Category: Forecasting

Historical examples and evidence-based speculation about the development of humanity, technology, and civilization.

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Bitcoin Forecasting

Bitcoin May Become A Global Reserve Instrument

Bitcoin Has Redefined Money

Bitcoin may become a global reserve instrument as individuals use it both as a ledger for financial and informational assets.

Although the long term application of bitcoin is still being debated and determined through the software tweaks applied by programmers, in its current state, it does not function well at making global micropayments with little to no fee. Today, bitcoin is about a safehaven for economic and data assets. This technological layer is presenting a new emerging economy, one where the constituents are not bound by judicial legislation and analog forms of exchange.

The bitcoin digital economy may become a global reserve instrument due to factors which are made possible by sound economic principles and the technical excellence brought by blockchain networks and their promises for innovation.

Inelastic Supply May Reduce Business Cycles

The supply issuance of new currency units is governed by a mathematical algorithm rather than central bank monetary policy. No change in demand has an effect of the rate of this issuance, and therefore, makes the supply function of bitcoin inelastic. Fluctuations in demand have no effect on the supply schedule of bitcoin, instead willingness to pay is represented by floating denomination in national currency.

The mining difficulty algorithm is capable of self-adjusting to changes in the competition among mining pools. Interestingly, this represents the core form of self-governance the bitcoin protocol has.

Austrian school of economic thought holds that the bust of a business cycle is inevitable, what should be avoided instead is an artificial and sometimes misleading boom in the market, which does injustice for representing the health of the economy.

One of the major factors of facilitating a boom is credit expansion. Opportunity for credit expansions in bitcoin is limited due to the difficulty of fractional reserve practices and a hard cap on total money supply.

Interdependent (Rather Than Dependant) Market Participants

Bitcoin has the potential to make economic players less dependent upon others in the same or adjacent markets. Systems which are made open benefit tremendously from the network effect and bitcoin only requires a mobile device with internet connectivity. This accessibility requirement is incredibly low and allows users to conduct transactions over the bitcoin network with no need to acquire approval from an external party (read: banking sector, local government).

When users are less dependent on every other participant in the system, productivity flourishes. If an individual can conduct commerce without the approval of an external party, decision making is empowered.

As long as one party does not control entire network, users remain largely independent and in control of their own economic livelihood.

Economies of Scale For Data Security

Encryption has never before enabled economic assets (data assets as well) to be stored so inexpensively with such a high degree of security.

Peter Diamandis describes demonetization in his ‘exponential framework’ as one of the key stages. In regards to bitcoin this describes the demonetization of many aspects of our current financial system (banking fees, ATM fees, remittance fees, bank infrastructure, banking employee salaries). Bitcoin is demonetization of our current financial system because it can mitigate and eliminate these third-party requirements.

The technology of encryption makes, for the very first time, protection of our economic assets both very secure and very inexpensive. In truth, when bitcoin is used as it is designed to be used (as a relationship between you and your money with no requirement of trust), the chance of a successful hack is near 0. Encryption of the blockchain also provides the potential to secure and transmit information assets (as well as monetary), inexpensively with a high degree of security and transparency.

Bitcoin may continue to be increasingly used as a global reserve instrument for both economic and data assets because it potentially mitigates business cycles through an inelastic supply function, makes users less dependent upon adjacent participants in the economy, and allows a high degree of security at low cost due to advances in cryptography.

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Bitcoin Cypherpunk Forecasting

Africa May Leapfrog Traditional Banking

Africa May Leapfrog Banking

If bitcoin acceptance reaches a critical mass where necessities of food, shelter, and clothing can be bought with it, it could reach a tipping point where it challenges the dominance of national currencies in many developing countries.

In this scenario, many areas of the world may leapfrog banking infrastructure and traditional money wire transfers. Most notably, the financial landscape in developing economies such as Africa is well positioned to leapfrog traditional banking and move directly to a bitcoin-enabled financial paradigm.

