Why Bitcoin Scares Big Banks

Bitcoin at first glance is digital money, but if you look a bit deeper you realize that is just one of the applications enabled by an underlying network that allows a distributed system of computers to build a global asset ledger so like a list of transactions for the entire world that shows who owns what Bitcoin when. That's based on a really fundamental invention that allows computers to coordinate in that way without the central authority.

The thing is that central authorities and money traditionally are used as levers of power either to inflate a currency and cause it to lose value which is essentially a form of confiscation or hidden taxation when your savings account depletes in its purchasing power because a central government is printing money to finance its own activities, so the idea of a decentralized currency is important because it removes those levers of power that people can exploit to corrupt a currency. In this global network, everything runs based on simple mathematical rules.

A fixed number of coins are issued every ten minutes and that amount decreases over time so that eventually only 21 million Bitcoins will be issued and that creates a fixed monetary supply which has some interesting characteristics from an economic perspective and all of this is done simply by consensus, it's impossible to cheat the system because once you've done the work, it's in your interest to get the system reward rather than try to cheat the system. Bitcoin represents a decentralized system and decentralized systems are usually the way nature organizes things. In nature you don't see hierarchal systems very much, in fact, usually what you see are loosely coupled decentralized systems that create emergence and complex behavior based on some very simple rules repeated by thousands of members.

A perfect example of that is an ant colony like the leafcutter ant where individual members are extremely simple organisms, you can even simulate a single ant on a computer but you put several hundreds of thousands even millions of ants in a colony and they exhibit incredibly complex behavior, the leafcutter ant for example farms aphids as a farmed species like a domesticated species like the way we farm cattle and that's an incredibly complex and sophisticated behavior but it doesn't exist in any of the individual members. It's something that emerges from the complex interaction of simple rules. Bitcoin is a system that exhibits extremely complex emergent behavior but it's based on very few simple rules that are followed by all of the members of the network.

One of the things we've seen on the Bitcoin network is the ability for charities and other public responsibility organizations or publicly accountable organizations to operate an open set of accounts and open books where everyone can see exactly what's going on, so if you want you can use Bitcoin to deliver extremely fairness and transparency and so far there doesn't seem to be any indication law enforcement agencies have any trouble tracking down transactions on Bitcoin using old-fashioned police tactics. In fact, Bitcoin is far more transparent than our current financial system if you ask for example economists, they have no idea what the full size of a hedge fund market is or what the full size of the leveraged debt is because no one knows. A lot of this happens on closed markets where there's no accountability.

It's important to recognize that one Bitcoin is not necessarily the unit you buy just like for example at the moment it's probably about $45,000 to buy a bar of gold. No one goes out and buys a whole bar of gold when they want to invest in gold, what they buy is a fraction of it and you can buy a fraction of a Bitcoin as low as little as ten dollars on the market. It's very easy to enter the market and one of the easiest ways is to use our site and you can buy some Bitcoin. You can also take a product or service and sell it to people for Bitcoin, so the market is much more accessible than people think. Once you're in the Bitcoin system, thinks become surprisingly fast, fluid and easy to use. So that actually ends up revealing the difficulties and complexities of dealing with old-style currencies. You have to realize that Bitcoin right now, at $150 billion dollars is actually a puny currency and in terms of a currency that is a very small pool of liquidity. So every time someone sneezes about Bitcoin all of the liquidity sloshes around and you get these price fluctuations.

What we've seen that over time that the volatility is decreasing over time quite dramatically as the volume increases and more and more institutional and individual investors, among businesses invest in Bitcoin. What people don't see in the background is thousands and thousands of starts ups that have significant innovation that are being invested in by mainstream investors and that are creating thousands of jobs right now.

So Bitcoin is a small island of growth, jobs, opportunity, and innovation in a sea of volatile economic conditions around the world. Bitcoin has tremendous potential because if you look behind the price of the currency which can swing quite wildly, the technology itself is truly revolutionary and disruptive and it has all of this potential for so many innovations in the financial services industry which frankly hasn't moved far beyond 1950s technologies like credit cards. Bitcoin isn't the 194th natural currency it's the first transnational currency, you can pull out your smartphone and send a payment to anywhere in the world for less than 40 cents and receive that payment within seconds.

That kind of power can revolutionize global trade, services and most importantly can start affecting some of the most exploitative markets in the world like remittances markets where every year companies like Western Union extract 84 billion dollars from the poorest people in the planet just to send money home. With Bitcoin, we have the opportunity to reboot those flows of money and allowing immigrant workers in this country send money home or in other countries to send money home to their relatives without paying 30% or sometimes even 40% and the poorer the country the higher the fee. There are so many opportunities in the current financial environment, not just for innovation but for flattening the fees that are paying for risks introduced by a lack of technology in the existing industry.

Decentralized systems allow you to operate at large scale and achieve consensus. So it used to be, for example, media organizations could only work if you had one large national newspaper and it filtered all views until only a trickle of information reached an audience and it was carefully vetted. We've moved past that with the internet and created opportunities for more people to have a voice.

The problems of scale that centralized media solved no longer exists in a world of ubiquitous communication so decentralized systems can consult those much better. Similarly, in the world of finance, we have all of these hierarchal institutions that are trying to solve problems of scale that no longer exists and Bitcoin is a perfect example of the ability to achieve consensus on a distributed system at massive scale without the need for a central authority. As soon as the need for a central authority goes away the solutions that can come out of that are truly extraordinary.

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