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Regulatory Capture, The True Definition of Money & A World Without Banks
The concepts in part two of my panel discussion at the NYC Blockchain conference delves into concepts that should clearly delineate how drastic the change in the financial industry is about to experience. I literally challenge the audience (of mostly bankers) to tell me what use would the world have for banks in a Blockchain connected world.
I want to define some of the terms and concepts used in the presentation for those who may be a little ambiguous on the meanings.
Regulatory Capture (excerpted and modified from Wikipedia): A form of political inefficiency (what some may call corruptions, but I will not go that far in this forum) occuring when a regulatory agency created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating Regulatory capture is a form of government failure; it creates an opening for firms or political groups to behave in ways injurious to the public (e.g., producing negative externalities). The agencies are called "captured agencies". I went into the Fed in depth in this video, surprising many as to how Jamie Dimon is related to the Fed - How Blockchain Technology Reduces Wall Street Risk & the Fallacy of Too Big To Fail!
The Definition of Money: This is too involved to get into in a paragraph, but you can see why the Bank of England is wrong here - "The Central Banker's Definition of Money" and see what the right definition is here - "The Real Definition of Money in a Modern Economy" (skip duplicate videos).
And now, on to the show...
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For more information on a world that has loans without banks, trades without brokers and contracts without lawyers, see this, visit Veritaseum.com or email me.
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Bitcoin, Reggie!
I don't like how I've noticed when Bitcoin goes up , Gold and Silver do not.
an IOU is not the type of "money" Im looking for these days. I like real money something that equals work.
Energy = Work
Something that has been produced = work = money eg. gold=work=money corn=work=money rice=work=money silver=work=money
Call me a luddite, but I think I'm in the mass majority when I say I trust neither the system nor my personal ability to navigate it. I put nothing in bitcoin because I lack the ability to validate security. The catostrophic failure of some "wallets" is enough to keep me the hell away. I feel about bitcoin roughly the same way I do about buying GLD and feeling confident that I have access to gold.
I have considered www.bitgold.com as a viable digitial currency. I can comprehend ounces in a vault to which I have access. Too bad my personal fortune was lost in a tragic boating accident, making this whole conversation purely theoretic.
Few people have the ability to validate security in their clients use to access the Internet, yet most use it anyway. As for wallets, I'm sure you use them now, despite your inability to validate security. A bank account is nothing but a hosted, digital USD (substitute your digital fiat currency of choice). Wallets and digital currencies are nothing new and have been in mass use for decades now. What's new is the ability retain control, custody and possession and transact with zero trust.
I can validate energy amounts easy. Good luck fooling my diesel pump. My Fluke is pretty accurate too.
I like to think of it as a form of fascism.
What about the limitless availability of blockchain solutions? Couldn't your "savings" become worthless if you chose poorly?
Your savings don't necessarily correlate with blockchains. I don't think you fully comprehend th the terminology, which is completely understandable (so don't get offended, I have a hard time explaining it to potential investors). Blockchains are databse ledgers that tell a group (whether public or private) what transactions transpired over a period of time. These transactions, once agreed upon by the consensus of the network, are etched in stone and cannot be changed.
So long as the power grid remains on, yes. And such things can in fact still be "hacked"...
Now fuck you, pay me with something fucking real. As good as many of these ideas are, until the bad actors have been put in prison and retribution has been paid, nothing will change.
No offense taken whatsoever so OK so they're ledgers then. Where is monetary/digital wealth actually stored? What about physical wealth? There is an infinite supply of ledgers, is there not? We've already seen rehypothecation of so many assets and dilution of actual wealth. How do these blockchain ledgers prevent this?
> Where is monetary/digital wealth actually stored?
This question does not make sense in relation to blockchain based ledgers. It's like asking who is the CEO of the Internet. The value is stored on the network, but not any particular part of the network. Rather, it's stored on the entire network viewed from the perspective of single, distributed organism.
> What about physical wealth?
It's just different form of wealth based on the same premise of subjecive value.
> There is an infinite supply of ledgers, is there not?
There's abundance of elements. The fact that Aluminium, Zinc, Copper exist does not threaten the reputation of Gold.
> We've already seen rehypothecation of so many assets and dilution of actual wealth. How do these blockchain ledgers prevent this?
They don't really, but they make it bloody hard to pull. Since the derivatives traditionally operate on the existing trading infrastructure, they're hundreds if not thousends times slower to clear than blockchain based trades. Thus, the underlying asset may easily be more liquid than your paper claims "market" (this is unheard of in the world of physical PMs).
"There's abundance of elements. The fact that Aluminium, Zinc, Copper exist does not threaten the reputation of Gold."
Gold is not a substitute for zinc. The applications are completely different. One blockchain ledger can easily be substituted for another. They have equal application for the same purpose. Your example is invalid, is it not?
