The year after the financial crisis in 2008 became cryptocurrency Bitcoin created as an alternative to a suspicious financial economy. Bitcoins founder Satoshi Nakamoto wrote both code and protocols based on new ones blockchain-technology. But it is probably only now, ten years later, that we are seeing an economic breakthrough of significance for crypto currency – simply called krypto.
Hype or opportunity?
For many, crypto can create alternative, non-capitalist and more solid forms of economy. Many today want to free themselves from capitalism where it has too much power or seems oppressive, and through the use of cryptocurrency, these more equitable relations and autonomous communities. Others, on the other hand, view crypto technology as mere sabotage – as the undermining and theft of larger companies, banks and government institutions.
One might wonder whether the entry of cryptocurrencies into the world market seems socially changing and disintegrating – like a "disruptive technology". And does it really seem as liberating as some "cryptoanarchists", freethinkers and liberalists want us to believe? Some believe the new economy will be as significant as the introduction of the Internet, while others see it most as a hype – something baseless upset and "same shit, new wrapping".
But the market is huge: Today, 4 – 5 billion people have no bank account, and for many of them, a cheap crypto smartphone is likely to function as a “digital wallet”. People in developing countries who do not belong to the typical upper middle class will be able to receive and pay effectively with money that is neither traceable to corrupt state tax collectors nor charged with bank or card fees. Authorities around the world are likely to do their utmost to prevent or regulate the use of such new technology – at the same time, they may face a billion opponents who do not want to be controlled.
A banking system in crisis?
The value of bitcoin has, from its very beginning, increased from one to around 6000 dollars. Although the currency fell this year, it is still worth seven times the price a year ago. Increasing confidence in bitcoin also means that confidence in dollars can be lessened. So can the financial crisis from 2008 repeat itself? The answer is yes. The debt situation now is worse than in 2008, before the crisis was a fact.
Let's look at Norway's financial situation: Unlike a real economy where you do not spend more than you have or produce, the state of Norway in 2017 had a deficit of 225 billion, which was covered by the Oil Fund. Private business lost over 300 billion in the same period and the export deficit was around 250 billion. Measured against gross domestic product, this corresponds to an "over-consumption" of close to 800 billion.
We now have bitcoin, etherum, litecoin, tron, neo, monero, geocoin, wetrust, guardian and over 1600 other cryptocurrencies.
Since the 2008 crisis, Norwegian households have also chosen to double their debt. Debt has followed the rise in house prices (85 percent of it is related to housing) and is now at around 3000 billion. At the same time, the municipality of Norway has doubled its debt to around 2000 billion. In other words, much of our wealth is built on debt.
How long will creditors trust that their loans will be repayable in the future – before the bubble bursts? If the housing value of a crisis should fall below borrowed capital, people will also be left with no opportunity to settle. Well, one fifth of Norway's population is with 80 percent of the wealth, so these will probably not be particularly affected by the tragedy or protests that will follow.
Will crypto be an alternative to ordinary monetary value, for example if the dollar loses credibility? The US debt has almost doubled in just over 30 years, to today's entire 130 000 billion. Debt increases among other things through the printing of "new money" (see below). If you add on with the expected annual deficit of 6500 billion (about an oil fund), it is asked how long the trust in this "company" lasts. Nationally and internationally, confidence in the dollar is weakening as the United States now raises spending on military armament rather than focusing on food-efficient products people can live off of. This way, the dollar can lose value.
The country's pensions further aggravate the picture for the dollar and the "company" of the US: In 1995, 4,9 Americans were at work for every pensioner; in about 20 years, about half of this workforce must cover the expenses of the elderly – who are also constantly achieving higher life expectancy. Will the regular American be able to dedicate one-third of his salary to other people's pensions?
Today, the Chinese currency is emerging as the successor to the dollar as the leading world currency. China has invested heavily in Africa, where many countries are considering switching from the dollar to the yuan as a foreign exchange reserve. In other words, the dollar is not the same as before – and if more countries withdraw, cryptocurrency or another currency is the next to be used.
Several are soon expecting a "settlement hour" – the bubble to burst and trigger a new financial crisis. Loans must be renewed, and you have interest and interest rates – credit does not last forever. Also, central banks cannot simply erase mountains of debt, as this would lead to negative government equity and could topple the entire economy as a worldwide system of trust over the end.
Today there are around 17 million bitcoins and 4500 billion in circulation. Both units act as small loan statements – an expectation that you will be able to get something back when you give them away. As long as trust exists.
