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wonderpup

Should The Bankers Be Careful What They Wish For?

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It's clear that the Banks are pushing for a 'cash free' society which they presumably view as working to their advantage in that it would seem- at first sight- to render their dominant position unassailable.

However I wonder if they may have overlooked something. For example I recently made an online purchase and following the payment process a little box popped up informing me that the store I had shopped at was a 'google approved retailer' or something similar- and I was further informed that since this was the case I had a free option to receive a 1000 pound guarantee on my purchase- in other words if anything went wrong with the transaction Google would give me my money back! So I had cost free purchase insurance from Google.

All very nice- but I got to thinking why? Why are Google messing about with this kind of retail offer? It may just be a PR exercise- but I think there is more to it.

Ok- here comes the tinfoil hat speculation;

What if Google have worked out that once cash is gone and all money is digital the barriers to entry are significantly lower for any entity that might wish to create it's own 'currency'? And by 'barriers to entry' here I am specifically meaning the psychological barriers to entry.

The thought is this- say the word 'money' to most people and they will almost certainly call to mind a banknote or some coins. Despite the fact that most of us do most of our spending in the digital realm of cards and bank transfers we still tend to think of these things as proxies for 'real money' which is the banknotes that come out of the ATM.

But what happens if there are no banknotes any more? At this point we are suddenly adrift in a brave new world in which validating your 'money' becomes a bit more complicated than walking into a bank and demanding they hand over your stash in the form of banknotes.

In a world of digital money where you can never exit that digital realm the following scenario becomes possible to at least imagine;

Let's say that over time Google has created a large constellation of 'google approved' retail outlets online- all covered by that nice free purchase insurance guarantee. Then let's further suppose that Google then begins to issue it's own digital currency- let's call it's units 'Googs'. These Googs can be spent in any of these approved online retail establishments, all of whom would benefit from participating in the form of increased sales.

Various incentives could be offered by Google to persuade people to transform their existing Bank credits into Google credits- like free online purchase insurance for example. The retailers could be offered the ability to retransform their Google credits into Bank credits if they wished- at least until Google's online retail empire was sufficiently self sustaining to make such a redenomination unnecessary.

Ok- this may be overstating things a bit- but my point is that once money goes 100% digital it's fungibility becomes enhanced- and the ability of non bank entities to create competing 'currencies' becomes far more potent.

So might it be that in pushing for a cash free system the bankers are unwittingly putting in place the foundations for a new species of competitor who could deploy their own brand recognition and resources to in effect start to colonize the banks monopoly territory as transactional facilitators? To some degree Paypal is a crude example of this process- but as long as the ability to transform bank credit into cash was seen as important Paypal was always going to be seen as a poor substitute for 'real' money.

But in a scenario where there is no cash, where all money is digital, if Google offers you more bang for your digital buck why would you not want to exchange some of your Nat West or Barclays credit for some Google credit? At which point has Google not in effect created it's own currency? And having done so could it not build an online empire of retailers who will in time be prepared to pay a modest fee in order to access this 'currency zone'?

Edited by wonderpup

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Suggest you look at bitcoin. Fiat currencies will fail due to the corrupt actors who issue it, bitcoin solves this problem and many more.

Interesting phrasing. Doesn't the inventor of bitcoin still hold a big chunk of them (as far as I understand, 'mining' the first batches of coins was trivial)?

Bitcoin looks to me like a big confidence trick. It has no inherent value and is backed by absolutely nothing. It'll make a few early adopters rich and the rest of us will be poor. As demand for bitcoins rises and the value of coins increases once again we have a system where those who entered the bubble early become fabulously rich while it's the new entrants who will be forced to support that wealth with real goods and real work.

The whole idea of purely electronic money is yet another step in breaking the link between the real world and the financial one, which IMO is the cause of many of our problems, rather than any kind of solution.

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Interesting phrasing. Doesn't the inventor of bitcoin still hold a big chunk of them (as far as I understand, 'mining' the first batches of coins was trivial)?

Bitcoin looks to me like a big confidence trick. It has no inherent value and is backed by absolutely nothing. It'll make a few early adopters rich and the rest of us will be poor. As demand for bitcoins rises and the value of coins increases once again we have a system where those who entered the bubble early become fabulously rich while it's the new entrants who will be forced to support that wealth with real goods and real work.