Bitcoin Leapfrogging Banks

Leapfrogging is described as a theory of economic development which skips inferior or obsolete technologies in order to move directly to advanced ones. Take, for example, phone coverage in African countries. Landline grids for household use were never fully developed because by the time Africa came into market view, mobile phones were the new paradigm of telecommunications. The entire infrastructure for household landlines was leapfrogged by cellular technology.

Similar to cellular technology, bitcoin could empower Africa to leapfrog the banking infrastructure of western countries and go directly to a new financial paradigm. The preeminent requirement on behalf of African citizens is a mobile device with internet connectivity. Many citizens of Africa are already well-versed in making mobile payments with cellular devices.

Mobile Payments

The potential to provide financial services worldwide is echoed by the adoption of mobile payment technologies such as M-Pesa, a mobile-phone based money transfer and microfinancing service for Safaricom and Vodacom. M-Pesa is estimated to have a near 70% market share in Kenya and is becoming more accepted in surrounding countries.

According to Mobile Payments Today, in 2002, only 3% of people on the entire continent of Africa had mobile phones. That number exploded to 48% by 2010. In 2014, 70% of the continent’s population had a mobile phone as the market continues to adopt cellular devices.

Banking the Unbanked

World Unbanked Population
World Unbanked Population (ALBERTO CHAIA, 2010)

Worldwide, approximately 2.5 billion people lack a formal account at a financial institution. Access to affordable financial services is linked to overcoming poverty, reducing income disparities, and increasing economic growth.

If one third of adults lack access to formal banking systems, a bank account stored in cyberspace may prove to be a catalyst of growth for developing markets.

Bitcoin will benefit Africa more than any other region in the world due to the massive business opportunity which presents itself as an unbanked, yet mobile-friendly market. Such a leapfrogging effect would serve to pull struggling African economies out of stagnation and onto the global stage in a very big way.

The combination of ubiquitous internet-connected mobile devices and digital currency presents a tremendous opportunity to radically expand access to financial services on a worldwide basis.

– Jeremy Allaire, Circle Internet Financial, 2013 US hearing on digital currencies

Currency Mismanagement

Beyond just mobile payments and access to banking infrastructure, several African economies are the product of mismanaged currency policy. Zimbabwe’s legacy of collapsed currency, with inflation reaching 231,000,000% in 2008, is a prime example of such disastrous government intervention. The hyperinflation that crippled Zimbabwe was largely caused by currency being too liberally printed, a swollen stock of money chasing a diminished supply of goods.

Advantage Africa

Bitcoin may not be the definitive answer for the masses that remain unbanked, but it is certainly a step towards a brighter future.

Governments in Africa will have diminished options for instituting thoughtless policies once bitcoin is adopted by the populous. The hotspots for adoption will be most apparent in geographies which have a very unreliable currency and lack mature financial infrastructure. Out of all the regions on Earth, African countries stand to benefit the most from financial technology such as bitcoin.

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Bitcoin Forecasting

Bitcoin May Solve the Triffin Dilemma

Although the United States Federal Reserve Note carries with it many advantages for conducting commerce and serving as a world reserve currency, its makeup is not void of imperfections. One of the main shortcomings of the USD is the Triffin Dilemma, a problem which arises when countries must manage both short term domestic and long term international economic objectives. Such a dilemma can lead to trade deficits when a country must also satisfy international demand of its currency. Where the USD falls victim to the Triffin dilemma however, the stateless characteristics of bitcoin may hold promise to solve this international monetary flaw, and provide the backbone for a more interdependent global economy.

The Triffin Dilemma

Reserve Currency Status
Reserve currency status by country dating back to the 1400’s

The economist Robert Triffin first brought to light an international monetary issue involving the nation holding reserve currency status and the impact such a role would have on domestic trade deficits. Such a currency arrangement is usually cited to articulate the problems with the role of the U.S. dollar as the reserve currency under the Bretton Woods system. The countries issuing a reserve currency, which foreign nations would wish to hold, must be willing to supply extra money stock to fulfill global demand. Such an arrangement would inevitably lead to operating a trade deficit.