Reduced purchasing power
Unlike regular money, the number of cryptocurrencies is embedded in the protocol itself, so that you can not suddenly "print" more of these. Bitcoin is similar to gold, as it served as a means of payment for over 5000 years, as a limited value. It was with the ban on owning gold in 1933 and the secession from the gold standard in 1971 that the financial market began to spin. It is a long time since 1792, when George Washington signed "The Mint and Coinage Act" and a 10-dollar "eagle coin" contained 16 grams of gold.
The monetary system is now credit-based and inflation-driven mustn't grow to survive. At the same time, current inflation will dilute purchasing power in favor of the state. Here, state central banks, as Ny Tid has previously written about, have almost "banknote presses" in the basement. Money is issued which is then lent against government bonds and other things – the government debt is increased, even though the process actually takes place from one pocket to the other, between the central bank and the Ministry of Finance – where the government gives itself three percent interest. The United States last issued money in 2014, but may soon do so again. Some people compare this to “pissing their pants to stay warm,” because what one actually does is reduce the purchasing power of the population. Imagine that you have bought some rare graphic prints, but then the artist suddenly prints 100 new – then the co-value will be reduced immediately. Crypto will prevent such dilutions.
Today's crypto situation
We now have bitcoin, etherum, litecoin, TRON, NEO, monero, geocoin, wetrust, guardian and over 1600 other new cryptocurrencies. Through blockchain as "distributed databases", chains are extracted from transactions with newly encrypted keys that make the systems irreversible and reliable. The transactions are civil transfers, contracts and agreements between people – where authorities and larger institutions are excluded.
Is crypto a commodity, currency or security?
Currently, cryptocurrency has largely been used to speculate on future value increases. Many who were out early and invested in crypto with ordinary money have made huge gains. And according to the news service Coindesk, in the first quarter of this year, around 50 billion was paid for crypto – more than in the entire 2017. This is done through so-called ICOs ("Initial Coin Offerings") where different startups put out their own cryptocurrency for purchase. That China has banned such ICOs is, according to The Economist (28 April) just a confirmation of the enormous power of the new encrypted technology.
Interestingly, people do not buy shares, but instead become owners of a new crypto. For example, writes The Economist (March 2, March), the Fetch system will be launched next year – to gather sets of questions and answers on the Internet using crypto. Based on artificial intelligence – somewhat different from Google – big data is collected for use in search and knowledge acquisition. Fetch declares itself a non-profit and will be the new "watchdog" on the internet. Crypto will be used to pay and reward online users – those who ask and those who respond. Fetch's chief investor, Outlier Venture, asked for upcoming crypto over shares for its investment.
What is crypto really?
This new "gold rush" can hardly be stopped. We have met people who have sold crypto for almost 100 times the value of what they bought it for. One of them then lived in a new sailboat in Barcelona. And today, every fifth student in the United States has placed portions of the student loan in crypto, according to the Student Loan Report.
But is crypto a commodity, a currency or a security? As a security, US authorities would demand transparency – therefore you prefer to call crypto a payment method or a digital safe. Crypto can be a reserve for savings and pensions – like gold and silver.
Crypto can take over as "cash" in a society where – as mentioned – ordinary money becomes too vulnerable to crises due to financial and banking speculation. Ny Tid has previously described ordinary bank accounts as risky, as the banks' guarantee funds only hold around three per cent of what people have in deposits. In Norway, this fund is private. At the same time, the "guarantee" is two million kroner – while the banks' real capital is minimal, as most of the money you have in the bank only circulates around. If everyone lost confidence in the banks and went out of their way to withdraw cash ("bank run") – or chose to switch to crypto – probably only 5-10 percent of the money would be possible to recover. Unless the Norwegian authorities would step in with compensation taken from the Petroleum Fund, your bank deposits would be lost. But as long as the Petroleum Fund is taxpayers 'and citizens' money, the crisis will hit the same, no matter what the state does.
Will crypto also suffer from a financial crisis where confidence in money is weakened? Bitcoin currently accounts for less than one tenth of the world's debt. We are also talking about a future that is difficult to predict – but where crypto has enormous potential. It is clear that crypto will not only be used for such things as video rentals and housing and car sharing.
The arguments for
In practice, crypto works effectively. Many are concerned about removing the costly intermediary such as banks and card companies' fees for money exchanges and transactions. It is also not reasonable to have to pay seven percent of the withdrawal sum if you withdraw your euro in Spain through your account in Norway. Banking fees usually also eat up interest on savings money deposited into the bank.
Blockchain algorithms for crypto transfer are free of charge. The transactions are not free, but anyone who assists with computer power for extracting encryption keys to the chain of transaction blocks, gets paid bitcoin or other crypto straight out of the system. However, Bitcoin has a maximum amount of 21 million units, so what will happen when the remaining 4 million is completed – will a fee be introduced for the transactions?
