Three interesting articles were released over the past week from a good source of bitcoin and digital currency news, Bitcoin News. Here’s my take on the top three that may affect us as traders and students, and our plans for cryptocurrency investing.
Like Gold, Bitcoin’s Cryptography Has Been Valued for Millenia
Jamie Redman wrote a great article on how cryptography has been valued by humans for thousands of years. This is significant because the gold bugs’ arguments for gold, and against bitcoin, is that gold is tangible, valued, and has been traded for thousands of years across most major civilizations.
Yet, Jamie goes on to explain why cryptography, the mathematics behind the bitcoin network and its superior security, has been used to conceal information and even win wars from back in the Greek classical times and during the Roman Empire as well. In fact, today’s intelligence agencies simply could not operate without cryptography. Simply put, the mathematics behind bitcoin and the blockchain give it its value, equivalent in many ways to gold.
Need more reason to love bitcoin? Think of some of the most valuable companies in the world today: Google, Amazon, and Microsoft. What do they actually make? Google doesn’t create anything tangible, does it: search, Android software, and translation apps? Amazon provides an online marketplace for almost anything online, but doesn’t sell anything tangible (aside from its Kindles). And Microsoft? They create and maintain the most popular operating system in the world, Windows, along with the most popular office productivity software, Microsoft Office. Why are these multi-billion dollar companies? The answer is mathematics. Software, websites, and marketplaces work because of computers and the mathematics, the software programs, that make them work.
So, is it really a stretch to believe that cryptography, the mathematics of secure communication, contribute significantly to bitcoin’s value?
Bitcoin Demand Continues to Rise in India as Cash Reserves Run Dry
For those who have not been following this story, late in 2016 the government banned the two most commonly used rupee notes in a country where most transactions are done in cash. Why? The answers range from trying to get citizens to pay taxes that are often avoided in a cash-only transactions. And, to reduce the amount of crime that cash may facilitate. Yet, others believe it is the central banks attempt to get Indians to move their money into banks and go electronic, eliminating cash and allowing governments and banks to track, monitor, and, if necessary, freeze your funds.
Jamie wrote about the significant demand for cash in India as banks and ATMs are experiencing shortages of physical cash, especially since the two most common notes are no longer valid. Local banks simply cannot get enough cash to meet the demands of their communities, and there seems to be nothing that they can do about it.
As governments and banks continue to show their ineptitude in executing their responsibilities to the people, black markets pop up. Barter becomes more common. And, this time around, bitcoin is gaining more ground, this time in India. A coalition of bitcoin startups in India has asked the government to present to them the value and importance of nurturing digital currencies, and the potential for the country to be a leader in this area.
As of the time of the article, the bitcoin of bitcoin in India was trading at $50 higher than most global trading averages, demonstrating a strong demand for this digital alternative to traditional fiat monetary control.
Bitcoin Startups Challenging Big Banks’ Profits
Finally, another great article from CoinDesk, written by Kevin Helms, described the worries that some banks are experiencing as digital currencies like bitcoin take hold. Specifically, they are worried about losing profits to fintech (financial technology) companies such as bitcoin and blockchain startups, all of which are looking to disrupt the complacent and outdated financial services sector. He goes into several examples of companies that are, in fact, challenging the status quo.
Personally, I believe the banking sector as we know it now, will change shortly and permanently. In my courses, I refer to the existing banking system as running the “latest in 1980’s technology”. When students point out the websites and mobile apps that banks now offer, I remind them that these apps may look pretty, but they are still running on these old, easily hacked mainframe computers. In short, these new ways to interact with the banks are like “lipstick on a pig”. It may look pretty on the outside, but it’s the same old story on the inside.
It’s Time to Reinvest the Financial Sector
As a former Silicon Valley programmer, consultant, and startup company executive, I believe the time is long overdue for a major overhaul of our global financial system. The existing system is broken, flawed, corrupt, insecure, and far to expensive to maintain, extend, and operate. We pay for it every day with higher fees, slower transactions, and an incredible amount of fraud which the system is poorly designed to handle and which it does only at great expense.
Thanks to BItcoin News (http://news.bitcoin.com) for providing a really good resource for bitcoin investors, traders, and students.
Marc Carignan is founder of The Bitcoin Tutor, a company dedicated to helping people learn about and profit from the future of money. To learn more, visit http://thebitcointutor.com.