The whole idea of purely electronic money is yet another step in breaking the link between the real world and the financial one, which IMO is the cause of many of our problems, rather than any kind of solution.

The inherent value is being able to transfer value anywhere in the world, to anyone you want, without having to place your trust in any central authority. It also has the backing of the largest computer network to ever exist that verify transactions ensuring that no foul play can take place.

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Very interesting.

A first step might be Google Insurance and their becoming the main company in global insurance.

The big advantage the banking system has is the apparent ability to create money out of thin air which Google can't at the moment. So, like they could with bitcoin, presumably the banking system could arrange things so that they just bought out Google if it ever approached the point where Google could entirely replace existing currency. Then they could just run it themselves. Google could become a big bank even with a separate currency (something like bitcoin) but likely it would always come under the contol of Central Banks.

Unless they could out-brown-envelope the current brown envelope system and get massive changes in the VI law.

Edited by billybong

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You can only 'transfer value' with bitcoins if you first agree that bitcoins have value.

And, as I said, if we do start valuing these pieces of math and exchanging them for food, shelter, and water, then all we are doing is exchanging one set of 1%ers for another. Unfairness in the form of 'missing the boat' is built into the system. Those who did some 'mining' in 2010 will always be vastly richer than the rest of us with zero effort on their part other than entering the system earlier.

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You can only 'transfer value' with bitcoins if you first agree that bitcoins have value.

And, as I said, if we do start valuing these pieces of math and exchanging them for food, shelter, and water, then all we are doing is exchanging one set of 1%ers for another. Unfairness in the form of 'missing the boat' is built into the system. Those who did some 'mining' in 2010 will always be vastly richer than the rest of us with zero effort on their part other than entering the system earlier.

The difference being if someone pays you in bitcoin it is yours and can't be counterfeited like our current fiat currencies with there being a hard limit baked into the protocol.

It is already agreed by many that bitcoins have value as I have bought many items from amazon using bitcoin with a healthy discount too.

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Interesting phrasing. Doesn't the inventor of bitcoin still hold a big chunk of them (as far as I understand, 'mining' the first batches of coins was trivial)?

Bitcoin looks to me like a big confidence trick. It has no inherent value and is backed by absolutely nothing. It'll make a few early adopters rich and the rest of us will be poor. As demand for bitcoins rises and the value of coins increases once again we have a system where those who entered the bubble early become fabulously rich while it's the new entrants who will be forced to support that wealth with real goods and real work.

The whole idea of purely electronic money is yet another step in breaking the link between the real world and the financial one, which IMO is the cause of many of our problems, rather than any kind of solution.

It may appear like a confidence trick to you, but that is only because you are wrong. The bitcoin network is decentralised. No one individual controls it, not even the inventor. The source code is freely avaliable to read by anyone, in the same way that the text of Romeo and Juliet is.

Bitcoin's inherent value is subjective to some degree. Yes, it is backed by "nothing" as you put it, but so is fiat money, pounds, dollars and so on. I would argue that bitcoin has greater inherent value in as far as it's supply is limited mathematically to 21 million units. Bitcoin transfers are decentralised, there is no central point of control. Therefore, they can't be forged, seized or frozen by either the authorities or anyone else. Bitcoins can be purchased and spent anonymously with the right knowledge. Bitcoin transactions equivalent to hundreds of millions of dollars can be executed for a cost of only a few pennies. Value can be stored for decades if needed at almost zero cost and mathematically perfect security. Bitcoins are scarce. Bitcoins can be 'stored' by writing a long number down on a piece of paper. It is even possible to carry any sum of bitcoins in your own memory. Just commit the number to memory and you will be able to access your bitcoins years later with internet access and a some free software.

Your point about it 'not being fair' for early adopters is irrelevant. They were in the right place at the right time. Others have risked their own dollars and pounds to purchase bitcoin. Bitcoin doesn't make anyone poorer, it makes everyone richer, although some richer than others. You might as well say the same thing about Bill Gates and Microsoft, he never stole any money from you.

By the way, you contradicted yourself by saying that bitcoins are backed by nothing, but then go on to say that new entrants will be "forced" (which is false) to support that wealth with real goods and real work.