I used the comparison between ledgers to elements only for illustration purpose and I fully acknowledge the parallel will show cracks if you press hard enough. Having said that, you surely can use aluminium in some cases, but if you require superb conductivity you go for silver. Likewise, you can use litecoin for wealth transfer but if you want the most secure and widely accepted ledger you go for bitcoin.
Another thing is blockchains that are purposely built for specific task. There is no interchangability between bitcoin (the token) on Bitcoin network with Ether (the token) on Ethereum network as they do different things. Ethereum is designed to carry out computations for its smart contracts platform. Same is true with Factoid (the token) on Factum network which goas is to create generalized notarization platform.
Metals cannot be infinitely created. Blockchains can. Please explain why I'm wrong and why I should have confidence in a concept with limitless possibilites for uses and corruption.
Paper airplanes can be infinitely created as well, but that doesn't diminish the value of a Boeing dreamliner.
LOL I'll fly a paper airplane next time I travel.
This is not true. One ledger cannot easily be replaced by another. Just as the Internet cannot easily be replaced by AOL. Differences in structure, protocols, network effects, infrastructure, ownership (or the lack thereof), etc.
Again a poor analogy. AOL operates within the framework of the internet. Gold does not operate within the framework of zinc or vice versa. Ledgers only differ in their creative qualities as an attaction to individuals and like new cars or the latest i-gadget they will be created without limit and marketed without limit. Please explain how there would ever be a limit on the quantity and quality of these ledger creations.
Now you're purposely trying not to understand and your argument has become disingenuous.
You propose unlimited fungibility of blockchain-based ledgers but this is just not the case. The power of the network effect ensures that only bitcoin itself has any real value at present. It has the most public mindshare, mining backup and value invested. To claim another ledger could come along and usurp it without any real change in the underlying
Actually, this is like playing chess with a pigeon and you're just going to shit on the board and claim victory so I won't bother typing out the rest of my response
Actually, it's a very accurate analogy. AOL was a proprietary network for gamers that eventually was forced to adopt the Internet as a platform. At the time there were literally hundreds of other networks and platforms, yet in the end the internet reigned supreme due to ubiquity, low costs and network effects. Study the historyhttps://en.m.wikipedia.org/wiki/AOL
Legacy Banking is AOL recast.
So you're saying that AOL evolved into the internet. OK. You know the history of AOL better than I do. Again zinc did not evolve into gold or vice versa. Please address the last sentence of my previous comment.
No, I'm saying AOL was proprietary network that tried to force users off of an open standards network and inot their walled garden. It failed, and they were forced into using the open Internet as all of their clients went that low cost route without them. During that time, there were literally hundreds of other networks but the Internet still prevailed. History debunks your theory of having many networks somehow devaluing each network as a singular value proposition.
And yet AOL is pretty worthless now which proves exactly my point that any one of these proposed ledgers may become worthless because something better has come along. Windows 95 was great. Who uses that now?
Reggie, do you see corporate versions of Blockchains occuring?
How about National ones: Swiss Blockchains instead of Francs?
There are corporate versions of blockchains being released today in Vegas, by none other than NASDAQ. Google it.
Barcelona in Spain is trying to do the same right now, and the Spanish Central Bank is publicly saying it's a doomed idea (surprise, surprise!)
yes, gambling is what it is...
Reggie, We've chatted on the phone briefly back in December and I'm a big supporter of your ideas however...I'm the furthest thing from a "techie", far, far before your level.
What do you recommend to bring me up to speed so I can better understand? Any online resources? Do you have any videos to explain? UltraCoin for dummies?
Go to the Veritaseum.com site and click the analysis link at the top menu. There you will see two years worth of my blog posts on the topic. Go to the Bitcoin Wiki and read that, and don't forget to read the Bitcoin white paper. All of this is available by Googling. We're looking g for investors, thus the more people who are fully learned on what it is we are doing the larger the pool we have to choose from..
Obama care is how it will be set up.
The blockchain is not going to solve jack. The problem is the coin has no real value other than force.
Force has worked well for tptb so far. My guess is they stick with force of law because they can change or enforce laws any way they see fit.
You're concentrating on coin, and thus missing the point. This is not about coins or currencies, it's about consensus networks being used to exchange value in a trust free environment without a middleman.
Please read the links provided, start with this one.
Suck it, Reggie.
A network implies organization and oversight - no one provides that for free.
Electrons are intangible.
A Trust-ful environment is more to the point, and requires a trusted unit of value.
A physical manifestation of measureable value.
> A network implies organization and oversight - no one provides that for free.
Enter blockchain: a self-organizing, consensus gaining, peer-to-peer (no central servers), with no institutional oversight, no organizational burden, low cost transactional network.
> Electrons are intangible.
Electrons are just carriers and in case of bitcoin paper is just as good (hint: paper wallet to store your transaction keys off-line). The actual juice is in the math those electrons perpetuate.
> A Trust-ful environment is more to the point, and requires a trusted unit of value.
Enter blockchain: an environment, where insitutionally imposed trust is replaced by computational proof of work. What is a trusted agent (i.e. bank) good for in a trustless network?
