The Required Component For A Viable Cryptocurrency

Tuesday, 6 March 2018 21:23 by The Lunatic


There is no doubt that the ‘blockchain’, Bitcoin’s amazingly successful distributed ledger, is one of the most ingenious concepts ever invented.

Blockchain's importance, and potential scope of influence, could eventually rival RSA public key/private key encryption (the algorithm developed in 1978 that all modern-day financial transactions rely on - including, ironically enough, blockchain transactions). It really is spectacular.

So … am I investing in Bitcoin or other cryptocurrencies?

Absolutely not!

My reasoning is simple: the function of a currency is to be an intermediate thing that holds value temporarily, so you can easily trade for something of real value. There is no reason to ever ‘invest’ in any currency. That is not its purpose.

You may, however, want to avoid a currency. Let’s say you live in Mexico and own a business, and that business generates nice profits. You take your profits, and decide to hold that value in cash while you look for something else to invest in, or maybe you're saving up for a nice yacht.

However, if you expect that the Mexican Peso will fall in value, you can convert your holdings to U.S. Dollars in the meantime. You are not ‘investing’ in dollars – you are avoiding Pesos in favor of a currency with greater stability!

The goal of any government backed currency is to be as stable as possible. While consumer spending is mostly based on cash transactions, the majority of business transactions are on ‘terms’ … payment in the future for the trading of good or services that occurs today.

If you hold cash in a transaction (“I will pay you for the goods in 90 days”) or if you hold debt (“you can pay me for this in 90 days”) – both parties expect the ‘value’ of the currency to be the same at the end of the transaction. It doesn’t matter which direction it moves; if the currency goes up or down, one party will suffer.

Here’s a true story: about six months ago, More...

Categories:   Economics
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