurrency works in a way that other currencies don’t.  It might be difficult to understand the differences, but understanding them is critical, and, explain why bitcoin isn’t a bubble or going away anytime soon.

Our culture uses computers more and more.  As we do, more and more programs have something to do with money.  Those automated computer programs working with money can do so in much more fluid, dynamic, and fast-paced ways than we can manually.  We can pay for renting milliseconds of machine-time.  We can make micropayments by the column inch.  If we drive through a congested area during peak traffic times, our EZPASS can pay a higher rate.  These are examples of dynamic financial transactions already in our daily lives.  There are others we NEED to be doing but our fiat currency won’t let us.

For example, why don’t we pay for the subway with our debit cards directly?  Why do we bother with Metrocards?  The answer is: credit and debit cards cannot understand the dynamic purchases that we make.  How can we pay for a monthly subway pass at the turnstile with a debit card?  Not possible.  The turnstile would not know the difference between a one-time purchase and a monthly purchase.  But with a Metrocard, the system can look up your account and determine the conditions of your card and purchase.  It is this type of dynamic purchasing that we will be doing for just about everything.  Driverless cars will be rented by the month.  Subscriptions will be based on the amount you watch, or read, or listen to.  Your computer is talking to mine.  Finance is becoming more dynamic and our currencies must change right along with it.


Screen Shot 2017-12-08 at 9.49.13 AMHearing a rumor that the Ethereum blockchain was getting overly congested by Cryptokitties.co I decided to check it out.  Cryptokitties! These guys are adorable.  I understand the attraction.  Cyber kitties for sale, ownership, and breeding, exclusively paid for by Ethereum, the second most popular cryptocurrency after Bitcoin.  Think virtual Beanie Babies. If someone says “Yeah, Bitcoin, but what are you going to do with it?” just point them in the direction of Cryptokitties.  I’m sure the demographic, ten-year-old girls are going to be playing with these for a long time to come.

The idea is brilliant; the execution leaves something to be desired.  Perhaps the developers rushed to publish too soon.  We’ll see.  There isn’t much functionality there. I couldn’t find a Kitty that wasn’t already sold for the longest time.  I don’t know if that was because it was hugely popular or running too slowly.  I couldn’t see my balances, a feature they really avoided on purpose perhaps, and the Ethereum blockchain gobbledegook that appears now and then is only for true geeks. It really has no place in a well-designed playground.

Cryptokitties aren’t cheap, either.  The Screen Shot 2017-12-08 at 10.29.22 AMminimum entry fee is $50 worth of Ethereum in the marketplace.  But they use the old carny trick — sell coupons that customers use for rides instead of handling cash.  The form of currency here is strictly Ethereum.  Cryptokitties range in price from FREE to several hundred Ethereum each (which currently sell for $451.00/ea.).  Cryptokitty prices are .03 Ethereum ($14) on average.  Cryptokitties have DNA, genetic traits, parents, and children.  They are absolutely adorable. I can see how an entire culture can be spun around these little fella’s.  This site is going to be hugely popular if it isn’t already.

And that, my friends, is how Bitcoin and other cryptocurrencies will gain a toehold in our economy.  Cryptokitties, online gaming, gambling, to retail sales of all sorts.  As we transition from fiat currency to virtual currency, these examples will lead the way.

Screen Shot 2017-12-08 at 10.29.39 AMUsing ethereum as currency means that the money is tied to a contract which may be flexible instead of fixed.  Instead of paying X dollars for Y goods, X1 ether is being paid for Y Goods if such and such condition is present, X2 ether if another condition arises, and so forth.  The ether is conditional money.  As more and more computer programs in our environment start behaving in computerized ways, we will need this sort of currency more and more. For example, our EZPASS will charge different amounts at different times of day, different traffic conditions and for different numbers of people in the car or which toll-booth you happen to be driving through.  Welcome to the future.


