Is cryptocurrency beneficial to poor Blacks? No.

Yesterday the Bank of International Settlements issued an annual report with a 24-page chapter discussing cryptocurrencies. The report is critical of cryptocurrencies and the premise of decentralization. It argues that cryptocurrency lacks the stability in value and pricing brought about by a centralized payments system. While I am not surprised by the report’s bias toward centralization (BIS is after all the central bank of central banks), I appreciated the detail the report went into when describing decentralized ledger transactions and comparing that system to a centralized, central bank-based system.

The volatility of cryptocurrencies like Bitcoin experience may be enough for most consumers to ignore cryptocurrency as a store of value or a medium of exchange.  As was a little perplexed last year when I saw a number of black Americans pushing cryptocurrency as the next big and best bet for achieving wealth. The sidewalk marketing was being done in an environment of unexplained rising Bitcoin value. I am not lying when I say I felt good about Bitcoin falling from highs of about $20,000 end of last year to around $7,000 today.  These people I saw riding buses through Brooklyn telling people to get onboard something so bloody technical that most never understood it needed a reality check, and the relative quiet I experience on social media from the silence was refreshing.

More importantly a pullback invites putting cryptocurrency and money in the proper perspective. First, analyzing new currency spawned by financial technology requires separating ourselves from the emotions.  In the American black community, the first cool dude with swag that can push the right emotional buttons on a people who are over-indexed on emotions will win the day, at least temporarily. Sheep, as Jim Cramer is fond of saying, get slaughtered.

Second, analyzing currency should come with the realization that we understand little about currency, money, markets, and economics. We conflate markets with consumerism and that is a mistake. Consumerist activity is low hanging fruit; easy to grasp because we are quick to meet our emotional needs with a gift bag. Meanwhile, those pushing Bitcoin on us didn’t have a clue as to the economic justifications for the increase. They asked us to view crypto the way we go out and buy houses and cars: come on down because the price is right. That kind of thinking, like the show, is corny.

Currency, whether digital or real, contains a message about an underlying economy. Cryptocurrency has no underlying economy. It cannot transmit messages about the value of an underlying economy because there is no underlying economy to begin with. The realities of an underlying economy keep a currency in check with market transactions providing consumers and producers with information as to how well the economy is doing and whether it is viable enough to project the “good faith” backing of a currency. Crypto does not have an underlying economy. While more vendors are using it, its use is nowhere near the use of real currencies.

For black people to push crypto on poor black people was abominable.

What the high price for a Bitcoin tells us is that if an underlying economy is developed, it will not be a world where the poor will be allowed to play. The price is transmitting a prediction about exclusivity. For example, urban cores like Atlanta, New York, and San Francisco are pricing the poor and middle class out of housing and other amenities. Why not develop a currency that reflects that new reality? Has it ever really been about inclusion or does the reality reflect exclusion?

Bank of International Settlements warns against Bitcoin Hype

Hyun Song Shin, head of research for the Bank of International Settlements, provided some insights on the BIS’ discussion of Bitcoin found in BIS’ annual report released earlier today.  Mr. Hyun described the cryptocurrency as a poor medium of exchange, questioning the cryptocurrency’s low use.  Transactions are “slow and costly”, according to Mr. Hyun.  From the BIS website:

“Cryptocurrencies promise to replace trusted institutions with distributed ledger technology. Yet, looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy. Still, distributed ledger technology could have promise in other applications. Policy responses need to prevent abuses while allowing further experimentation.”

In his brief description of the Bitcoin production process, Mr. Hyun warned that the ability of miners to choose which transactions to process may result in users paying a higher price to get their transactions onto the cryptocurrency’s distributed ledger.  The process is a congested one, but as production capacity lessens, so to does a miner’s incentive to extract Bitcoin.

The individual should aim to make competition law inconsequential

This morning between games of racquetball, a conversation among the racquetball posse came up regarding parsing out trophies for non-winners. We expressed our concern that giving trophies to children that finish dead last may be creating a society of slackers; a community of individuals that see no rewards from winning.  In the 21st century, Millennials is the group that has been taking much heat for expressing a value of entitlement based on just showing up. “Your mommy got you to the soccer game. Yeah me!” “We’re giving you an award for good citizenship because you tell everyone good morning while your grades are shitty. Yeah, me!” “You got an award for fourth place because the other guys in your bracket forfeited. Yeah, me!” Where does this attitude come from and should Millennials take the brunt of the criticism?

To the latter part of the question, I would argue that Millennials should not bear any part of the criticism. They are only reacting to a world that older grumps created and playing by the rules the older generation promulgated for getting along in this society.  I see this as a world created by the State and those who control the majority of private capital.  The attitude of these monopolists is that there is only so much of the spoils to share and if society is to maintain any validity, then the masses must believe that their participation in traditions and institutions and compliance with the rules will result in some type of reward, even if that reward cannot be tied to winning the actual prize.