> A physical manifestation of measureable value.
You got the value of physicality backwards. The value is in limited supply, which is inherent feature of physical objects. In the digital realm there is no such thing as scarce resource; everything can be copied. The invention of blockchain remedies this by introducing a computational method of reintroducing limited supply into digital world.
Apply that thesis to the Internet and see if it still holds water.
Reggie, you're ahead of yourselves on this one. Your premise: There is no need for banks if B2B uses Blockchain. So they are going to go quietly into the night.
I dont see it.
You're missing my point. I never said banks will go away. They will transform, and those that can't or won't transform fast enough will go away. Currently, most bank revenue comes from transactions. Transactions are best done through the blockchain for much less than a bank can ever charge. What happens when everyone figures this out? Banks will be forced to seek profits in non transactional services, ex. Truly value added advisory, etc.
We cannot get rid of banks for modern nations still use central and money center banks to control money flows. That doesn't mean they are immune to paradigm shifts, though. Nothing is immune to technoloical change.
I dont care about the coin at all only its real value without force. Barter by its very nature cuts out the middlemen. Its the only way the true values of things can be refound. Prices/values cant be measured in a varient.
The banks will simply merge with the IRS.
Don't get me wrong. I'm not going libertarian and saying that all banks will cease to exist. What I am saying is that the industry will change drastically with an empowered end user - very much like the media industry changed with the advent of the Internet, MP3s and P2P file sharing.
Why should end users adopt blockchain solutions ahead of the banking industry?
Because Paradigm Shifts Wipe-out Legacy Players & This Industry's Ripe for the Taking. It has the highest prices and the highest paid workers (on average) of all consumer facing indsustries - these prices and wages are going up! Literally unsustainable...
HI Reggie,
I am at least as bullish on blockchain tech as you are, and probably more excited about watching banks' role in society diminish than you are, however, I have come to realize a few important "roles" that someone will have to play, even in the "new finance" which you so elequently described. I see this tiny (but huge) part of the Bitcoin/blockchain equation ignored all the time among Bitcoin enthusiasts and it is this:
There are serious risks with being in total "control", "possession" and "custodian" of your own funds. This makes you (the holder of the private keys) a single point of failure, and a pretty easy target to attack. I am talking about physical security here, if evil person x knows that rich person y controls all of his own private keys, and therefore all of his funds, he is an easy target for theft or worse.
This is why multi-sig was one of the first additions to Bitcoin, owners of large amounts of Bitcoin quickly understood that under diress, they could be forced to give up their keys. And every major company that deals in Bitcoin requires a very involved and potentially complicated (ie. expensive) system of managing private keys across multiple parties so that at no time is any one person in control of the funds.
This simple reality puts us back to where we are now, trusting a third party with (either partial or full) control of our funds. Why? For the same reasons we originally started using banks - to handle the security aspect of storing and providing access to our funds.
So physical security and custodial services are the roles that banks could and probably will continue to play, even in a blockchain driven financial world. Those banks will then want to issue loans against the deposits they hold, and around in a circle we go, potentially leading toward fractional reserve lending against Bitcoin deposits.
Now I totally agree with you on almost every point, in particular, the ability for Bitcoin to disintermediate governments from our transactions and from the entire centralized money printing regime they control, but trust me, you DON'T want to be the only person in control of your funds. You and the rest of us will still NEED trusted third parties whether we like it or not.
The true magnitude of this realization took me a while to grasp, and it didn't really set in until I started working through the logistics required to manage a serious amount of Bitcoin - how to store it securely yet still access it when needed, without putting one's own person at risk?
Answer? There's the answer your bankers should have given to your question and it shows how distant they are from the true (and only) required purpose of a bank and related service providers - physical security, trusted third party signing authority, estate planning and transfer management, etc ...
The reality of this situation becomes clear when you look at the fees charged by "Third Key" - a service that implements a cryptocurrency protocol that assists companies with securely managing their private keys - those fees were vastly greater than what any banker charges to handle fiat! I am sure there are cheaper alternatives for individuals with simpler requirements, but you still have to trust someone (your family members or friends) to help you manage a multi-sig, otherwise your funds are not as secure in your possession as you think they are.
I'd love to hear your comments on this.
Let me get this out of the way first and foremost. It's damn near elational to have you in the Comment section for you obviously fully understand what is going on and what is to come. Commentary such as yours help educate the masses at a rate that no single author on ZH ever could. Now, on to your comment. We are working on ways to have individuals and corporate entities secure their wallets with open standards tech very inexpensively. I can't say much more about this in this open forum, but the tools are definitely there to supply the same if not greater security than any bank could offer. No balance sheet exposure (ex. Bear Stearns s or Lehman) and no concentrated honeypot of cash to pilfer or act as a target. Fully distributed, bad actors have to hack or break into thousands of individual physical and logical locations. Centralized, ie legacy banking model, bad guys have all of thier prizes located in one single spot. It's always Christmas with legacy banks.