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How Cryptocurrencies Already Help Sovereign Nations

How Cryptocurrencies Already Help Sovereign Nations

Article by Scotcoin’s own Temple Melville published in City AM on 28/8/19

Cryptocurrencies are almost as old as money itself. Indeed, crypto simply means concealed or secret. So the first man (or woman) who tried to exchange some rocks for a sheep could be said to have been using a crypto currency. Up to that point a sheep had been worth 15 chickens. It’s simple, really. You attribute a symbolic sense to something you do not see.

Finance Houses and liquidity

Move on to the 1600s when after the Thirty Years War belief in what then passed for “money” was at a low. Something else had to be found, and it was, in the shape of strong finance houses with robust links to other similar houses. They issued their own currencies when the State currencies could no longer be trusted. Move on again to the American experience of the mid 1800s. There were over 8000 “currencies” – usually paper – being traded around the country with a big business in accepting and exchanging them. There had to be some form of currency to enable trade to take place as America expanded. These of course were seriously open to abuse and eventually the individuals and banks that had issued them had to bow to the Federal Government creating its own, reliable currency.

Liquidity created – WIR

In the 1930s there was to all intents and purposes no liquidity in any markets. Things were so bad that some of the good citizens of Zurich created their own currency to enable them to trade. This was called WIR and was, indeed, like those currencies before it, a crypto currency. Over the years it has prospered (perhaps one would expect a Swiss monetary instrument to do this) until today it is used by more than half a million people, over 70,000 businesses and transacts some CHF2.5billion annually – that’s around half a percent of Swiss GDP. By doing so, it illustrates exactly what “Money” is – a trusted medium of exchange that others will accept, and a stable store of value.

Crypto today

The present crop of crypto currencies rely on digital technology to give them credibility. You can’t have a run on the “Bank” for example – there isn’t one. Despite being relatively small in terms of value (only some 0.1% of total world assets) they already show what digital and crypto currencies can do to enhance people’s lives. As an example, if you want to send £1million to anywhere in the world, that will cost you between £20-30,000. Using a digital currency, it can be done for 50p. In fact, the Philippines is looking to create a Bitcoin transfer system for its overseas citizens. Using this system would save their economy over USD1.5 Billion a year – a significant sum in a poor country.

The three cryptos no one talks about

There are three interbank tools that are in effect digital currencies and have been for years. These are:

1. Target2 – the ECB system, the old Bundesbank system which is currently so politically in focus in respect of Italy

2. IMF SDRs – Special Drawing rights

3. The highly secret interbank settlement system at the BIS in Basle.

These three were absolutely crucial in getting the world through the 2007 crisis.

Hyun Song Shin of the BIS argued last year that cryptos (and he was specifically talking about Bitcoin) had issues with scalability and finality. At that time he was right as you would expect, but he was talking about first generation blockchain. We have since had second generation in Hyperledger, and now third generation called Permissioned Decentralised Blockchain. Facebook’s Libra will largely use this system and there can be no doubt this will revolutionise the use of digital and crypto currencies world-wide. We’ve gone from around 35 million wallets to a potential 2.7 BILLION. But Shin’s central thesis holds good – you need people to USE these new currencies to make them both trusted and useful, and having exchanged goods for the currency, the person TAKING the currency needs to find someone else to take it as well.

Cash declining

The use of cash has been declining for years in most western countries, and the Central Banks have realised that it will have to be replaced with something. To this end both Sweden and Uruguay have run full scale crypto trials which have largely been successful, though not set for full implementation anytime soon.

The use of crypto currencies can and should mean social inclusion. Whilst Central Banks’ attitude remains “Bitcoin is not a good idea,” the idea behind it continues to fire imaginations all around the world.

The Brixton Pound

This remains a very positive initiative which is making a real difference within Brixton. Arguably it’s as old as Bitcoin. People are prepared to use it and pass it on – and the money stays in Brixton. That is different from the likes of Bitcoin which is world-wide, but it doesn’t detract from the social inclusiveness of it. We look to history for lessons on the nature of money and the role of central banks in building trust in the use of money in society. The issue of trust has again come to the fore in debates on the durability of cryptocurrencies such as Bitcoin, and how far private money can supplant central bank money as a medium of exchange.

