Part I: Blockchain's bright side.
Outside certain fintech applications, blockchain is not the mighty solution it appeared to be a few years ago.
In this digital column, I will dedicate myself to covering the trends of FINTECH (and tech in general), blockchain, politics, economics, and other topics that arise around what my passion is: Writing about individual liberties. This is why I open my personal column with a series of two articles where I expose the good and bad of Blockchain technology. From there, I’d drift into all kinds of political and economic topics. I warn that in no article I am teaching or giving advice on investment, I am simply covering and commenting on what happens around these technologies/policies around them. Blockchain and distributed ledger technologies (DLT) have been sold as a panacea to be exported from their revolutionary use as a medium of exchange of value (The way you exchange a USD) or savings in the form of digital assets not fixed by a centralized system, such as the current monetary system; this system is subject to the monetary and fiscal policy of each nation; to be the new operating standard in traditional companies, brought about by the advent of Blockchain and crypto. According to many, Blockchain and DLTs were going to modify, just as Big data has changed the game in terms marketing; where the expenses of a campaign are no longer based on mere product placement in a crowded place (subway, bus stops de micro / buses) or in the best located fence on an avenue or highway, but in the analysis of consumer behavior through tools such as the funnel. This has not been the case with blockchain in the corporate world where the years go by and other technologies such as AI, big data and the cloud continue to gallop, but DLT lags behind; which I'll cover in more detail in the next article in this series.
That is why in this article I will list the advantages of a DLT or blockchain and the types of businesses that have been created as a result of this.
1- A shield against inflation.
Therefore, it is not surprising that not only BTC (bitcoin acronym) has had a rebound from its previous peak price in December 2017, reaching over 20 thousand US dollars for each BTC; arriving today, December 31st 2020, at its new peak, reaching US $ 30 thousand; but we also see the commodities market where gold, silver or luxury real estate prices are surging due to market fear in the face of the aggressive monetary policy of the US federal reserve; that in order to cover the deficit created by the COVID crisis, making the typical monetary print spree to cover the fiscal gap left by all the restricted economic activity due to the pandemic. As a result, individuals or companies move their liquid currency assets to these markets in order to protect themselves from inflation, given the increase in the money supply in the United States. Where also the increase in the US stock market occurs, for reasons of having the assets in bonds or stocks as another anti-inflationary shield. The typical market behavior when inflation or crisis arise around the globe.
2- A challenge to the global monetary cartel
Let us remember the ’08 crises which were what made the BTC emerge as an alternative in 2009, as a protest and escape from the monetary system that caused the crisis, where commercial banks, credit unions, the reserve itself and the credit/risk agencies (public, private and mixed); artificially evaluating the value of real estate bonds and the strength of said market, placing low or mediocre bond grades in a AAA grade. This because since the beginning of the 2000s, the reserve had low interest rates and this encouraged banks and other financial institutions to give more credit to the market, since the reserve lends the money supply it produces at low interest levels, making credit cheaper. The problem is when the Fed, arond 2007, raised its interest rates again and the banks already saw their profit margin reduced, together with the non-payment of junk credits and bonds, promoted by the credit agencies of both the state and that of the close to the reserve; caused a huge snowball that exploded with the bankruptcy of Lehmann brothers in 2008.
After a very succinct summary of the '' crash '' of 2008, we see how in January 2009 with the issuance of the '' Genesis block '' of a currency (or asset, for the most technical and fervent defenders of the centralized monetary system) that did not depend on a central bank such as Bitcoin had paved the inherent success of the revolution a t he time that was Blockchain; where accumulating and exchanging value did not depend on assets such as country bonds, company stocks or others financial instruments tied to the international financial cartel. As we already know, a network of computers distributed under the bitcoin protocol, had an incentive to certify transactions and solve the mathematical problem to generate the cryptocurrency as a reward. Cutting intermediaries and giving an anonymous method (not so much anymore, almost all exchanges impose a due diligence process, but it brings serious benefit to crypto) in order to accumulate value outside the supervision of financial regulators.