In March of 2009, in the midst of the recent Great Recession, the People’s Bank of China Governor Zhou Xiaochuan voiced his displeasure of the current makeup of the world reserve currency. Known for his reformist tendencies, Xiaochuan made clear the need for creating “an international reserve currency that is disconnected from individual nations”. Such an international reserve currency, he insisted, could provide stable value, rule-based issuance, and manageable supply necessary for achieving prolonged financial prosperity.

Zhou Xiaochuan’s proposal went largely unheard, as economists were not clear if the IMF’s SDR had the global adoption to overtake the dollar. No solutions have since been proposed. Yet is it possible that such a “disconnected international reserve currency” has been in circulation since 2009? Is it possible that the digital cryptocurrency bitcoin could act as a domestically disconnected money supply and therefore solve the Triffin Dilemma?

John Nash on the Triffin Dilemma

John Nash
John Forbes Nash, who was said to have made a breakthrough on Einstein’s formulas just days before his untimely death.
Nash wanted to alter the measure of the curvature of space and time, or how the dimensions of space and time are altered by the presence of energy.

The late mathematician John Nash, whom some believe to be a contributor to the invention of bitcoin, was also an advocate of monetary reform in order to solve the Triffin Dilemma. The desirable goal, in Nash’s mind, was to create an international reserve instrument capable of operating independent of individual nation states while remaining stable in the long run, severing deficiencies found in credit-based money.

Such a money supply would be able to provide a national savings outlet while operating in an autonomous, global manner. With an obsessive focus on cryptography and ideal money, the introduction of bitcoin is covered with the fingerprints of John Nash.

Can Bitcoin Solve the Triffin Dilemma?

The Triffin Dilemma, where countries issuing reserve currencies attempt to simultaneously manage national savings levels with necessary international liquidity, remains to this day, a barrier to economic growth. However, could it be that the introduction of bitcoin brings forth a viable solution to the Triffin Dilemma?

If we assume that the prerequisites for a currency capable of solving the Triffin dilemma were to provide the following, it may be possible to argue that bitcoin is the perfect fit.

  1. stable value
  2. rule-based issuance
  3. manageable supply schedule

In a recent analysis of the price volatility of bitcoin, Eli Dourado estimates that the stability of bitcoin could match that of the Euro within 15 years. Largely a product of an increasing number of active users, the Federal Reserve Board of Washington also estimates that the userbase of bitcoin is doubling roughly every 8 months.

Rule-based issuance is perhaps the most interesting aspect of the bitcoin economy. Here, we have a paradigm shift in the management of monetary policy. Where central banking and human decision making were the catalysts for monetary policy in the 20th century, that role is now filled by algorithmic time-bound issuance with cryptocurrency. A computerized function on the issuance of money has the potential to provide a sound basis for monetary policy because it is magnitudes more capable of adjusting to changing externalities, such as the bitcoin mining hash power index.

Finally, the supply schedule of bitcoin is relatively inelastic compared to traditional forms of money. We can predict with a high degree of accuracy the supply of bitcoin at any point in time (past & future) and make the necessary adjustments in domestic policy. Peter Šurda, an economist from Vienna, Austria, argues that the inelastic supply function of bitcoin could result in a reduction of business cycles on a domestic level. This inelastic function of bitcoin’s monetary supply could allow both domestic governments and businesses to forecast changes with a higher degree of accuracy, and therefore, could quite possibly mitigate the destructive nature of the business cycle.

Truly, as bitcoin gains new users in the form of individuals learning about cryptocurrency, transacting it, and crossing the psychological chasm of viewing it as a valid form of payment, it inches closer to its rightful place as a global reserve instrument. Such an instrument, would hold tremendous potential to solve the age old Triffin dilemma.

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Forecasting

Our Evolving Diginomic Lifestyle

Our Evolving Diginomics Lifestyle

“A new civilization is emerging in our lives. This new civilization brings with it new family styles, changed ways of working, loving and living; a new economy, new political conflicts, and beyond all this, an altered consciousness as well.”

