Is bitcoin here to stay, is it a complete scam, let’s say we don’t know and weather it ends in tears for most bitcoin holders or not we don’t really care.
However there is one very interesting revelation that has come out of all this, one very clear fact that nobody, absolutely nobody can deny.
People are ready to take the risk of paying a rather heavy price for the right to hold anonymously some digital coins and use them to make secured anonymous payment outside any regulated entities.
That digital coin or the bitcoin isn’t a currency while it does share some of the attributes with reel currencies.
The reason it isn’t a currency is mainly because it isn’t secured against an underlying asset.
What one should ask is how we could change this and create a more efficient digital coin whose value would be backed by an asset rather than thin air to create a real digital currency.
If we think about it, bitcoin is a bit like an electronic bearer certificate without an underlying asset, is it not?
One of the greatest things about bitcoin is the fact that it is encrypted and therefore totally secured.
The fact that one can mine bitcoin is just a distraction and eventually there won’t be anymore bitcoin to be mined which is programmed to happen in 2040 if all goes as planned.
Bearer certificates used to be wildly used by criminals until recently since they did have few inconvenient, the main one being the fact that they were an anonymous physical piece of paper, which had to be kept rather safely.
Now let’s be creative and see what the next bitcoin story could be about
A digital form of bearer certificate highly secured and attached to a real underlying asset that could easily be exchanged between consumers through electronic platforms on the net.
Lots of platforms are currently being setup for bitcoin transactions such as “Coinbase” but no doubt they’ll be ready to reproduce the same model for any new digital currencies.
Some will say that you would have then to rather trust the firm offering the service and keeping the true underlying asset safely.
True, one wouldn‘t want to hold a digital currency backed by an asset that may no longer be because it wasn’t properly secured or because it’s holders ran away with it.
Yet what if these firms were, let’s say major banks, investment funds, insurance companies based into some rather secured countries?
These assets behind those certificates could be a basket of real financial products for instance looking rather like a fund.
Yet instead of holding shares into a fund you’d hold digital bearer certificates linked to that fund.
The fund would have an initial investment into a pool of asset holding only safe products such as long terms government bonds of several countries or basket of currencies to reduce volatility, or maybe even physical gold.
The number of digital coins attached to the fund would be set at inception, each being a fraction of the total value of the basket.
The total Bitcoin market is only about US1B in value so no doubt it is rather small compared to the size of some existing investment funds.
About USD26000 billions are held secretly within offshore banking institutions across the glob, institutions, no doubt, rather trusted.
Now, would some argue about the safe keeping cost and management of the fund, not a problem!
it would work the same way as a fund works with management fees attached to it.
The global value of the fund would diminish every year by the initially agreed management fee unless the basket would have actually sufficient return on investments such as interest if bonds ect… to cover for these annually.
The fee could be anything looking at the price people currently pay for a bitcoin, meaning a great source of income for these funds and initial bakers.
To set up such a basket fund and start selling a digital currency baked by real asset you’d have to pay for these assets before you even started and real clean money would have to be put up onto the table.
Yet initial bakers owning the initial clean new digital currency would put up for sale their digital coin onto the market via electronic platforms.
The main question is at what premium would they go for?
A rather a decent one, looking at bitcoin!
Initially one has to remember that most bitcoin users didn’t buy bitcoins as an investment but as a mean to buy and sale products anonymously and securely over the net.
The value of these digital currencies would probably fluctuate in line with the fluctuation of the underlying asset but would these be low risk assets you then would expect a low fluctuation, which is one of the key aspect of a currency.
It may not be possible to devaluate the bitcoin since it is limited to 21 millions bitcoins but it’s extremely high volatility makes it a far worth treat than devaluation for any holders.
Let’ see if that type of currency ever come into play! If the bitcoin is not stopped by any regulations then we should predict it will.