One point a lot of people miss about bitcoin, is that it's inventor described them as 'digital cash'. They act and behave like cash, but they exist on a decentralised ledger stored on computers all over the world. It sounds like money in a banks computer, but this is a superficial comparison. Go read through this post again, bitcoin is like cash for the internet age. It is a timely weapon against oppresive governments and central bankers shaking their citizens down. No regular on this forum can deny the soul crushing, life ending impact of inflation on peoples lives.

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It's not a contradiction - bitcoin is like any other monetary system in that it's only worth what people believe it's worth. It has even less backing it than a fiat currency as there's no government mortgaging taxpayers to support it.

But in the hypothetical future where currencies go completely digital and the world transacts in bitcoin won't have a choice - I'll need bitcoins to buy food no matter what I think of it. And the only thing I'll have to trade in this brave new world will be my labour.

Fair enough if everyone starts at the same place - but the people who have bitcoin now didn't work for them. They're 'rich' through manipulation of the money supply itself, which is exactly the kind of thing I'd like to get away from.

There's no inflation - instead we have perpetual deflation, where those who have monopolized the money supply can live like kings by selling off ever smaller fractions of their hoarded wealth.

Just like the money printers bidding up asset prices, the early entrants are God and future generations have to fight for the scraps. That's not the kind of 'lucky' I am prepared to accept.

Bitcoin swaps one set of problems with the monetary system for another, similar, set that helps those of us disadvantaged by the current system not at all.

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It has even less backing it than a fiat currency as there's no government mortgaging taxpayers to support it.

Governments don't support their currencies, they devalue them. Bitcoin is deflationary, it rises in value over time, which encourages saving and investment, and disincentivies frivalous spending. Late comers benefit from this just as early adopters do.

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It's clear that the Banks are pushing for a 'cash free' society which they presumably view as working to their advantage in that it would seem- at first sight- to render their dominant position unassailable.

However I wonder if they may have overlooked something. For example I recently made an online purchase and following the payment process a little box popped up informing me that the store I had shopped at was a 'google approved retailer' or something similar- and I was further informed that since this was the case I had a free option to receive a 1000 pound guarantee on my purchase- in other words if anything went wrong with the transaction Google would give me my money back! So I had cost free purchase insurance from Google.............................

...this guarantee works with debit cards if they are say Visa backed as many are and if your airline goes kaput your tickets will reimbursed etc etc ...in other words better pay by debit/credit card than say cash or cheque or even a guaranteed bankers draft or cheque...... :rolleyes:

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This is why bitcoin and the other digital currencies are still around, quietly biding time. If the bankers/governments really do get rid of cash (and introduce negative interest rates) the crypocurrency is going to become the new cash and is going to be very popular. People will always find ways of getting around the rules and nobody likes being told how to spend their own money, especially by bankers and politicians.

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The big advantage the banking system has is the apparent ability to create money out of thin air which Google can't at the moment.

That's true- but it's the Finance sector's ability to transform that magical bank credit into physical notes at the ATM that makes their credit unique I think. Google could- if it chose- offer credit in it's own virtual currency and while that virtual currency could never be transformed into notes at an ATM the same would also be true for the credit issued by Nat West in a cash free system.

So suppose you want to take out some credit to make an online purchase- and Google's credit is cheaper and has added benefits like payment protection and maybe special offers if you are part of their online retail 'currency area'- what advantage at this point does Nat West have over google?

In pushing for the abolition of cash aren't the banks and other finance providers in danger of opening up their market to an entirely new breed of competitors who will be providing an identical product in terms of digital credit- credit that could-if backed by a sufficiently prestigious brand- be just as 'real' as their own?

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That's true- but it's the Finance sector's ability to transform that magical bank credit into physical notes at the ATM that makes their credit unique I think. Google could- if it chose- offer credit in it's own virtual currency and while that virtual currency could never be transformed into notes at an ATM the same would also be true for the credit issued by Nat West in a cash free system.

So suppose you want to take out some credit to make an online purchase- and Google's credit is cheaper and has added benefits like payment protection and maybe special offers if you are part of their online retail 'currency area'- what advantage at this point does Nat West have over google?

In pushing for the abolition of cash aren't the banks and other finance providers in danger of opening up their market to an entirely new breed of competitors who will be providing an identical product in terms of digital credit- credit that could-if backed by a sufficiently prestigious brand- be just as 'real' as their own?

