Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Primer on Bitcoins and Cryptocurrencies

The Wall Street Journal features a brief debate today asking Do Cryptocurrencies Such as Bitcoin Have a Future?

If you haven’t thought about the idea of Bitcoins much and don’t know what cryptocurrencies are, the Yes and No positions will provide a lot of brain expanding ideas. If you have pondered the issue enough to sorta’ kinda’ have an answer to the question, you may still find the article to be worth a read. If you already have a position, check out the arguments from the other side.

 

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7 thoughts on “Primer on Bitcoins and Cryptocurrencies

  1. Jim,

    This sentence made me chuckle when I think about our Dollar and other fiat currencies:
    “Perhaps the most common criticism of cryptocurrencies is that, unlike traditional currencies, they have no basic underlying value.”

    ‘No basic underlying value’?…neither do fiat currencies like the Dollar…and we all know how well fiat currencies are proving to work these days….

    Anyway, if they can make any of it work safely and effeciantly down the road someday, I have no problem using cryptocurrencies.

    • Hi Mark:

      Superb point. Gotta’ chuckle.

      Here is one loose, sort-of-okay way to define money: Other than to settle up your debt to the IRS in about 45 days, dollar bills have value not because the Fed says they do but because other people will accept them as payment for something you want.

      And how would Bitcoins rank on that loose definition?

      Consider this comment:

      “There is no central issuer guaranteeing payment at face value to the bearer.”

      Here is a thought experiment for you. Take a $5 bill to your nearest Federal Reserve Bank. Ask them to pay you for the face value of the bill.

      Take a recording device along to capture the suppressed laughter you will hear.

      Now consider this:

      “The fair price of bitcoins as measured by the discounted value of future cash flows is zero.”

      So, what is the discounted value of future cash flow of these odd, green-ink covered pieces of paper in my pocket? Please tell me how to make that calculation.

      Jim

  2. Mark:

    Consider the other topic you and I have been discussing lately: state-legal recreational marijuana.

    That market is jumbled, with confused distribution and production, unstable pricing, weird and fluid regulation, with severe lack of clarity where the market is going, hard to understand, unsettled, and with a fuzzy legality around it. A humongous cloud hangs over the industry because the feds are holding back now but nobody knows what their enforcement may or may not be down the road.

    Sort of sounds like Bitcoins, huh?

    Basically, they are both very young and immature markets.

    Consider the cryptocurrency and recreational marijuana markets. One can like one, the other, both, or neither.

    Neither market really cares what you and I or anyone else thinks. Customers will drive the markets.

    I expect that both markets will develop and mature, totally regardless of the majority vote on whether either of them are a good thing or not.

    Radical change is all around us. We can grump about it or we can sit back and enjoy the ride.

    Jim

    • Jim,

      Both markets will develop because there is way too much money at stake for them to disappear.
      I can just imagine how the Wall Street boys are just chomping at the ‘bit’…oops, no pun intended…to get the cryptocurrency thing going.
      I am sure people will like the convenience of using cryptocurrency, and would adapt to it fairly quickly if they know it is secure. However, I am worried how it will eventually affect the global economy in the future. I doubt those who pushed the US to get off of the gold standard had no idea what the ramifications of fiat currency would be 40+ years later…or maybe they did….

      • Mark,

        Not only is there lots of money involved, but I perceive social changes will push both crypocurrencies and legalized marijuana forward.

        As for Wall Street, cryptocurrencies will be more a threat and will reduce the revenue stream of big financial firms. Block chain, the technology behind cryptocurrencies, could be a huge cost savings. Some in the financial world will drag their heels and others push forward.

        The technology is in its infancy. Wait a few quarters or a few years.

        Jim

  3. Jim,
    Hmmm…sounds like it could be quite a ‘disruptive’ technology if Wall Street can’t figure out a way to monetize it.

    • Hi Mark:

      Try this for a thought exercise: Use block chain to record all transfers of securities. All the settlement houses would close. Transaction costs could drop dramatically. How does settlement in a fraction of a second sound compared to a few days?

      Jim

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