Wednesday, November 20, 2013

Bitcoin Value Not In Bitcoin, Most Disruptive Quality in Infrastructure

The excerpt below is from an IBT article highlighting an interesting aspect of the Bitcoin mania, as evidenced by the large and wild runs in the value of Bitcoins in US dollars. The speaker highlights a startling, and potentially the most disruptive, aspect of Bitcoins in that value lies in the technological infrastructure. Imagine for a moment instead of trading with Bitcoins or some other more established currency, the infrastructure opens the field to competitive currencies. To use the example below frequent flyer mile 'currencies'. Or what about gift card and store credits being trades as currencies? Whatever holds value could conceivably be used as a source of value. Now my though is unrefined, but in a grand scheme a competitive currency environment would help reduce the monopolistic powers held by the monetary authorities and may facility the return of monetary value to where it belongs, the production of goods and services.

 From IBT

Speaking to IBTimes UK, Merk believes the current bitcoin boom - which took the virtual currency past $900 per coin this week - is merely traders "passing around a hot potato...someone will get burnt," and that the real value is in the technology that runs it.
Merk is the president and chief information officer of Merk Funds, an investment advisory firm he sent up in Switzerland in 1994, before moving the business to California in 2001.

Merk said that bitcoin trading is currently "like having a pre-paid debit card where the value is changing every couple of seconds and as long as the value's going up there will be a bunch of users who will be happy with it."

But the "real strength" of bitcoin is its potential to "shake up the banking system. There might be some other uses for bitcoin other than the ways it is used right now. International bank transfers are way too complicated, way too expensive. The banks need to get their acts together on that - bitcoin certainly does a better job."
Criticising international bank transfers for being "expensive and slow," Merk said bitcoin addresses both of these issues. "You can give banks a run for their money by deploying technology that's based on bitcoin...[this technology could] provide competition to a banking system that is just incapable of innovating, I think that could be fantastic."
Wildly fluctuating
Merk also sees a future where instead of bitcoin being the wildly fluctuating currency it is today, the technology used to trade it will be used for functions like "allowing frequent flyer miles to be traded in some sort of decentralised fashion."
Expanding on his ideas for bitcoin's infrastructure, Merk believes the system could also be used to transfer financial units such as a business's employee bonus structure. The bonuses could be sent directly to employees worldwide without the need to go through a bank, or pay for international money transfers - although how this would comply with tax regulations is unclear at this stage.
"I think ultimately it will be used not as a currency but as a technology, a decentralised way of managing obligation - I think that really is what the novelty is here. For a business, you could come up with your latest and greatest bonus points, which you could [use the bitcoin platform to] trade globally."

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