I Seem To Be A Verb


I seem to be a verb.” — R. Buckminster Fuller

Reading “Bitcoin: Ringing the Bell For a New Asset Class” by Chris Burniske and Adam White, what comes to mind is a quote from R. Buckminster Fuller — “I seem to be a verb.”  Fuller, the inventor of the geodesic dome, an icon of forward-thinking, postmodernism, was one of the most progressive thinkers of the twentieth century. Fuller’s advice to students who wished to apply themselves to solving the world’s problems was to think ahead twenty-five years and figure out what needs doing.  His other, lesser-known inventions included the Dymaxion car (three-wheeled), Dymaxion house (factory-built) and pressurized shower which only used one quart of water.  Fuller was solving problems of over-population, water shortages, and material scarcity long before they were global concerns.   Fuller loved to lecture.  I attended a marathon three-day, eighteen-hour event given at Town Hall in New York City.  He was also a prolific writer.  This quote was also the title of a book he wrote.

Fuller was recognizing that we are, in a sense, a work in progress, that everything we did or hoped to do should be seen as being in motion, in a state of wanting to be.  He coined the word ‘synergy’ to mean ‘the whole is more than the sum of its parts.’

What does all of this have to do with Bitcoin and a new asset class? Burniske and White did an excellent job of using the language of economics to identify and evaluate traditional asset classes, then went on to explain how bitcoin is the same and how bitcoin is different.  The four features used to describe assets were: investibility, politico-economic features (value, governance, and use cases), correlation of returns: price independence and risk-reward profiles (returns and volatility).  Bitcoin’s explosive popularity growth and unique use cases set it apart from other asset types.

geodesicBitcoin’s open-source, non-governmental, communal nature is unusual and largely an unknown for the economists and traditional Wall Street investors.  Bitcoin shows itself to be distinct and separate from any other asset class as far as price independence.  So far, so good.  That’s how Bitcoin is the same and different from other asset classes.  But much like Fuller’s need to express our role in society and in the universe, something still is missing from Bitcoin’s definition, that makes it distinct.  It goes without saying that Bitcoin serves a different purpose than other assets.  In a changing environment, its purpose may well be an essential difference.

We live in a dynamic world;  one in which everything is changing.  Everything is in flux.  Everything is in motion.  We use calculus to determine next steps as much as we once used addition, subtraction, multiplication, and division.  Relationships fluctuate in a continuous dance of ebb and flow.  Fiat currency no longer is able to keep up with these dynamic systems.  We have computerized functions speaking to other computerized functions.  These computers have needs, too.  They need, in addition to behaving in response to one another, to remunerate one another.  We need cryptocurrencies in order to do that.  Fiat currencies no longer work.

For example, my subscription to word-processing software needs to be updated monthly.  Certain very expensive features are only billed when I use them.  I rent processing time from a supercomputer by the micro-second.  My social media advertising budget pays for click-through’s only when they lead to sales.  The list goes on and on.  My financial world is dynamic.  My money needs to be dynamic, too.  Bitcoin wallets can be set up to make payments in fine detail; eight decimal places, to be exact.  Other cryptocurrencies can be designed to make payments as a result of a contractual agreement, then change the terms of that agreement, and then continue to make payments without interruption. If we wish to be part of this future world, we need the currency that is able to live in this world, too. Neither gold, nor dollars, nor stocks nor bonds can do that job.  Bitcoin, on the other hand, is able to live the dynamic life this future world requires.

How Bitcoin Can Be Worth So Much

pyramid of wealthWith Bitcoin rising $4,830 TODAY, it’s difficult to explain to someone new to Bitcoin how it can be worth so much.  Here’s another attempt.

Scale down the 7.5 billion people in the world in proportion to the number of Bitcoin (16,600,000).  That gives us 451 people for each bitcoin.