It goes back to the “Logan’s Run Paradox” where if you want to continue life past age 30, you have to grab the crystal ball before being disintegrated by multi-colored lasers. Your aspirations must be encouraged, delusions fed, and your eye distracted from the reality that there is, at least under this current paradigm, only so much spoils to share. For over a century now, America’s paradigm of competition has been built on this lie and it is increasingly reflected in our political economy.

Americans argue that a competitive market structure is good for the economy; good for growth in jobs; good for the spread of economic opportunity. The United States over the past 120 years has crafted a regulatory framework that favors multiple participants in an industry driven by the premise that multiple providers are good for consumer choice and where prices are regulated by the ability of multiple firms to participate, the better. Actions by firms designed to keep other firms out of a market, whether those actions involve predatory pricing, vertical or horizontal mergers, or agreements between firms i.e. collusion, are prohibited by anti-trust law.  American government tries to regulate and create competition but is government’s attempt organic or an ill-fated effort to replace real competition with an artificial construct? In other words, is the State simply trying to make all soccer moms and their kids happy?

What the State refers to as anti-trust law is simply trade regulation law; regulating otherwise voluntary agreements between individuals to combine as an association that extracts and organizes resources for the purpose and creating and distributing goods and services. The State exercises its monopoly over a jurisdiction by regulating trade thus hoping to ensure that currency flowing through its payment system and the activities that generate tax revenue are left unimpeded. “Protection of the consumer” is a narrative expressed to the masses in order to garner their support for legislation that is onerous to trade.

The individual doesn’t need these laws once he understands self-reliance. The individual producing their own electricity with today’s technology need not worry about a utility’s monopoly. She does need to worry about the State’s invalid argument for helping to maintain it.  The individual using 3-D printing- technology to design and create tools and clothing need not worry about price gouging unless a so- called consumer protection agency extends its jurisdiction by promulgating rules that prohibits said production. The individual that generates valuable information and data for sale and transmits the value of that data via her own cryptocurrency need not worry about fiat currency created and issued by a central bank, unless that central bank and her ally, the treasury, promulgate rules that challenges the issue of an individual’s currency.

The individual, recognizing how inorganic consumer law is, should pursue personal policy that makes that public policy inconsequential.

The physics of capital

Is capital is fixed? Like energy can it neither be created or destroyed? In an hour from this writing financial markets in the United States will open up for trading. These markets act as the medium for converting cash into stocks or bonds. The law of energy would describe this conversion as the creation of a disordered state where the original form of matter, in this case cash, is turned into a more disordered state, in this case a security.

The market process does not follow the law of energy precisely. Whereas after converting matter into a disordered state means that the resulting products cannot be recombined into the original form, the stocks and bonds purchased with cash can be sold in the markets with the result being the original form, cash.

The market provides a conduit for energy transfer, the transfer between cash and securities. I consider the energy transfer that we see in the financial markets as an echo of the original and most important form of capital: information and knowledge. Information and knowledge are the “big bang” of our capital universe. The information that we derive about and from the land allow us to create and use knowledge about farming, mining, fishing. As the land becomes increasingly valuable as a source of goods and services, we use this knowledge about productivity as leverage for creating banks and banking and payment systems. Through lending and borrowing money is created and these funds can be used to expand productive capacity or invest in stocks or bonds.

Information isn’t the capital of the 21st century. It has been the premier capital of human existence. All other substance we refer to as capital emanates from this origin and is a reflection of the value of information.

I would argue that knowledge and information represent another divergence away from the laws of energy. Knowledge and information are not fixed. Man is always discovering something new whether about himself as a sovereign or about the universe around her. The more she discovers and the better she is at communicating her discoveries, the more capital in the form of currency that she can accumulate.

Currency transmits to the markets the value its holder has. It should also signal us to look behind the currency to determine who the holder is.  The rapper who has $300,000 in currency but owns no productive property and has no prospects for another hit album in a year has low value. The markets will not want to trade with him on a continuous basis versus a writer with $50,000 in coin but also owns land that she rents out for farming and is able to write software apps when not writing music. The market will see her as high value and will trade her currency.

This creates a political dilemma for politicians who claim to represent the interests of the poor. They must now come to terms with an information gap spurred on by a lack of critical thinking skills in America. Solving real world problems not only benefits the individual but benefits communities overall as solutions are distributed throughout communities. The ability to bring solutions to real world problems enhances value and creates currency. For the poor access to quality education or other resources that provide a conduit to knowledge should be at the top of the policy agenda if they are to survive an economy that asserts a greater need for knowledge and information talent.

Capital may, after all, not be fixed and can be created. Information is the most important source of capital and like energy needs an infrastructure that allows its generators to signal and transmit value.

 

The Caribbean as dumping ground for sovereign independents

Current residents of the #Caribbean should consider that the goal of those accepting citizenship by investment or pursuing policies of population reduction as a recovery policy post Hurricanes Irma y Maria may have as an end game the creation of independent jurisdictions that support sovereign individualism.

