NZ and Australian Banks ANZ and Westpac Start Swimming in the Crypto Pond

Ripple is making waves in the modern banking industry of Australia and New Zealand this month. The two largest banks, ANZ and Westpac are trialing methods to use Ripple for faster foreign transactions. Coindesk and Ripple labs discuss how this is happening and the benefits of the product. As a Cypto-currency writer this is great news. Ripple is however not the purest of currencies in its ideological form. It has also been troubled in recent months with litigation.


The ripple network uses similar technology to bitcoin. The system is essentially a modification of the bitcoin code. This creates a new cypto-currency with different features and the ability to change the methodology to how it is run and maintained.

One of the fundamental difference is that the ripple ledger is stored on a distributed network rather than a decentralised one. What is that? Well with bitcoin there is no controlling party and the program is run in a democratic way by the people who choose to use it. Anyone can choose to run a bitcoin server and we call this a decentralised system. Ripples operations however are controlled by Ripple Labs who distribute the program to parties of their choice. In this way they also retain control over the future of the ripple. They can change the total number of ripples to be supplied and have control over changes to the functionality of the program.

This has lead to a model where Ripple markets itself directly to banks and existing financial companies. Those companies in turn run the programs needed to keep the system operating on the web. In this case, ANZ and Westpac operate ripple servers to run their transactions. Ripple also publicly states its intention to work with banks and that it needs them to provide security and front end services, this is all over the ripple website. This has been a key in establishing its point of difference and its position as number two crypto-currency in terms of market capitalisation ($259m). It passed litecoin in late 2014 to take this spot but it it far from bitcoin which has a market cap in the billions.

Another difference is that unlike the bitcoin blockchain, which is optimised for the use of bitcoin as its token, Ripple's blockchain has been set up to allow any currency to be used across it freely. This allows easy low cost transactions in all kinds of currencies and is one of the prime reasons it's attractive to banks and payment processors.

At first glance you can see why banks want to take on ripple rather than bitcoin, but from an experianced crypto-currency perspective there are some significant issues here. Ripple is whats called an "altcoin". This advanced concept for people new to crypto-currencies is simply put, an alternative coin to bitcoin. Think of bitcoin as the US dollar and altcoins as all the other fiat currencies in the world. They are variations to bitcoin but essentially based on the same programing.

There is no limit on the creation of alternatives. There are in fact hundreds of altcoins and many have come and gone. Everything from darkcoin, made for super secret untraceable payments, to solarcoin, where your money insentivises solar power generation, or stellar, a coin based around charity. A full spectrum of moral appeal exists to go each altcoin which is in an attempt to capture a niche market.
 
The economic dynamics of altcoins is not well known beyond pump and dump type plans. They are new and small when compared with bitcoin. The possibilities of these parallel systems however are huge and certainly intricate. The point is here that banks know even less of this than your average crypto-addict. Altcoins are much more volatile and unpredictable than bitcoin. People can also easily move from one to the next and when they do it has a big impact.

Because of the nature of programmable crypto-currency having spawned from one place (bitcoin) they work very well with each other. Exchanging between bitcoin and ripple as with other altcoins is instant, free and unhindered. In this way proliferating ripple also helps proliferate bitcoin.

Ripple in particular also functions much like an auxilary to bitcoin. If you've followed the blocksize debate your mind may be pickled by now, you will however understand what a bitcoin "sidechain" is. For the vast majority however a "sidechain" is something that helps reduce the transaction traffic on the bitcoin blockchain network. It is where a sub-blockchain is linked to the bitcoin blockchain. You could say ledger within the ledger or think of it as an on and off ramp on a freeway. Ripple is a particularly dynamic sub-blockchain because a lot of information can be imbedded within each ripple. At present 50% of all ripple transactions are used in coordination with bitcoins! Many of these transaction have been used by organisations like BitStamp (a bitcoin exchange) which uses ripple to reduce its bitcoin blockchain requirements. In this way ripple and bitcoin are very interdependent and reinforce each others financial ecosystems.

Unlike bitcoin, ripples main founders are known people. these people have a large stake in ripple. In 2012 Jed McCaleb wanted to sell his 9 billion ripples when he quit. This caused a bit of drama with his colleagues who didn't want the price to dive. These large interests in the currency itself. can manipulate the market in favor of those in the know. This is where the litigation begins. Google Ventures and Apple are even an early adopters in ripple. With ripples traditional centralised structure like that of normal companies today we get the traditional power struggle going on. This may have conflicts of interest for big banks.

Whilst ripple markets itself as the banks best friend and wins them over with great efficiency. There are some intricate issues yet to be fully unveiled. There is an anti-democratic aspect and economic nature not yet fully understood or tested here.  Its good to see modern banks taking step to the crypt-currency that they once wrote off completely. It is a deep pond they are stepping into.

Digital Beggar

Recently I moved to the UK to take a new job and after unexpectedly losing that job, I find myself resorting to desparate measures. Normally I sell stuff and was working as the area manager for new business development. After two just two months, they held an emergency meeting and decided they were not ready to expand. Yes I am bitter, all this despite our multiple Skype calls and months of anticipation before my moving from New Zealand.

So here I am, desperate for a job and hoping for the best with big bills approaching. this compounded by the fact that my girlfriend has received no funding for her post doctoral study and consequently we have depleted both of our savings over the last 6 months getting established.