But the physical notes don't really matter in the grander scheme of things, wp. Their number is dwarfed into utter insignificance by the monetary tokens that the banks and non-banks together are able to confect in the unregulated free market.

financial_derivatives_shadow_banking_sys

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It may appear like a confidence trick to you, but that is only because you are wrong. The bitcoin network is decentralised. No one individual controls it, not even the inventor. The source code is freely avaliable to read by anyone, in the same way that the text of Romeo and Juliet is.

Bitcoin's inherent value is subjective to some degree. Yes, it is backed by "nothing" as you put it, but so is fiat money, pounds, dollars and so on. I would argue that bitcoin has greater inherent value in as far as it's supply is limited mathematically to 21 million units. Bitcoin transfers are decentralised, there is no central point of control. Therefore, they can't be forged, seized or frozen by either the authorities or anyone else. Bitcoins can be purchased and spent anonymously with the right knowledge. Bitcoin transactions equivalent to hundreds of millions of dollars can be executed for a cost of only a few pennies. Value can be stored for decades if needed at almost zero cost and mathematically perfect security. Bitcoins are scarce. Bitcoins can be 'stored' by writing a long number down on a piece of paper. It is even possible to carry any sum of bitcoins in your own memory. Just commit the number to memory and you will be able to access your bitcoins years later with internet access and a some free software.

Your point about it 'not being fair' for early adopters is irrelevant. They were in the right place at the right time. Others have risked their own dollars and pounds to purchase bitcoin. Bitcoin doesn't make anyone poorer, it makes everyone richer, although some richer than others. You might as well say the same thing about Bill Gates and Microsoft, he never stole any money from you.

By the way, you contradicted yourself by saying that bitcoins are backed by nothing, but then go on to say that new entrants will be "forced" (which is false) to support that wealth with real goods and real work.

One point a lot of people miss about bitcoin, is that it's inventor described them as 'digital cash'. They act and behave like cash, but they exist on a decentralised ledger stored on computers all over the world. It sounds like money in a banks computer, but this is a superficial comparison. Go read through this post again, bitcoin is like cash for the internet age. It is a timely weapon against oppresive governments and central bankers shaking their citizens down. No regular on this forum can deny the soul crushing, life ending impact of inflation on peoples lives.

:lol: What? You must live/commute in the SE? Move somewhere else, BitScam is not the answer.

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But the physical notes don't really matter in the grander scheme of things, wp. Their number is dwarfed into utter insignificance by the monetary tokens that the banks and non-banks together are able to confect in the unregulated free market.

That's true- it's more the psychological aspect I was interested in. At present the credit issued by a bank or other properly certified lender can- if desired- be removed from an ATM in the form of banknotes- something not true of any credit that Google-for example- might issue if it decided to create it's own online 'currency' for use in it's network of approved stores.

But once cash is abolished this will no longer be true- your loan from your bank will be the same as your loan from Google in the sense that both are now entirely virtual.

So my suggestion is that over time we could see a proliferation of competing 'currencies' via credit issued by non financial entities that could threaten the dominance of the current financial intermediaries- at what point is 'Nat west' credit viewed as just another form of digital credit among a plethora of other forms?

It's true that 'Nat west' credit would be the most fungible- but this could be offset by recruiting online retailers to buy into forms of credit that offer them improved market access in return for offering discounts or special offers- like the groupon concept only using a form of 'currency' originated not by the banks but by non financial entities such as Google or Amazon.

The bankers view cash as an anachronism to be eliminated- but perhaps they fail to realize that in a world of purely digital money they themselves are in danger of becoming an anachronism.

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:lol: What? You must live/commute in the SE? Move somewhere else, BitScam is not the answer.

Ha ha! I grew up and lived in the SE until I was late twenties. Now I'm living in the middle east. On the other hand, the people of Venezula, Argentina, Cyprus, Zimbabwe etc would probably have a similar appreciation for bitcoin as I do.

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Presumably there would have to be some form of official exchange and a fixed exchange rate (say Natwest money to Google money) that people could rely on over time. Maybe that could be calculated automatically between outlets but it could be a bit complicated for a lot of people. For example one of the problems with bitcoin is that the price of bitcoin (if buying with normal currency) seems to vary with the seller?

Most people won't want to be taking such a clear risk of sudden changes in value similar to the risks in the stock exchange casino and they won't want to be restricted to one group of retailers.

Otherwise Google money would be (maybe) just a very sophisticated/digital form of Green Shield Stamps? - but with a lot more potential. They likely would still make a of money out of it though.