If we take those 451 people and apportion the world’s wealth to that representative group, it gives us the following:

68% (296 people) worth $10,000 or less; 3% of the world’s wealth

22% (120 people) worth $10k-$100k; 13% of the world’s wealth

8% (40 people) worth $10k-$1000k; 41% of the world’s wealth

1% (5 people) worth $1,000,000 or more; 42% of the world’s wealth

Those 451 people buy some Bitcoin at a price of $1,000,000 per coin.

The first group, the 68%, the 296 people with less than $10,000, purchase just $100 worth of Bitcoin at $1,000,000 per.

The next group, the 22%, the 120 people with $10k-$100k, purchase just $900 worth of Bitcoin at $1,000,000 per.

The next group, the 40 people with $100k-$1000k, purchase $409,000 worth of Bitcoin at $1,000,000 per.

The next group, the 5 people with $1,000,000+, purchase $410,000 worth of Bitcoin at $1,000,000 per.

The amount of Bitcoin they purchase very closely mirrors the amount of currency they hold to cover the money they hold for a week up to a month of expenses.  If Bitcoin is a new asset class of digital currency, to be used for spending much the same as any other currency, then we can expect the kind of spending shown in this example.

That’s is happening now.

How fast will this happen? When there are no restraints such as budget limits, legal hurdles, government restrictions, or fear of failing: very quickly.



Bitcoin Valuation: As Cash; As Gold

Gold bars

There are 5.5B ounces of gold in the world and 7.5B people, an average of 3/4 ounce per person @$1232 is worth $961.50.  If gold’s market cap is 6,776B is divided by the total number of bitcoin ($6,776,000,000,000  / 16,600,000 Bitcoin = $408,192).  One bitcoin would be worth $408,192.

Here’s another way to evaluate bitcoin: How much cash is there in the world? That is a complicated question which depends on your definition of cash.  Low estimates start at five trillion.  High estimates go from thirty-five to ninety trillion.

pile of cash

Cash, for our purposes, is the liquid money that you keep on hand to use for pleasure, maintenance, and emergencies.  That would be all the money you have in the bank and under your mattress that is NOT stocks or bonds, gold, real estate or fine art.  If bitcoin were to be the currency of choice, then one bitcoin will equal USD $5T / 16,600,000 Bitcoin (the total number in circulation) = $301,204.  Remember, this is a low estimate of the amount of cash available.

The two numbers, $408,192  in gold and $301,204 in cash equivalencies respectively, are not all that far apart. There might be some truth to this valuation.


Bitcoin: Going from Speculative Investment to Currency Equivalent

Screen Shot 2017-12-03 at 1.05.02 PMAs markets wake up to the fact that bitcoin is a legitimate currency, there will be a mad dash to acquire some.  However, when bitcoin is rising at the rate of 750%  per year it is seen as a strong speculative investment, not just as a currency. The amount of dollars held in investments is something close to $25 trillion depending on what you want to call an investment and what asset classes you include in the evaluation. Let’s just consider the cash equivalents.

People will want to hold what they need in bitcoin as cash, and, what they want to hold in bitcoin as an investment.  Later on, when it reaches its natural value and behaves more like a currency in relation to other currencies, people will be comfortable holding just enough cash to satisfy their liquidity needs.  We’re not there yet.  Instead, you can expect the amount of bitcoin people hold will be equal to the amount of cash they currently have in fiat currency PLUS an investment amount.

If you had a very, very good investment idea, one so good that there was barely any risk at all, and the reward was phenomenal, would you invest between 25% and 40% of your portfolio?  Let’s be conservative and call bitcoin a good investment but not phenomenal.  Then, you might expect a 10% – 20% investment.  If bitcoin rises to that level of speculation and that amount is invested then a bitcoin would reach $225,903. = ($25T x 20%)/ 16,600,000 bitcoins. There would be some overlap between the money you considered an investment and the money you considered cash.

