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WHAT YOU NEED TO KNOW ABOUT LIBRA AND THE FUTURE OF CRYPTOCURRENCIES

TULIPS, TECHNOLOGY AND THE FUTURE OF COMMERCE

So, Zuckerberg made like a hot dog and got grilled... in Washington by the US congress this week. You can't fault him for trying to launch Libra, Facebook's cryptocurrency, though. Decentralized currency is here to stay, and what self-respecting tech villain with world domination plans wouldn't want to control the world's currency? JUST KIDDING! Actually, I happen to think he's not some evil genius, but a pretty smart guy fighting a trust-deficit battle - which given Facebook's record on privacy is totally deserved. There's a lot that he could bring to the world in other areas, such as access to technology in the developing world and I hope he goes there instead of crypto.

In any case, you might wonder if this big bet on cryptocurrency is justified. Didn't Jamie Dimon from JP Morgan call bitcoin "worse than tulip bulbs" a couple of years ago? The tulip reference being the Dutch "tulip mania" of 1637 which is (incorrectly, by the way) considered to be the world's worst historic economic bubble. At the height of tulip mania in 1637, a tulip cost about ten times the annual income of a skilled craftsman. And so, yes, tulip prices did crash that year. But the linkage with economic bubbles is considered by modern economists to be tenuous. (Another false analogy to add to our our previous edition's debunking of the boiling frog myth!) The fact is the high price per tulip was for breeding stock of new varieties of tulips. The Dutch weren't exactly using tulips as currency. Anyway, we digress. The point being that cryptocurrency is indeed the future of world commerce. And therefore the gold rush. Here's what you need to know about why cryptocurrency is inevitable.

1. Decentralization is the future of currency: The issue isn't about bitcoin or even cryptocurrency, it's about the current monetary system being centralized in a few hands (i.e. governments and financial institutions). Decentralizing currency on the other hand drives transparency and eliminates the middlemen in monetary transactions. That's possible if you and I could transact across borders without banks. So, decentralization is democratic and it is free from the influence of middlemen. What we now have is the age-old battle of the centralized establishment vs. the decentralized populace. And we know that "free-er" decentralized models generally prevail in the end.

2. Decentralization currencies are global: As the world gets smaller and business continues its path towards global trade, a true worldwide currency has its appeal. The most efficient supply chains are also the ones that aren't constrained by boundaries. That's why it is becoming increasingly difficult to claim that a car is entirely manufactured in just one country - the parts and raw materials come from different places. Truly global currencies are again inevitable, as money follows product and services.

3. Blockchain is more efficient as a transactional platform than the current "fiat currency" platforms: The underlying technology behind cryptocurrency, which is blockchain has an unfair advantage. It can be set up so any authorized person could access any transaction easily, and the data is currently un-hackable. In contrast, the current monetary system in the world is the equivalent of brick-and-mortar stores to crypto's online upstart. 

So, am I buying cryptocurrency? 
No. The fact that decentralized currency is inevitable, doesn't mean that its current forms are mature. Let's be clear - we're still in the wild, wild west age of digital currency today. A few risk taking entrepreneurs will continue to lead the charge towards decentralized currency. Governments and the financial industry will slowly but surely work their way through issues such as how to collect tax, and how to ensure security if monetary transactions are anonymous. (We're already reaching the stage where transactions even in the underworld of the "dark web" aren't anonymous. Governments are able to trace bitcoin transactions). As far as the average citizen is concerned, (and the term "average" describes me to a "T"), we can wait until the wild west is settled in.

IN SUMMARY

We're most likely to see the continued evolution of a)decentralized, b)global and c)more efficient forms of economic transactions. That is probably not going to be Bitcoin or possibly any of the current cryptocurrencies, but it's coming. Globally, people will continue to be less willing to pay fees to middlemen. As the status of historical "global" currencies like the dollar get increasingly challenged, the trend towards more democratic alternatives will continue. As will the trend towards lower cost ways to transact with money electronically (e.g. PayPal, Alipay). All of which means that the time for entrepreneurs, governments and economists to act is now. Let the grilling begin! 

Go forth and transform.

 

Tony

     
     
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