Future payment needs

In the future, physical cash or even bank transfers as we currently know them are unlikely to be the main answer. Central banks are already working on systems and digital currencies that will be trusted and used. Existing crypto-assets have exhibited a high degree of volatility and are considered an immature asset class given the lack of standardisation and constant evolution. They present a number of risks for banks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks. But new know your customer and anti-money laundering rules will mitigate much of this.

In many ways, the African sub-Saharan region has become a leader in mobile money resulting in a radical change in the delivery of financial services and significant gains in financial inclusion. Where there is a lack of payment infrastructure, the use of crypto currencies immediately enhances trade and social inclusion. You only have to think of Eastern Europe which hardly had a fixed line telephone system before 1989, and suddenly every man and his dog had a mobile phone, leapfrogging to a new world.

Christine Lagarde in an excellent speech to the November 2018 Singapore Fintech Conference, has posed the question – should central banks issue a new digital form of money?

Arguably they already have. As such, it can only be seen as a force for good.

bitcoin vs scotcoin

Scotcoin – Scotland’s Own Digital Currency, a World Coin With a Scottish Ethos

 

– A speech by Temple Melville to Scottish Fintech on Wednesday 19th September 2018

 

“Good afternoon! I represent Scotcoin, Scotland’s own digital currency, a World Coin with a Scottish Ethos.

I have just three things to tell you about today, all of them important. One is potentially profitable for you, one will benefit all the people of Scotland and one will target individuals and groups in need.

But before I do that, does everyone here know what blockchain is? And do you know that blockchain is an enabling technology, that it can exist without Bitcoin or any other coin, but that Bitcoin could not exist without the blockchain? Scotcoin is on a blockchain – more a little later.

So number one, how will what I have said be profitable be for you?

A little history. Scotcoin began in 2013 and is now one of the longest-lived country crypto currencies. We presently sit on the Counterparty Protocol which makes use of the Bitcoin blockchain. The problem is this particular blockchain has several drawbacks. Not the least is that in the world of regulation that is coming to cryptos, there is no method for ensuring who is sending what to who. So we at Scotcoin decided a couple of years ago we had to do something different.

bitcoin vs scotcoin

As you can see, Bitcoin can only do seven transactions per second. It takes 12 minutes to confirm a transaction, the cost per transaction when volumes are high is extremely volatile, and it uses more electricity than Denmark. None of that is very good.

Scotcoin, on the other hand, intends to move to its own permissioned blockchain shortly which will encompass KYC (know your customer) and AML (Anti-money laundering) to comply with all present and potential future regulations. We at Scotcoin are well ahead on this track – a committee of MPs has just published a paper daying that crypto currencies and Bitcoin in particular should be regulated.

You can see from the graphic which shows results from our testing that we should be able to do more than 50 transactions per second. We should also be able to confirm transactions in mere seconds, and the power usage should be infinitesimal in comparison to Bitcoin. If we can deploy our new blockchain with these parameters, Scotland will have another world beating industry.

We have several thousand holders of Scotcoin and have holders in more than 50 countries worldwide. On migration to our new blockchain, present holders of Scotcoin will be rewarded for their support by receiving a 4-for-1 bonus, an effective increase in value of up to 5 times.

Yes, you heard that right. I’ll repeat that. An effective increase in value of 5 times. That means if you have £10 of Scotcoin in its present form, in its NEW form you will have £50. So point one, that is how it will be profitable for you in the first instance, as long as you already have Scotcoin, or buy some very shortly.

In respect of point 2, we intend to occupy the social good works ecosystem and our plans are well advanced to do this. Scotcoin has been offered to the Scottish Government and discussions are ongoing. But in essence, the idea is that there will be established a commonweal fund that will be able to be used throughout Scotland to assist where the powers that be may not be able to step up to the mark. The point is that everyone in Scotland should benefit from this fund, and quite frankly this will be helping the Scottish economy to progress in the future.

And finally, point 3. I’m sure you’ve all heard of Social Bite and The Big issue. These organisations help people that have problems to get on their feet again. This is both our goal and our desire. I can think of no better future monument to Scotcoin than if people are able to say, Scotcoin eradicated homelessness in Scotland. And we are in good company here – Jeff Bezos has just announced a $2 billion fund to do exactly that.

So from all our perspectives, let’s pull together to make Scotcoin a World Coin, But with a Scottish Ethos.

