Last weekend I had the pleasure of attending the second annual Bitcoin Convention at the Royal National Hotel, Russell Gardens. For those of you who do not know what bitcoin is I shall refer you to the previous post I made explaining the subject [HERE].
It was fascinating to meet some of the other bitcoin users as I had previously not met one. There was a good mix of people from software development circles, as well as anarchists, agorists, free software proponents and Industry representatives from the fledgling bitcoin economy. I live-tweeted the event for the speakers I saw and you can find that content on my twitter feed [HERE]. I will not reiterate the majority of the talks presented, but instead talk about a few particular points that seemed to recur among the speakers and attendee discussions alike.
The first hot topic was how to protect ones wealth from any major financial collapse. The idea of “The Big Reset” was widely believed among attendees and in my experience the general public have a similar feeling. Now there are people that claim that the reset is due very soon and is an emergent product of the global financial system in its current state of operation. One ex Goldman Sachs fund manager named Raoul Pal gave a presentation at the end of May in Shanghai, outlining his prediction that the banking industry and financial markets would collapse in 2013. The presentation can be viewed below.
Others are more conservative, and like myself, believe that any large scale crisis would emerge from a combination of the silver society problem, dwindling fossil fuel supply and increased food prices. I think this will occur at some point between 10 and 40 years from now. Now that itself is not the issue I would like to discuss; rather how to protect you financially from such a crisis. Many people see bitcoin as the answer. By investing in bitcoin you are outside the traditional banking system and therefore have a reduced exposure to any banking collapse or traditional fiat hyperinflation. This theory is sound but has a couple of drawbacks, firstly, bitcoin lacks wide scale adoption and thus in a crash, liquidity would still be an issue as you struggle to find someone who will sell you food for bitcoin. Secondly, if the power grid goes down or we have some form of associated social collapse, bitcoins cease to exist. They are completely dependent on a technological system that underpins them, and therefore are still exposed to the real world.
Possible alternatives could consist of some of the rarer metal elements. Platinum is good as it is scarcer than gold and has more industrial applications. Palladium is rarer still and is used in capacitors. Both of these options allow for large value storage in a small volume that can be hidden relatively inexpensively. One could argue that gold is more liquid, and you would probably be correct, but the gold price is very high and popular as a value store by large institutions; so it could be said that in the event of a meltdown, aforementioned institutions would look to sell their gold very rapidly post-crash to increase their corporate/state liquidity. If you are not careful the large price write-downs in this aftermath could leave you worse off.
The other asset discussed was property. Buy a house on some land in a quiet part of the world and wait for it to blow over as it were. Russia and South America were the most popular choices as in Argentina for instance; they are legislating heavily into capital control and making it very difficult for nationals to take money out of the country. This means that there are many good deals to be had. Zero Hedge also has a piece on the subject and discusses other safe havens, and also the criteria a commodity must fulfil to qualify as one found [HERE]. Ideally one should spread bet and have a mixed portfolio of various safe haven assets, minimizing risk to value on any one in particular.
The second major theme for me was the idea of bitcoin as a gateway technology. David Birch (@dgwbirch) gave a fantastic presentation on Sunday describing possible futures of the monetary system in 2050. He suggested that it is logical to break up currencies into small sub-national zones based on economy type. The city of London should not share a currency with say Newcastle. Their economies are very different and have different externalities as well as internal driving forces. He and others believe that bitcoin itself may not exist as a currency in this world; but that something similar, perhaps with better usability would stand instead.
Bitcoin is great for asset transfer, it has an incredibly low barrier to entry financially and the transaction fees are incredibly small. It allows for me in the UK to wire money to a friend in South Africa for instance within a matter of minutes for a cost as low as 30p or less. There is no product in the consumer banking world that can offer that level of service at that price point. This truly borderless wealth transfer and low barrier to entry also spills over into the capital markets. James McCarthy, founder of the GLBSE Global Bitcoin Stock Exchange (@GLBSE) furthered this point when he talked about companies with a total market capitalisation of only a few hundred pounds being successful and effective at a micro level.
There was also much discussion of various local barter schemes such as LETS Local Exchange Trading Systems, which involve unofficial voluntary currencies. They are good as they allow local transfer of wealth for goods and services that would not normally be effectively marketable at such small scales. They suffer similar drawbacks to bitcoin in their lack of liquidity, but instead of being due to low adoption levels, the weakness comes from the absolute geographical limitations of where the program was set up. Regardless local currencies, official or not, have helped communities recover from the 2008 financial crisis and the aftermath. An example of this happening in Spain can be seen [HERE] and a scheme approaching introduction the UK can be found [HERE].
I would like to thank Frank Braun for his talk on OTC bitcoin trading. He highlighted that bitcoin lacks true independence as we are tied to traditional online currency exchanges to get value out of our bitcoins. He proposes setting up a network of over the counter traders that convert cash into bitcoin on the spot and vice versa. This would be the only way to truly anonymise the bitcoin acquisition process. As a keen fan of the Raspberry Pi, I feel there is great potential crossover between these two themes. I will attempt to flesh out a prototype for a bank in a briefcase. The idea is to use a small computer such as the RPi and hold bitcoins in a series of encrypted hot wallets. Also in the briefcase would be a small cash box. For a 5% commission fee you can have totally anonymous wealth.
Richard Stallman also gave a great talk describing ethical software practices. My final note is that I spent some time talking to Josh from butterfly labs and according to him, some of the ASIC’s pre-orders will begin to ship at the end of October. That initial shipment will probably account for about a third of all outstanding orders.
Editor’s Note: I have just moved in so the four weeks of quiet are well and truly over.
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