By combining cryptocurrency, renewable energy, and tax exempt jurisdiction schemes, such off-grid independence can be created for the wealthy. Declining liberal welfare nation-states such as the United States and the United Kingdom will serve as the dumping ground for Caribbean nationals who cannot push back against the onslaught of invading #capital entering the Caribbean under the initial disguise of “seeking a better life, diversity, and getting a deeper tan”, the bulwarks of gentrification.

Be mindful of the invader reciting the mantra peace, love, and soul as her agenda. Those were merely the closing words of a TV show. It is the nightmare of the horror movie of cultural usurpation that you should be concerned about…

Why Google’s investors may want it to issue its own cryptocurrency

Let’s say a certain individual or corporation has generated a lot of value for society.  Its quality of product, service, or information is consistent. There is increasing demand for its product. Customers are enamored with anything affiliated with the product.

Now suppose this high value individual or corporation leverages its value by issuing a digital coin of its own. In the beginning it accepts this coin only along with fiat cash. During this phase, the issuing corporation decides to accept digital coin from other high-value corporations, say Amazon accepting Google-issued coin and vice-versa.

Other producers from manufacturers to farmers to utilities rather than issue their own coin or mine other types of coin may decide to accept coin issued by high value corporations, again based on the premise that the products, services, or information produced by these corporations is consistent.

To further maintain the value of the coin, these corporations would act like mini-central banks, capping the amount of coin made available and driving up the coins price. They could also increase exclusivity of their product by prohibiting the exchange of their coin for fiat cash.

I suspect the wealth class would like a wide moat around their investments. The ability to move their transactions to cyberspace and become mini-sovereigns with favorable tax treatment will be topped off by creating their own “consumer resort.”

And the four week fall in cryptocurrency prices helps allowing them to either short cryptos or merely pick them up on the cheap.

We may be at the beginning of a different type of fork where the wealthy will enjoy cryptocurrency derived from a decentralized platform while the “information poor” are stuck with a digitized fiat currency. It is still to early to see if that scenario plays out since, at least in the United States, the federal government has made no decision to regulate cryptocurrency as anything else but a payment system and there are no plans right now to develop a “fedcoin.”

 

Decentralization like anarchy is threatened by a fear of vacuum

China is increasingly its crackdown on the production of cryptocurrency including Bitcoin. Last year China prohibited the issuance of new cryptocurrency and today is taking the attack a step further by shutting down China’s mining network, a network reportedly responsible for 80% of the mining power behind the cryptocurrency production platform. It comes to me as no surprise that a severely centralized political economy would allow a value exchange system predicated on decentralization to go on about its business unchallenged. China appears to prefer nip the decentralization concept in the bud now versus following the rest of the world down the rabbit hole and the eventual violent repercussions.

What cryptocurrency investors in other tax and customs jurisdictions will eventually find out over the next decade is that decentralization or controlled anarchy is a temporary state of societal mind. Probably from the time tribes started to trade with each other and currency, property, trade rules, and contracts were put in place, anarchy has occupied the briefest periods. It takes little time before someone pretends to be Ghengis Khan and wants to “unite” the clans in the name of order and peace. The same thing, I suspect, will also happen with cryptocurrency.

I view corporations as privateers, licensed by government to ensure that government’s tax extraction system works smoothly on a day-to-day basis. Corporations create taxable activities by extracting resources, converting resources into inputs; converting inputs into final products, and selling those final products to end users. End users are employed during the resource extraction, organization, sale process and as employees are converted into payers of an income tax. Employees are also consumers and as such see the income taxes of business firms passed on to them via a sales tax. Corporations are the tax monetizers in the government tax receipts system and as such will do the State’s bidding when the State identifies a threat and calls on the corporation to help fortify it.

One corporation that will be called on to help fortify the State against cryptocurrency attempts at usurping State power will be the utilities. The utilities are the paragon of centralization and provide great game plans for any wanna be monopolist who wants to protect its turf. More important, utilities, especially in tax and customs jurisdictions where distributed generation has not taken hold, will be at the front line of the push back on cryptocurrency. Miners should not be surprised that the State cuts off their electricity. Last time I checked, digital equipment runs on electricity.

Another consideration is how the State will employ broadband providers in their crackdown. I see the State using net neutrality principles to force internet service providers to provide as much information as possible on the encrypted cryptocurrency data flowing across their networks. Net neutrality requires that internet service providers provide consumers with network management information as it pertains to the delivery of their services. I can see the Federal Communications Commission bringing its own action to force these companies to provide them with information on network activity as well.

And what is to stop the further broadening of the Communications Assistance for Law Enforcement Act by requiring that mobile and fixed wire broadband access providers participate where technically feasible in decrypting encrypted messages that contain cryptocurrency information? Congress will have to be moved by continued strategic communications geared to persuading members that the potential use of cryptocurrency by sex traffickers and drug smugglers warrants significant amendment to the Act to cover garnering information on cryptocurrency transactions.

All States are built on centralization. Whether a communist or capitalist model is only a matter of degree.