Righto, let’s continue our tale of two coins – last time I covered the current monetary system. Our ‘fiat’ currency doesn’t represent what we think it does (we think it’s an asset but it’s merely a credit note). As uncomfortable as it makes people like me that do what I do, there’s new money on the block, currency with less ‘baggage’. New coin, old coin (or no coin if you’re not careful) – this isn’t an exhaustive bit of research here, a wee googly is all you need to satisfy your curiosity though.
The current system exists inside a political framework, which is influenced by free market players – like the banks. The trading banks and the government (central banks) are the gatekeepers – they ensure the transactions with money are monitored, taxed, regulated and reported. There’s a new system though that’s ‘distributed’, transparent, free, and sometimes anonymous. Bitcoin’s the illegitimate love-child of your IT guy and local cryptographer.
Imagine storing, and transmitting value directly to another person, without going through a bank or other financial institution. Imagine the tax implications, the reduced fees paid to financial institutions, the lack of information flowing to various organisations – this is the future. The 99% have a chance with bitcoin, emerging markets and countries with corrupt political regimes may now have a glimmer of financial hope. It is a future that scares me though to be honest, as I’m properly entrenched in the current system – just like you. I’m pretty sure the banks feel the same way too. When your fat uncle Len wears Lululemon, it kinda ruins the brand right? Banks and stuffy ol’ financial advisers haven’t yet jumped on the bitcoin bandwagon yet but they will, once they realise that’s what the kids these days are into. So bitcoin’s still newish, it’s intriguing, and it absolutely warrants further investigation if you want a stake in the new digital asset class of the future.
Apart from your crack dealer and your local school fair, who needs cash these days anyway? In fact, we’ve been dealing with digital currency for some time now – but the ‘dollar’ is old, and from a paradigm that’s dying. The new system is digital, yes, but more importantly, it’s distributed, and that’s key. No government control, no financial institutions – a true peer to peer monetary system that will potentially replace what we know now. The catalyst for truly changing over could be the next global financial crisis.
So what’s the smart move for the common person?
You have two choices: Bury your head in the sand, (likely you already have been) and wait for the change to affect you. Here’s the thing though – change will either move us, or it will move right through us. You could do something different though – get ahead of the curve and educate yourself. How could cryptocurrencies like bitcoin, blockchain technology and smart contracts affect your life, your job, your kids and your retirement? What kind of opportunities for innovation exists in your own industry?
Creative destruction, a term coined by economist Joseph Schumpeter, describes the process at work when a superior technology emerges. New destroys old – creativity blows up the status quo. Creative destruction is a force that can’t be stopped, manipulated, or delayed.
As a financial adviser, professionally I’m not at liberty to say if this is a future you’d do well to engage in, but as a dude who doesn’t do gambling, I’m into this.
Here’s just one quick example of innovation using bitcoin. Mybitcoinsaver, a kiwi-based business, assists people in crossing the divide between the current monetary system and the new one. I signed up for this recently and I contribute a very small amount regularly. My small contributions in NZD get magically converted into bitcoin, which gets delivered automatically into my digital wallet each week. Sound nuts? I must confess it does sound a bit crazy to me too, but I really think this is our future, and I’m willing to put a little bit of my old money where my mouth is.
Someone told me early on though not to put any more in than I could afford to lose. Like most young families, we don’t have much to lose, but bit by bit, I’m changing some of my old coins, for new ones. Maybe you should too?
If you’d like to watch the Youtube clip that accompanies this post please click here.