Then, a few years later in 2013, the image of bitcoin was clouded by the case of the '' Silk Road '' a dark web site where Ulrich, its founder, was wrongly sentenced to several life sentences for setting up a website where there was a free exchange of goods and services, where drugs and weapons were included; no type of white slave trade or hiring of hired assassins were offered on this site, merely a totally free market where the currency was the btc. For this case, the digital currency suffered a setback in its valuation in US dollars and was put in the eyes of the anti-laundering regulators, since the financial elite had how to demonize the BTC, giving the image of the users of this currency as money launderers. Drug money or simply fix BTC as a means of acquiring narcotics. When, curiously, if we review the cases of money laundering at a global level, the members of this monetary cartel are precisely the large financial institutions. Scandals abound so much, I do not feel the need to quote one.
If the blockchain and BTC have been used in shady deals, true. But let us remember that it is healthy to ask ourselves: Isn't the majority of the cash flow of the big drug cartels the healthy cash that the banks issue? The answer is obvious ...And still, it is known that most financial transactions are legal, since we see that the credit market is made up, mostly, by ordinary citizens who seek to use financial institutions for savings or financing of your expenses or personal projects, whether commercial or life, such as a loan to mortgage the house or for a medium-sized company. Without forgetting of course, the large financial capital markets such as the Dow, NASDAQ etc.
Under that order of ideas, the data shows that BTC is used in its majority to provide a method of storing value in the face of inflation, followed by being an exchange method, like this article from crowfundinsider: https: // www. crowdfundinsider.com/2020/06/163030-60-of-bitcoin-is-held-by-entities-that-have-never-sold-more-than-25-of-their-btc-holdings-report/. what this laundering method argument shows based on the movement of the wallets, falls under its own weight; when what is a notorious fact is that most of the laundering comes mainly from traditional monetary methods.
Ultimately, Ulrich at his site was nothing more than an intermediary who created an ecosystem where people, among equals and with full consent, exchanged goods and services. Where if this war did not exist, money laundering would be a much smaller problem, since most of these cases are related to drug sales. But I will defend drugs and their users in another space.
3-A means of financial inclusion for marginalized groups in the US and LATAM.
However, the following years were where BTC was inaugurated not only as an escape from central banks or an alternative method to exchange or accumulate value. The unexpected achievement of the blockchain in its BTC form was the banking of populations that due to their credit status, socio-political situation, geographic location in underdeveloped continents, immediately and quickly were included in the new global financial system that BTC gave, to simply have a cell phone or computer that has a wallet where to receive or send the BTC.
Previously, Latinos, in order to send their money to their families at home, had to go through the intermediary axis of remittance institutions where a high commission ranging from 7 to 15 US dollars, in addition to their undocumented status or resident, made it difficult for Latinos in the United States to access financial products such as bank accounts or loans. Making your migrant status more difficult due to not being an ideal target for creditors.
Then the BTC arrived, an immense amount of funds flooded in BTC to underdeveloped countries was made, not only of Latinos, but of multi-continental residents that the US has, to their homes in an equally safe and fast way, with a very low commission. Of course, as the price of the btc rose, the commission of the miner who certified the transaction in the BTC network became more expensive and the network process to be able to certify a transaction slowed down due to the greater traffic on the network, which caused a scalability problem. However, as it is known, BTC is not the only crypto and others like Ethereum (ETH) or Litecoin, had more efficient and less expensive transfer methods; And it even led BTC to carry out a "soft fork" (change of rules in the transaction community of miners to change the ways of the protocol) so that the transfer becomes faster and would not take so long to be certified by miners.
This achieved that populations in Latin America were banked by BTC; places whitout water access, but thanks to smartphone technology, BTC and crypto shipments did arrive. Where crypto communities were able, in countries like Venezuela, to avoid the hyperinflation of the bolivar (2015- to date) and were thousand of savers avoided the devaluation of their income due to the irresponsible handling of the Castro-Chavista tyranny in monetary policy, where now a family has a minimum wage of a few US dollars a month. Which led the government to seize and attack mining centers in Venezuela itself, such as the war on drugs. But like everything else, even the Maduro regime gave in and in September 2020 they legalized mining in Venezuela. Sure, it's still attached to a national mining registry, nonetheless a reckoning towards a freer Venezuela, granting access to savers to a more secure saving method, rather than a highly inflation with the Venezuelan bolivar.
However, if we do the analysis of blockchain as a technology outside of crypto, we see that from the beginning of the '' Bull market '' at the end of 2015, until the big drop in December 2017; the parallel advance of blockchain and DLT has been stalled in its implementation and transition to the traditional corporate world, where other technologies have advanced towards innovation on several areas of business.