Bitcoin is jumping, but block chain technology will leave it for dead

Australia’s government – or at least an unnamed arm of it – will be auctioning off some US$11m of Bitcoin in a few weeks, the cryptocurrency having been confiscated from a Melbourne-based drug lord. They’re doing so at the right time – Bitcoin value has been surging of late, as Chinese buyers flood the market and the potential for using block chain tech to power the financial world becomes clearer.

It’s said that some 95% of current Bitcoin purchases are coming from Chinese Yuan, a trend being seen in corporate mergers and acquisitions, and writ large in exploding western real estate sales.

It also comes as Bitcoins are getting increasingly harder to ‘mine’, a situation built into the currency to maintain scarcity and drive up prices over time.

If you’d purchased Bitcoins as an investment on January 1, you’d be 25% up on your money today, which sure beats working for a living. And though we don’t live in a paradise where every coffee shop takes Bitcoin as payment for stuff, nobody seems to be too bothered about that at the investor end. Let’s face it – as long as brokers can’t stick a Bitcoin into a stripper’s thong, thre’s only so far the cryptocurrency can go as actual currency. But as long as it keeps rising in value, nobody really gives a crap.

Is that the future of Bitcoin, destined to be nothing more than an investor plaything with no real world function other than its desirability? Maybe.

Those familiar with the Tulip Craze of 1639, where the flower became so on-trend, so quickly, that prices jumped in a meteoric fashion, bringing a fast industry of traders who made the modern day equivalent of many tens of thousands of dollars per month buying and selling single bulbs, may be tempted to see Bitcoin comparisons. Back then, the object of investor craze was so valuable that it was deemed risky to actually plant them, so bulbs would be showcased in the homes of the wealthy as a sign of wealth rather than beauty.

Bitcoin mirrors the tulip in that respect – there’s simply no real world use for them other than as a means to hold value, just like a condo bought by an overseas owner, or gold bullion on some mega-bank asset ledger, or a Superman #1 in a plastic baggie.

But imagine how those other investments would start jumping if the government announced it was going to start bulldozing condos, or if some bacteria that eats gold began running rampant through bank vaults, or the print started fading on those Superman #1’s. That’s basically what’s destined to happen to Bitcoin – scarcity will raise the price, by design, with or without the Chinese money laundering.

At the back end of this is Big Government’s increasing understanding of, and even adapting to, the technology that makes Bitcoin work. While you and I are looking at the nascent cryptocurrency as maybe being worth slinging some dough at, the financial and government worlds are looking at the technology that makes it run and realizing it could revolutionize how we move money about the planet.

Blockchain: Remember the word and start paying attention to stories about it – and companies dealing in it.

But what is it?

From Business Insider:

For those not up to speed, blockchain is a database protocol developed to underpin bitcoin. Rather than having a central record keeping system, identical records are spread across everyone connected to a network. They are all updated simultaneously and transactions only go through when enough parties on the network sign off on them. This technology eliminates the need for costly middle men in financial transactions, but also presents plenty of other opportunities for new ways of record keeping and decentralising markets.

ABN Amro has some 30 employees exploring Blockchain tech as a means of making transactions smoother and distributed ledgers. Director of Transaction Banking, Karin Kersten told reporters, “If you look at our view regarding the blockchain, we want to clearly separate bitcoin from the blockchain. There’s bitcoin as a method of payment, and blockchain as the technology behind it. The latter we find interesting to explore.”

Australia is starting to explore changes to the financial system there to allow block chain transactions to be taxed. It’s on the move.

But why does blockchain tech matter?

Have you ever tried to ship money? The average fee on a remittance payment is over 8%. Credit cards can run to 3%, Paypal likewise, and some businesses run on a 5% margin, so payment processing costs eat a ton of profitability. This also effectively kills the market for micropayments, and such a market could be huge if it were workable.

Imagine if you could pay $0.001 to the NY Times to read an article you’re interested in, or the same to Charlie’s Taxidermy News, or to the Vancouver Sun, or to Cat Fancier Journal. Imagine if you could ship cash to your credit card company today and have the payment reflected in minutes, rather than days. Imagine if you could verify that payment for that thing you wanted shipped from a guy in China, rather than have to send your credit card number, or a cheque that will take 21 business days to clear, or screw about with an escrow service. Imagine being able to use currency between players inside a video game, or actually pay for something with Bitcoin without having to find the only cafe in town that actually bothers to take it.

From Wired:

Smart contracts are now entering the Legal System. Companies like Empowered Law use the public distributed ledger of transactions that makes up the Block Chain to provide Multi-Signature account services for asset protection, estate planning, dispute resolution, leasing and corporate governance. A prime example of this transition is seen in a procedure referred to as ‘Coloring’ a Coin, in which a house can be sold in the form of a Bitcoin payment with the same ease and speed.

Dubai is embracing block chain, with projects moving on everything from the sharing of health records to tracking the legitimacy of diamonds to keeping track of tourism loyalty points. Others see the potential for using the tech to track finances in political campaigns. Goldman Sachs is looking at how block chain could be used to allow homes to use or generate electricity, and how to accurately keep track of the ledger.

Everything from how you hold a security deposit from a renter of your basement suite to how you transfer ownership of a car, or a gun, or your credit score, or airline reservations, could be handled in block chain fashion, instead of the current tsunami of paperwork and time wasted and potential for abuse that makes up the current patchwork of systems.

Though you may not be on this trend currently, know that others are. In fact, several companies are preparing to move to market with block chain tech that they’re sure will dominate the world of fintech but, just as happened with Bitcoin, and weed, and is happening with lithium now, the first shift will be the hype spike, followed by the reality trough, and the a slow burn to legitimacy. Money will be made and lost at each step.

Get in front.

–Chris Parry

http://www.twitter.com/chrisparry

 

 

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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