The monetary system is now credit-based and inflation-driven mustn't grow to survive.
In addition, is the shooting (forks) of crypto, such as the newcomer bitcoin cash, a way to increase the amount of units – and thus not so different from the central banks' banknotes? Well, these depositors do not dilute existing money supply, as long as the market buys more. Nor is crypto a monetary system that is dependent on inflation, as is the fiat system.
Are then crypto exchanges between peers - peer-to-peer? You still have to buy and sell with regular money, in small auction or stock exchange-like arenas where you are looking for the cheapest offer. Someone makes a profit on this. Interestingly, the sellers rank based on previously completed transactions, so a self-justification exists.
Another side of crypto is anonymity. Well – as long as you switch internally between different cryptocurrencies, with an encrypted key that does not in itself tell who you are, it is anonymous.
But – as soon as you want to switch back to kroner or other normal money, you can be monitored. Because then you leave traces of you. It's also not free, for example, if you need a so-called wallet – a secure digital wallet for crypto and encryption keys: Should you lose your key, your crypto will also disappear. Here you cannot ask the bank for a new bank card or complain that someone has hacked your account. Your crypto will simply be gone.
And bitcoin extractors must acquire new, expensive computers if they are to earn new bitcoin. According to The Economist (19, May), custom-built computers, such as Antminder S9, sold by Chinese Bitmain, have been created on the market just for processing bitcoin. In each machine, 189 small Taiwanese ASIC processors solve the cryptographic puzzle faster than regular computers. For one to be fast, one must have the opportunity to extract bitcoin. Some have set up large halls, such as hangars in Iceland, where computers stand and "chew" such transactions to collect crypto that they can later sell. Energy consumption around the world is huge. Bitcoin requires a great deal of processing power to generate encryption keys, although the data block on 256 bits transferred is small. One relevant question is how much the Internet can withstand a worldwide system of inventors. Today, the Internet's total monthly data traffic is about one zettabyte – enough to fill 16 billion 64 GB iPhones.
In response to bitcoin, the Russian Vitalik Buterin created new ethereum (ether). Extracting such a popular crypto runs on the graphics processor of ordinary computers, but on the other hand, this requires more space to pass the data blocks on the web. Another crypto is litecoin – the man behind bitcoin as "gold" and litecoin as "silver", that is, customized for fast, small transactions. Unlike banks' fee-based currency transfers that can take days, they only use crypto seconds at the same time.
Is crypto / blockchain really a secure technology? If an extractor gets the encryption key or their digital wallet hacked, he or she is bad out. For example, an Ethereum-based DAO (decentralized autonomous organization) with 10 000 members was hacked a couple of years ago, resulting in a loss of 300 million. The discussion that followed was about trying to reverse the transaction chain or be classic purists and just move on.
The currency of the future
There is no doubt that criminals are using crypto. But cryptocurrency is impossible to detect, and criminals may still prefer dirty or black paper notes to go hand-in-hand.
Globally laundered between 6500 billion and 16 000 billion each year (The Economist 28. April). However, this money represents only 2,5 percent of the world's gross domestic product. Of the cases where crypto has been used for money laundering, Europol's disclosure of European drug gangs, which paid Colombian drug cartels for cocaine via crypto, can serve as an example. Intermediaries exchanged euros for crypto which were then transferred to digital wallets in Colombia and then exchanged for pesos in a dozen banks – which in turn transferred these smaller amounts to the seller.
You've bought some rare graphic prints – but then the artist prints new 100. This will reduce your cohabitation value immediately.
General tax evasion with black payments is both a problem for the government and a motivation for many crypto users. It is therefore understandable that the authorities want to control the transactions. For the same reason, they also want to get rid of the cash. This gives them more control over government revenue, but also great control over citizens' money. Thus, they can avoid "bank run" if this whole huge gambling game was discovered.
If ordinary people want to preserve their own wealth and remove it from today's banking systems and securities, crypto can be the solution. The expectation must then be that this system has come to fruition, and that crypto creates new activity, productive environments and new values. A number of the aforementioned 1600 different cryptocurrencies will probably disappear. Trust and interest do not last forever. Crypto today is the new hype, and some speculation will end as pure pyramid games where recent buyers lose everything.
At the same time, we at Ny Tid have expectations of more solidary payment systems – and welcome this future. Also the one where crypto is used in the real economy (see case here).
Unfortunately, a financial economy based on credit is impossible to reverse – we are therefore all involved in the financial game. Thus, none of us escape the debt's permanent state of exception.
Also read: Cash free and totalitarian
Get with you too our interview with the founder of Bitnation, Susanne Tarkowski Tempelhof.
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