And to be clear, what do we mean by a Scottish Ethos? Scotland has a long history of financial innovation and strong security for its money. We aim to keep to these traditions for Scotcoin. But the Scots also have a long and noble tradition of good works, charitable giving, of invention and forward looking. We aim to bring all these to bear by using Scotcoin in a way to enhance people’s lives right here in Scotland.”

ICO? Take care

ICO? Take care…..

A Boston College research paper entitled Digital Tulips has found that fewer than half of all ICO projects survive more than 120 days after the completion of their sales of tokens to the public.

That is really scary. And this fact does not seem to be putting people off. Another $10-12 billion of ICOs will be out there during this year.

I was reflecting on the longevity of Scotcoin.

In the same way that most small businesses go bust within one to three years, it appears that ICOs ( ok it’s digital so it’s faster) go bust in 3-4 months.

It’s not surprising really. Most of them are designed as get rich quick schemes for the perpetrators with no economic or financial sense. That’s why some of the earlier coins and tokens have lasted – they have a purpose and a measurable impact, unlike their imitators. In the same way that it is said there are only 7 plots in total for literature, there may not even be 7 in crypto-currencies.

So Scotcoin, actually in existence for 5 years, is almost a granddaddy. In fact, in terms of country coins we might actually be the oldest – if anyone else knows better please let me know.

But I wanted to reflect on the words of an Economics Professor – Hyman Minsky. Being a true Keynesian myself – and believe me what we have had for a long time is NOT what Keynes said – I find Minsky’s idea of his Financial Instability Hypothesis extremely enticing. Basically he says on the economic upswing, people take greater and greater risks – until the bubble bursts and we end up back down at the bottom of the boom and bust cycle again. Sadly, Gordon Brown no more banished it than controlled it – and then made a mess of the Banks’ recapitalisation. In fact, it means we are on a treadmill we can’t get off. Digital money, espoused by Milton Friedman more than 20 years ago, has enormous attractions when all around is collapsing.

But Minsky said something very wise.

Everyone can create money; the problem is to get it accepted.”

That’s what we are working on at Scotcoin.

 

Rigging the crypto currency markets

Rigging The Crypto Currency Markets

The news that US regulators are investigating crypto currency exchanges for illegal rigging activities should come as no surprise to anyone.

When you are in the Wild West, anything goes, and can go on for as long as no one pulls the plug on it.

But this particular move is all part of the worldwide efforts by regulators and central banks to bring some oversight and order to the crypto world. Think of the Wild West and how law and order came to it over a period once the abuses became so much that Washington got involved. The same is now happening with blockchain and crypto currencies – not a surprise to us at Scotcoin. We have been preaching about how regulation was coming and how this was a good thing for over two years now. Our new permissioned blockchain will handle all these requirements as a prerequisite.

What this also emphasises is how right we were to be happy to remove from Bittrex. The total speculation and pump and dump culture had no part in what we have been building.

There are still people who view cryptos as get rich quick schemes. Indeed I was looking at some exchanges on our Twitter (which please follow!) where someone was looking to buy something he could rapidly sell at a profit. That is actually counterproductive in terms of the evolution of digital currencies. If people are to have trust in them, they have to be sure of the value at any given point. Arguably, the worst offender is Bitcoin – A year ago $1000, Christmas $20,000, now $6500. How on earth can any business plan its forward sales and cash flows dealing with that?

Ideally you want a very slow and steady increase in price over time. Most people will by now have forgotten the German “Wirtschaftswunder” (Economic Miracle) of the 1950s ,60s and 70s. It is a given nowadays that Germany is one of the pre-eminent economies in the world. Not so after WW2 and into the early 60’s. Ludwig Erhard – the then German Economics Minister, equivalent to our Chancellor of the Exchequer – believed there was a way to guarantee economic growth. It wasn’t quantitative easing on a grand scale (as people seem to believe erroneously nowadays). He believed that what gave business the confidence to invest and grow was certainty. So he said categorically that the money supply would grow at 2% pa for the foreseeable future – no more and no less. And he stuck to that religiously for 20 odd years. He was so successful he ended up as German Chancellor.

We at Scotcoin have the same philosophy. We don’t want ups and downs destroying trade. We want trade to grow and grow with confidence, in the way that the German economy grew mightily from the 1950’s onward. If we could replicate that in Scotland we would, as the saying goes, be quids in.