– Alvin Toffler, “Creating a New Civilization” (1995)

In this transition of which Toffler speaks, cultures everywhere are being redesigned along digital guidelines, creating what we would call diginomic lifestyles. As the world reshapes and redesigns itself, it is rapidly and optimally adopting the technologies required to maximize convenience. Don’t sweat it! There’s no need. Just push that button.

Like the car commercial whose ubiquitous mantra is “Zoom! Zoom!” – the evolving Diginomic Lifestyle is one in which the speed of Life needs the speed of Light to thrive and prosper.

A World Market in Your Pocket

“There can no longer be any doubt that the future of business is inextricably bound up with the Internet,” says John Chambers, president/CEO of Cisco, as quoted in the book, Digital Transformation in 2000.

Michael Robert and Bernard Racine agree. From their 2001 work entitled, e-Strategy Pure & Simple, “e-commerce is changing the rules everyday – making it even tougher for brick-and-mortar companies to develop strategies for survival in the new economy.”

At this moment (January 2015), the total world population sits at 7.2 billion souls, 3.1 billion of whom have access to the Internet … fully 42 percent of the earth’s population. That’s a lot of people coming to visit!

internet-users-by-region
Internet Users by Region (Internet World Stats, 2014)

In the U. S., the Census Bureau of the Department of Commerce reports that ecommerce is growing at a faster pace than street sales in brick-and-mortar stores. Estimates of U.S. retail e-commerce sales for the third quarter of 2014, according to the DoC (adjusted for seasonal variation, but not for price changes), was $78.1 billion, an increase of 4.0 percent (±0.7%) from the second quarter. The third quarter 2014 e-commerce estimate increased 16.2 percent (±3.2%) from the same period in 2013 while total retail sales increased only 4.2 percent (±0.5%). E-commerce sales in the third quarter of 2014 accounted for 6.6 percent of total sales.

Jonathan D. Freidan, E-Commerce Law: “Though online spending is still a fraction of total consumer spending, it is growing at a rate of more than 25 percent annually.”

According to one source (eMarketer), there are over 4 billion global subscribed users of cell phones today … over 67% of the world’s population. “By the end of the forecast period (of 2014), smartphone penetration among mobile phone users globally will near 50%.” According to a 2010 study by the U.N., “more people on earth have access to cell phones than toilets.”

Click and Buy

Aside from making phone calls or texting, new connection technologies in smartphones is on a fast track to being your electronic wallet whereby wireless purchases are made on the fly. It’s also being used as your personal scanning wand for food, clothing and department store purchases.

smartphone-users-worldwide
Smartphone Users Worldwide (eMarketer, 2014)

“We estimate that the total number of mobile phone Internet users will rise 16.5% in 2014 and maintain double-digit growth through 2016.”

– eMarketer

“Today’s younger generation will trade in their cash, credit cards and checks for mobile digital wallets by 2016, new research claims,” the International Business Times reported on November 24, 2011. “Children born today will be [the] first ‘cashless generation’ and will frequently use their smartphones in exchange for goods and services, according to a report by the research company Forrester for the e-commerce site PayPal.”

International business consultant and author, Kenichi Ohmae, in his book, The Next Global Stage, writes: “The interconnected, interactive, global economy is a reality. It is often confusing and disorienting. It challenges both the way we see business and the way we do business.”

“The mobile Internet – mobile commerce – will dramatically change what has already dramatically changed the world,” says Richard Silber of Accenture. “The wireless world will be a truly global market … Get ready for the ride of your life!”

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Bitcoin Forecasting

Advantages & Disadvantages of Using Bitcoin

Bitcoin Has Redefined Money

The benefits of using a bitcoin for payments far outweigh the risks posed. Bitcoin represents a dramatic improvement upon our current arrangement of financial payment systems which use government sponsored currency by relying on an internet protocol for the transmission of value where no humans or third parties are required.

Advantages of Bitcoin

    1. Trustless Payments

Bitcoin does not require a central party to facilitate transactions or confirm account balances. This is the power of peer-to-peer payments. When a payment is made, the transaction is verified by an economy of interconnected computers very much in the same way networks of servers make up the world wide web of today. The transaction is initially broadcast, then verified by the network in a secure manner. Eliminating the need for third party trust was one of the objectives of bitcoin in the first place, and it accomplished this unlike any financial instrument before. Typically, people trust banks to store their money, they trust central banks to retain the value of their money, and they trust governments to manage debt problems in a responsible manner. Bitcoin divorces the reliance on these institutions by putting trust in cryptographic technology rather than third parties.

