Bitcoin (Smartmoney) Is Here To Stay

Screen Shot 2018-01-08 at 1.36.16 AMCryptocurrencies are not a bubble, not a Ponzi scheme, and not a flash-in-the-pan, here-today-gone-tomorrow phenomenon.  Cryptocurrencies (think Bitcoin) are here to stay.  They are the next generation of money.  As fiat currency (paper money) disappears, we use checks less and less, we use debit and credit cards more and more, and we send and receive money via all sorts of electronic methodologies, it is quite apparent to me that we are moving towards virtual currencies.  In fact, we’re moving not just to replace dollars with virtual dollars but we’re moving towards a state where we have many different currencies to handle many different situations, many different circumstances that we will use throughout the day, throughout our lives (think Airmiles).

Have you ever wondered why we bother to purchase Metrocards to use in the subway?  Why don’t we swipe our credit or debit cards through the turnstiles directly just as we swipe our Metrocards?  The answer is because the Metrocard is doing something a Mastercard or Visa card can’t do.  The Metrocard has an ID number embedded in the magnetic strip that tells the system who is using the card or under what conditions the card is to be used.  If you purchased a monthly MetroCard, the card might look the same as any other MetroCard but the ID number lets the system know that you have paid for the right to travel in the system for a period of one month.  You are free to use the system as much as you want during that time.  Your debit or Visa card doesn’t have that kind of ID number nor can it hold that kind of information.  The ‘contract’ you have with the system is unknown by the transit system.

In a future world, that sort of unintelligent ‘money’ is unacceptable.  We are living in a world that is and will continue to be more and more dependent on ‘intelligent’ interactions between the systems we use. The transit systems, including buses, subways, taxis, airlines, water taxies, highways, tunnels, and bridges, will be smart systems which will allow us to establish ‘contracts’ with them.  These ‘contracts’ will be like the Metrocard ‘contracts’ for different rates at different times, for different periods of time, for different numbers of people, at different rates depending on the age of the user, to what use it is being put, and for what duration it is to be used.  The money will have to keep pace with these types of contracts.

We have EZPASS in the Northeastern United States for paying highway, bridge and tunnel tolls.  The system automatically replenishes our accounts without our direct involvement.  When our automobile passes through one of the EZPASS readers, the system knows what our ID number is and what ‘contract’ we have with the system.  Similar systems will appear in the coming years for other systems that we use.  There might be one for parking your car, buying and delivering food, taking taxis, using music, downloading information, buying online, vacationing, renting hotels, renting sporting equipment, online gaming, online gambling, education, going to the movies, renting furniture, renting art to hang on the wall, taking singing lessons, learning to skydive, and ordering a babysitter.  The list is endless.  Are you getting the idea?  The way we will conduct our lives in the future will be systematic, without currency, by a computer, online and by a ‘contract’ which is a set of guidelines agreed upon by both the party ordering the goods or service and the system or party delivering the goods or services.  To facilitate those transactions will be virtual currencies.

I Seem To Be A Verb

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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.