Edited by billybong

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..yes..they would be the new bank in town.... :rolleyes:

They'd make a lot of money being the new digital Green Shield Stamp bank in town but if they didn't resolve the interface/exchange issues of Google money satisfactorily with the main banking system's currency then it's difficult to see it progressing much further using its own Google currency. No doubt it could be resolved to some extent but it would require the cooperation of the traditional banking system and its banks.

It's also just possible that the Central Banks might prefer Google money to its own money and effectively hijack it, it's feasible that they might need to ditch and switch at some time in the future and Google currency might then be the ideal candidate - Google might then turn the tables and come out on top to take over the Central Bank role. There are lots of possibilities.

Possibly Google is getting into the insurance business to gain experience as a starter position in the financial sector (didn't Virgin do something similar?) and in the event it would be well placed when there's another economic collapse to take over a mainstream bank, another creator of money out of thin air (what other business would anyone wanting to make money want to be in - and creating money out of thin air ties in very neatly with creating digits out of thin air) - like Virgin Money did.

Edited by billybong

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You can only 'transfer value' with bitcoins if you first agree that bitcoins have value.

02

And, as I said, if we do start valuing these pieces of math and exchanging them for food, shelter, and water, then all we are doing is exchanging one set of 1%ers for another.02 Unfairness in the form of 'missing the boat' is built into the system.02 Those who did some 'mining' in 2010 will always be vastly richer than the rest of us with zero effort on their part other than entering the system earlier.

The value of any money is given by the properties of sound money. What has more of these properties than bitcoins ? :

Portability(instant, almost free, payment anywhere). Compare that to trying to transfer fiat money international payments through a banks.

Trust or non- counterfeitable. Bitcoins are mathematically provable to be non counterfeitable. Compare that to fiat money that gets counterfeited daily , and worse, by govt monopolies.

Fungible. Bitcoins are all equal globally. Compare that to fiat money , some paper is more sought after than others. Euros with serial numbers starting with x are distinguished from those starting with y.

Durable. Bitcoins can never be destroyed

Divisible. Bitcoins can be divided down to 8 decimal places. Ie more units of currency can be brought into the economy by dividing bitcoins into fractions, without any inflation. Compare that to fiat where they add more currency by multiplying units through inflation.

Trust. Each individual can store any amount of their own bitcoins on their own premises at zero cost with total mathematically provable security. Compare that to mattress stuffing of fiat money, or putting it into banks that have been known to shut their doors during a bank run.

People will demand these properties of their money. Why not ? That's the value of bitcoins.

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Presumably there would have to be some form of official exchange and a fixed exchange rate (say Natwest money to Google money) that people could rely on over time. Maybe that could be calculated automatically between outlets but it could be a bit complicated for a lot of people. For example one of the problems with bitcoin is that the price of bitcoin (if buying with normal currency) seems to vary with the seller?

Most people won't want to be taking such a clear risk of sudden changes in value similar to the risks in the stock exchange casino and they won't want to be restricted to one group of retailers.

Otherwise Google money would be (maybe) just a very sophisticated/digital form of Green Shield Stamps? - but with a lot more potential. They likely would still make a of money out of it though.

I may be overlooking something obvious here but on reflection if take out a loan of virtual credit from Google and then take out a loan of virtual credit from Nat west both add spending power to my digital account, so is there any meaningful way to distinguish between the two?

So perhaps I have overcomplicated my own argument by introducing the notion of a specific google currency. Perhaps the more simple point to make here is that in the absence of cash and the infrastructure around it the distinction between 'bank' and 'non bank' lenders starts to become quite fuzzy.

It's actually surprising in one way that entities like Amazon have not already inserted themselves into the credit business- but if they did would there really be any reason to choose to borrow from say Nat West instead of Amazon- assuming the rate of interest were the same? And if Amazon were to include in that loan a collection of incentives unique to their retail platform as a sweetner would this not tip the balance?

What the banks seem to want is to become entirely virtual businesses- they are trying to eliminate branch banking by pushing their customers online and trying to eliminate cash to further reduce their costs and need for a physical infrastructure.

But in doing this are they not in effect sawing off the branch upon which they are sitting. Minus the physical trappings of cash and high street branches what is a bank anyway? If all lenders are entirely digital in nature do I really care if my lender is Nat West or Google? I don't think I do.

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