    1. Open Payment System

The bitcoin payment system is the first non-exclusionary payment system every devised. It does not require paying monthly fees or deny access to people who are not in a position to be serviced by a traditional banking institution. Your account is never in jeopardy of being locked because there is no central institution with the capability to block transactions. With bitcoin technology, advocacy groups are able to accept and spend their money as they like, without requiring approval from government payment processing services.

    1. Personal Information Privacy

Under the current system, unless you are using cash, you are identified when you make a purchase. With bitcoin, this is no longer necessary, but it comes as a double edged sword. In one sense, bitcoin can be obtained and used in an anonymous manner. It does not require the personal information that traditional financial institutions would, such as government identification and contact information among a host of other data. Because the bitcoin payment system does not require these inputs, it need not put a citizen’s personal information at risk. However, just as easily as it can be used for stealth can bitcoin be used transparently, giving the entire world first-hand viewing ability into your financial standing. Being a distributed ledger, the blockchain will be making your wallet viewable but will be tied to your identification the instant you associate your real world identity to your transactions. Every person has an inalienable right to privacy, and that includes financial privacy. Bitcoin may provide that financial privacy while eliminating the potential for identification fraud and theft of personal information. Many people will argue that providing the ability to transact anonymously opens the floodgates for money laundering, illicit purchases, and all kinds of criminal activity. This may be true to a certain degree, but bitcoin technology does not aggravate this issue any more than paper cash does today. Indeed, using cash is still the most popular way to conduct money laundering and other illegal activities. There are risks associated with an anonymous form of transaction that financial enforcement agencies are well aware of. Even more so are they aware that paper cash is still the best medium for laundering money.

    1. Simplicity & Security

The cryptographic technology behind bitcoin is the most advanced of its kind, making the system impractical to hacking attempts. Rather, the hacking attempts to steal funds have been successful due to poor storage practices and faults with exchanges. Security experts around the world have been attempting to attack the bitcoin network directly since its inception. None have been able to find a chink in its armor. When used correctly, the bitcoin blockchain is an elegant and airtight solution to sending money cheaply and efficiently.

    1. Internet Functionality

The innovation of a payment layer for the internet is one of the primary reasons people are so excited about bitcoin. Some of the payment system features include worldwide accessibility, zero or low processing fees, open-source, fraud control, multi-signature accounts

Disadvantages of Bitcoin

    1. Technical Sophistication

In order to properly store and use bitcoin it requires a certain degree of technical understanding that most of society current finds challenging. The more you understand about vulnerabilities to storing bitcoin, the safer you will be. Storing your bitcoin is one of the biggest challenges and being protected from hackers takes a considerable degree of computer competency.

    1. Limited Acceptance

Bitcoin is continuing to gain traction with merchants. The number of businesses accepting it is growing daily. The Federal Reserve Board of Washington reports that the number of daily users is likely to have grown exponentially in the past few years, and that the user base has doubled every 8 months for the last 3 years. Businesses that do transactions online are taking a close look at integrating bitcoin, while brick and mortar retailers are still just getting onboard with this new type of payment. Because you may find it difficult to pay your rent or buy food at the grocery store with bitcoin (for now), this limited acceptance can be a disadvantage.

    1. Uncertain Future

No one can say with certainty what will come of bitcoin. As it remains today, bitcoin is very speculative as it is still an experimental type of technology. However, the upside is so one-sided that the average consumer would be wise to research and understand this new type of technology, given that money factors into our lives essentially everyday.

In the long-run bitcoin technology will transform the distribution and access to information in a manner similar to internet and smartphone technology. Considering the only action a user need perform to start using bitcoin is downloading an app using the aforementioned technologies, and you may begin to see why we are on the cusp of a powerful disruption in business, economics, and daily life.