21 Inc. Founder Balaji Srivinasan and Coin Center Executive Director Jerry Britto give a well-structured, succinct presentation on Bitcoin to Goldman Sachs. Of note is the fact that they believe Bitcoin is a protocol, not a currency, and that it is going to grow in underserved micropayment niche markets first as it establishes creditability to act as an internet of value transfer. Down the road, exciting applications such as near-instatantaneous settlement of very large amounts of value (e.g. millions of billion-dollar transactions per day) are entirely possible with sustainable security.
From Dan Morehead of Pantera Capital, writing for TechCrunch:
A typical international cross-border payment for a small-to-medium-sized business whose payments are typically on the order of $1,000 to $10,000 can take several days and cost up to 5 percent of the total transaction. Let’s pull back the curtain on the process.
- Before a business can make a large purchase from a supplier, the buyer provides a letter of credit from a financial institution to the supplier, which acts as a guarantee of payment. There is a non-trivial fee for acquiring this and it may take several days for a bank to produce.
- Once the letter of credit has been provided by, for example, a U.S. business looking to buy from a Brazilian supplier, the supplier sends an invoice for an amount due.
- The U.S. business initiates a money transfer at its primary bank for an amount greater than what is due on the invoice. This is in order to cover the many fees required along the payment’s journey.
- Over the course of several business days, the buyer’s bank first charges a money transfer initiation fee and eventually moves the money along to its U.S. correspondent bank.
- Once the payment hits the first correspondent bank, it grants the buyer’s primary bank a rebate — a finder’s fee of a sort to incentivize the perpetuation of the 600-year old process. This correspondent bank deducts yet another fee for processing the buyer’s payment and moves the buyer’s payment along to a second correspondent bank in Brazil. This relay takes another couple of business days to complete.
- Upon receiving the payment, the second correspondent bank converts the buyer’s USD-denominated payment into Brazilian reals with a foreign-exchange spread. While able to exchange currencies at a wholesale rate, savings from doing so are not passed on to the customer but withheld as additional profit for the correspondent bank. Another processing fee for the payment is taken by the second correspondent bank before the payment moves on to the supplier’s primary business bank. The currency exchange and subsequent relay of the payment take an additional couple of days to complete.
Select quotes from a solid summary of Bitcoin and blockchains from CNBC:
- Arguing that bitcoin’s underlying technology has the opportunity to improve settlement latency and system security for firms, Masters said the market for financial blockchain applications will ultimately be “measured in the trillions.”
- In the past six months, “everybody realized that bitcoin’s more than a currency,” said Brian Kelly of Brian Kelly Capital. “Everybody had their ‘aha’ moment, and investors with many millions of dollars to spend are starting to see how it can be used.”
- Now, more than a dozen big banks and tech firms have dived into the field, including Seagate, Nasdaq, Overstock, IBM, Samsung, UBS, Barclays, Banco Santander and Intel—to name a few.
- Garzik, who now works full-time at Dunvegan Space Systems, predicted the myriad applications of the blockchain will eventually help form the infrastructure for a spate of new technologies, much like Transmission Control Protocol/Internet Protocol (TCP/IP)—the basic communication language of the Internet—does now. “You don’t have a conversation today about TCP/IP: This is the lowest layer of a money network,” he said. “You’re not going to say ‘Let’s adopt bitcoin,’ you’re going to say ‘Let’s use this money layer infrastructure.’ You’ll talk about the money web, or something of that nature, you won’t talk about the blockchain itself.”
Sigh. Central governments have no business dictating and coercing individuals’ financial affairs. Yet that’s what we’re starting to see as governments turn to increasingly stringent ways to control and direct the flow of value in society to favor more risk.
Like chemotherapy, negative interest rates are a harsh medicine. It’s disorienting when people are paid to borrow and charged to save. “Over time, market disequilibria are dangerous,” G+ Economics Chief Economist Lena Komileva wrote to clients on April 21. Which side of the debate you fall on probably comes down to how much you trust government. On one side, there’s an argument to be made that cash has become what John Maynard Keynes once called gold: a barbarous relic. It thwarts monetary policy and makes life easy for criminals and tax evaders: Seventy-eight percent of the value of American currency is in $100 bills. On the other side, if you’re afraid that central banks are in a war against savers, or that the government will try to control your financial affairs, cash is your best defense. Taking it away “is a prescription for revolution,” Cecchetti says. The longer rates break on through to the other side, the more pressing these questions become.
“First they ignore you, then they laugh at you, then they fight you, then you win”
Disintermediated value transfer and secure unilateral ownership. Individuals leveraging software to seek opportunities for investment of their value, only eating as much risk as they are comfortable with. Global transfer of value independent of the nation-state framework, legacy fiat limitations and aging regulatory regimes. Autonomous corporations that operate so long as they provide value. Smart contracts that reliably execute any form of financial derivative, plus perform any coordination function such as ownership, certificates, registration, identity.
Given banks’ dependence on the current value mediation paradigm to generate returns, I don’t see them being able to maintain current profits going forward. Financial services are ripe for margin compression. They will still be able to perform excellent research and diligence responsibilities, but they won’t act as gatekeepers or value middlemen anymore.