Bitcoin will run up in value to $225,903. as an investment.  It will then transition to cash from speculative investment.  At that point, bitcoin values will go to $301,204.  We are witnessing the run up to $225,903 as people speculate on a good thing and bitcoin becomes fully invested.  As more and more people have more and more bitcoin and the value stops going higher, it will slow.  Before it stops altogether, however, it will transition to being just another currency which that we won’t pay attention to.  Bitcoin will go up to $301,204 as people throughout the world hold an average somewhere between $666 (cash equivalent) and $961 (gold equivalent) in bitcoin.

171202 Bitcoin’s Future


Screen Shot 2017-12-02 at 8.22.50 PM
http://www.bitlisten.com creates a bubble for every bitcoin transaction in real time.  The size of the bubble and the sound it makes are proportional to the trade size.


Once Bitcoin reaches its fighting weight, we probably won’t notice it.  Bitcoin is just another form of currency.  But the differences between life now and then will be obvious.  Exchanging money will be instantaneous.  There will no longer a need to wait for a check to clear, or stocks to be sold, or an insurance policy to be “cashed out.” Business is conducted between total strangers without a second thought.  Avoiding certain expenses simply because the banking fees are excessive would be a thing of the past.  There are no fees.  At that future time, bitcoin is just as common as dollars and cents are today.  Credit and debit cards disappear.  There’ll be no need for them. You’ll keep your bitcoin wallet on your smartphone.

In the transition from now ’til then, from bitcoin as a curiosity to bitcoin as a commodity, your other assets do not change.  Your house, which may be of average value on an average block in America, continues to be of average value.  Your stocks and bonds go up and down in value as they did before and continue into the future.  Gold and silver do what they have always done in providing safe haven and stability.  What will change is the value of bitcoin, going from zero to its ultimate value, whatever that is.  When it reaches that amount, it should become as stable as any currency can be.  We live in a dynamic world.  Shit happens.

When bitcoin started, it had no value.  The programmers, having fun with it, got the ball rolling.  Ever hear the story about the slice of pizza a programmer purchased for 10,000 bitcoin.  True enough.  From those early times, as people’s confidence grew in the concept and the currency, the value of bitcoin has continued to rise.  As it now ‘goes parabolic’ people liken the craze to a financial investment bubble, e.g. the tulip mania of the seventeenth century in the Golden Dutch Age.  Remember, the dot-com bubble of 1999?  There are similarities to that bubble and what is happening around bitcoin today.  At that time, anyone who could convince a group of investors to plunk down a few hundred grand could make themselves a website and a dot-com IPO.  Today ICOs (Initial Coin Offerings) are appearing almost daily.  Someone has an idea for a cryptocurrency and Bob’s your uncle.  The only thing is, Bitcoin is not a bubble or anything close to it.  Bitcoin represents the birth of a new asset class, cryptocurrency based on encryption techniques and money.

What is happening at the moment with bitcoin is a once in a lifetime phenomenon.  During this transition period, you can take your fiat currency and exchange it for another asset class, cryptocurrency, and ride the wave.  However, these are not tidal waters which ebb and flow.  Bitcoin is here to stay.  The only question is how pervasive it will be in our economy.  Compare it to gold. All the gold in the world weighs about 5.5 billion ounces.  There are 7.5 billion people in the world.  That works out to about 3/4 ounces gold per person.  If the gold were distributed evenly throughout the world, each person would have about $1000 in gold.  There are 21,000,000 theoretical bitcoins.  At present, 16,600,000 have been mined.  The rest will be mined in the coming 100 years as set out by the system’s designer, Satochi Nakamoto.  If Bitcoin came to represent all wealth, as we once used gold, each bitcoin would be about $452,000.

Bitcoin grew 400% from $2450, five short months ago, to $10,929 as of this writing. On the night it hit $11,500 to set a new high, it fell 20% in the next few hours. There is no doubt that the bitcoin market is volatile, no place for the faint-hearted, timid, nervous, easily scared, fearful or afraid.