We first mentioned Bitcoin in Money Morning about six months ago.
That was when technology analyst Sam Volkering joined the team.
Back then the price of a Bitcoin was around US$140 or something.
Today it’s US$1,200. It was even higher last week.
Is this the future of money? Not if you ask Sam. He thinks any business that accepts Bitcoin today would be mad. We’ll explain why below…
Yesterday afternoon we tuned in to watch a pre-release version of a Skype video call between Sam and our old pal Dan Denning.
The discussion was about Bitcoin, mainly what it is and how it works.
This is a key topic around our Albert Park office. The future of money is the subject of next year’s Port Phillip Publishing investment conference. We’ve titled the event World War D in honour of the seemingly unstoppable trend towards digital money.
Your editor is entirely convinced that paper or plastic bank notes and metal coins will cease to exist within the next 10 years.
If you want to pay for something you’ll pay for it electronically. And that will mean for any and every transaction regardless of the amount.
Stop and think about it. If you’re like us you probably already pay for most things electronically. You’ve probably got an EFTPOS card or VISA or MasterCard debit card. And you’ve probably got a credit or charge card too.
When was the last time you used cash? And when you did we bet it wasn’t out of choice. We bet it was a small cash purchase. There’s even a chance you had to go out of your way to find an ATM in order to get the cash so you could pay for whatever you wanted.
What a waste of time.
We’ll admit something though. As much as we’re in favour of an all-electronic money system, we’ve been slow on the take-up in some respects. We’ve always signed for things when we’ve used a credit card.
How old fashioned.
We didn’t like the idea of using a PIN. Maybe it’s because we couldn’t bear the thought of needing to remember another darn number.
But of course, thanks to chip technology you don’t need to sign…and you don’t need a PIN. You just tap your card on the console and bingo, you’re done. We’ll admit something else – we love ‘tap and go’ transactions.
We can’t imagine why anyone would think that’s an innovation not worth having.
But that’s just the beginning of the shift to all-electronic money. We’ll explain the next stage shortly. First, let’s get back to Bitcoin and explain why Sam thinks any business would be nuts to accept it as a payment right now…
Australian businesses accept Australian dollars for good reason. They have a high degree of certainty that the dollars they accept today will be worth the same tomorrow or the next day when it comes to buying something (such as supplies) with those dollars.
That isn’t something you can necessarily say about Bitcoin. As Sam pointed out in his Skype call from London, Bitcoin is currently far too volatile for any business to accept as a method of payment.
The Bitcoin price has surged since the start of November from US$228 to today’s price of US$1,200. Now, if a business had accepted a Bitcoin in return for selling some goods a month ago that business owner would be pretty happy. He or she would have made five-times their money just on the appreciation of Bitcoin.
But as any financial advisor will tell you, prices can go down as well as up. So imagine if a business accepts a Bitcoin today as payment. What guarantee does the business owner have that the price will be the same tomorrow?
There is no guarantee. If the price collapsed tomorrow (say, back to US$228) before the business owner could cash in the Bitcoin for Australian dollars, the business owner would make a huge loss on the transaction.
As Sam points out in the Skype call, that kind of volatility would make it hard for any business owner to plan for the future if they didn’t have some idea about the future price of Bitcoins.
Admittedly, you could say the same about any exchange rate. The Australian dollar has fallen over 10% over the past six months. That kind of price move makes it hard for Aussie businesses to plan for the future too.
The major difference is that at least the business owner knows the Australian dollar will be widely accepted today, tomorrow and most likely a year from now. Can anyone say with 100% conviction that the same is true for Bitcoin? No.
But that doesn’t mean we’re down on all digital currencies (to be honest, we’re not really down on Bitcoin either; we just don’t see it becoming a widely transacted digital currency).
Instead, we see a future where digital currencies are much more user friendly. We see a competitive market of free market currencies where you make transactions as easily – if not more easily – than you do today.
We see biometric technologies such as thumb scanning and iris recognition becoming the method of payment rather than a credit or debit card.
This isn’t something that will happen tomorrow, but it will happen. Digital money and ‘digital wallets’ are gaining acceptance among consumers. It’s only a matter of time before the State’s monopoly on money ends and a new era of private digital money begins.
Our guess is it will be a relatively peaceful transition. But we can’t guarantee that. That’s why our conference theme is World War D. The global currency wars are about to go to a whole new level.
Cheers,
Kris+
PS: The Early Bird discount for the World War D conference ends this Friday. To make sure you don’t miss out on the line-up of star speakers, including Dr Marc Faber and Jim Rickards, sign up here. Seating is limited and is sure to sell out soon.
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