Pennies to Pounds

In case you are a hermit (and even hermits have mobile phones a la Sue Perkins) and haven’t heard, Bitcoin is closing in on $20,000 or around £14,600.

If you’ve been actually following what’s going on, you may have come across a strange phenomenon. If you put in a very low transaction fee to send Bitcoin or crypto currency, after a while you discover a) it hasn’t gone and b) there is no trace of it ever having existed. It’s been mysteriously disappeared.

This is clearly because the transaction numbers keep going up – at last count over $27 BILLION a day – but also because the mem pool where transactions awaiting confirmation are stored keeps growing as well. The miners have decided, it would appear, that they don’t intend to work for pennies (as the ethos and basis of micro transactions at the outset would have you believe). They will now only work for pounds and quite a few at that. From empirical evidence you need to put a fee in of around $8 to get a transaction even INTO the mem pool. After all .0005BTC is now worth at least $9.50, and that will only get you to the back of the queue. Want it down in the next 10 minutes? You can pay as much as $30. And yes, I have actually seen a transaction where the required fee was more than $30 – that’s £23 plus.

The same applies to other crypto transactions. That is why we at Scotcoin are going to our own permissioned blockchain. Quicker, faster, cheaper.

It’s also why we are going to be putting up our exchange price very shortly. Not only is the transaction fee burgeoning but so is the Bitcoin price, making us cheaper and cheaper relatively speaking as each day goes by.

Don’t forget, existing holders of Scotcoin will be well treated when we move to our own permissioned blockchain.

 

bitcoin cryptocurrency

What will shape future demand for Cryptocurrencies?

bitcoin cryptocurrencyIn the past year, we have seen an explosion in the value of the global cryptocurrency market. Bitcoin’s price has increased by 850%, Ethereum’s by 2900%; and the market capitalisation of the cryptocurrency market has increased from around $13 billion to over $200 billion. Such a rapid increase reflects uncertainty surrounding the value of global currencies and increasing faith among investors in cryptocurrencies as an investment vehicle. While financial institutions and regulators now accept that crypto is here to stay, future demand will depend on widespread adoption and the response of policymakers. Read more

cryptocurrency crash

Crash? What Crash?

cryptocurrency crash

The Bitcoin Crash Which Never Was is OVER

So guess what? The Bitcoin crash that never was appears to be over short term. There are still issues with Segwit come 1st August and a LOT could still go wrong, but it’s beginning to look as if BTC will climb much higher once this is safely out of the way. It’s worth remembering what Segwit is all about. Basically, the activation of SegWit will lead to a 75 percent optimization of Bitcoin blocks and a substantial decrease in Bitcoin transaction fees.

It’ll take several weeks to be sure, and whilst that’s all happening, as someone cleverer than me has said “ In the meantime don’t trust just one or two confirmations. Go for 6 at least!” The only problem with that is it could take quite a long time.

Interestingly, I did a couple of transactions this morning on “normal” as opposed to cheap or priority, and both were cleared and done within 15 minutes.

The 25% plus rise in Bitcoin this week has dragged up the total Crypto market cap, but not by as much. As a result, Bitcoin dominance has risen a couple of percentage points. There is a definite correlation between the value of individual crypto currencies and the value of Bitcoin, and what it is doing. The other interesting thing is the volume of trading in crypto currencies. Until a few weeks ago, this hovered between $500 million and $1billion per 24 hours. This last few weeks it has grown enormously. Today it was just under $6 billion, and it’s been north of $5 billion for quite some days.

I don’t pretend to be able to “read” the markets. As Nathaniel Rothschild said in the 1800s: “I buy 10% too late and sell 10% too early.”

“I buy 10% too late and sell 10% too early” – Nathaniel Rothschild

And Bernard Barouch said it again after the 1929 crash, when he was largely unscathed “I always buy ‘too late,’ and sell ‘too early.’” In other words, don’t be greedy and leave something on the table for someone else.

That said I’d expect a bit of a settling down over the next couple of weeks. I fully expect more ICOs (Initial Coin Offerings) not least in part of the Kik messaging service, issuing some 10 TRILLION tokens. That alone will knock some dominance points off Bitcoin. I don’t actually see that that matters. What matters in Cryptoland is acceptance and usage, and a community. Kik already has this, as does Bitcoin. But many others are just “Me toos” which longer term will have no relevance.

There are some exciting developments coming down the track and many businesses need to get on board before they are left behind.