With UK bank overdrafts and credit cards maxed out, New Zealand credit cards not working due to security issues I find myself actually have to pay for my girlfriends tickets to Texas (for special training) with Bitcoins! This is a huge thing for her and the culmination of her lifes work, so of course I do it, but I really hate to part with hard earned coins ant the moment. It feels like the price is just about to start ramping up again. I'm about to lose my prized investment, about to be forced to drop my tokens of faith. Call it first world problems, but it hurts and I'm am truly on the edge of going broke. Hopefully reader in a better position will be able to help?

Given my dire straights and the cathartic process of making them public some interesting ideas do come to light. How does my situation and situations like it impact the price of bitcoin? What overall psychologically impact does this dynamic have in the early stages of bitcoin adoption?

If this is happening to me then it must be happening elsewhere. Below is a chart of impact to bitcoin value and adopter psychology.

Premiss	Event	Cause	Price Effects	New Adopter Psychology
Early Adopter (EA) spends all savings on bits, standard fiat savings are reduced	EA Loses job and is forced to spend saving which are in bitcoins, and therefore is more likely to spend bits directly for both financial and emotional reasons	Lowering bitcoin price	Retailers tend to sell coins quickly in the short term which brings the price of bitcoin down (-)	Retailers are incouraged to continue to accept bitcoin as it generates business (+)
		Reduced pay off /efficiency for mining		Oppertunities for Altcoins (-)
			Price stabilisation and recovery as more newcomers enter the market. (+)	Lowered barriers for new comers as the price comparison to the past is fairer, animosity to EA wealth is reduced. (+)
			Older investors discouraged from holding bitcoins, due to downward trending (-)	Less people active in the market (-)
		More bitcoin transactions		Higher pubilc awareness (+)
		Increased market Liquidity when people are loosing jobs and running into the very last of their savings.	Arbitrage effect evens out prices on the market as bitcoin sellers can easily sell on the exchange that offers the best rate, but are also drawn to there local resgion where they can access funds. (stability)	Less radical booms and busts or busts delayed from those of the fiat economic cycle. Creates a perception of legitimacy (+)

 

Five plus's, four negatives and one notch a side for stability. The main points to take form this are.

1. Early Adopters are more likely to have to sell as they will likely have less money in normal savings.

2. Early adopter savings get tapped into more when the economy is bad. When interest rates are low bitcoins are a go!

3. Savings fire sales also have the effect of balancing business for companies that accept bitcoin along with standard currencies. They get a boost when early adopter savings start to get tapped into and this makes their business more even overall. For example cheapflights.com got my bits for Texas as it was the only way left we could pay.

So if anything hopefully my plight might shine some light on what we might see in the future with impending economic waves. If you read this please donate and help me pay my rent next month, I am actually begging, but not on the street, digitally!

(tip button fail) 

Mad Max and Bitcoin

Having not seen the new Mad Max movie yet I couldn't say whether they use bitcoin in it or not. Judging by the previous films I would say not. Life, death, sex and gasoline are the only viable means of trade in this post apocalyptic world. Mad Max however is a fantasy, though quote pertinent with global warming, water and gasoline supplies inevitably hitting the wall at some stage. Russel Brand the popular delinquent puts it well in his Trews story. It is quite ironic that we enjoy watching a graphic depiction of a terrible future situation for which currently preventative decision are continuously put on the back burner.

Mad max certainly isn't going to accept a briefcase full of fresh Australian dollars in exchange for his Doom Tanker fully fitted with machine gun turret and rusty snow plow front guard. "That old government money is not worth anything around here boy" he'd say, kicking you in the nuts and lighting a fire with the paper bills to cook your testicles on. . . It is true that without government control, today's money is nearly useless.

There are a myriad of systems required to support and be maintained in order to retain the value of the current monetary system. Without those enforced the public will not support or accept it as payment. Not only because they wont want to, but because they can't, because the surrounding structures are vital part of the value equation. It simply doesn't work in time of scarcity and corruption like that in Mad Max. The natural real value of a dollar is zero. 

Bitcoin doesn't really claim any different, however if you want to be technical its the value equation is different. 

If V stands for real value, P stands for the belief of society or the perceived value, S stands for structure and T stands for levels of trust and organisational integrity. 

V=PxSxT

Bitcoin removes S and T from the equation. The formula is simply 

V=P

Value and perception will always be linked, but removing the extra components of the value equation can only reduce risk and make the intrinsic value stronger.

Society has come a long way, we don't live in a Mad Max world. Even though it looks cool to watch and it actually might happen, it's all just TV really. It should make some Fiat money at the box office and generate some Bitcoin trade on Streamium. The inspiring thing is that in this hypothetical Mad Max world bitcoin would still work. That's one less thing to worry about if you have them in your pocket.

The reason bitcoin works is because it is a trust-less system. No trust is required. There is no third party needed to maintain it, it maintains itself and no government required to guarantee it. Some goggle wearing leather clad sprite can even validate some printed paper bitcoin credits on an offline device in the back of there buggy. Some dusty old desktop computer left over from 2015 running on a motorcycle battery. If the spear wielding fiends had smart phones they could force a blue tooth transaction in the middle of the red dessert or else "cutcha". They would have no reason to doubt transaction on an app to app bitcoin transaction. It would be unforgeable and irreversible, just how they'd like it. Iron clad in math "3-1=2 Rockatanski, better pay! give me your f**ing digi"

Cypto-currencies are structured in a decentralised way and it is not the technicality of how the system works in adversity it is the psychological aspect of the trading mechanism that allow it to retain appeal in such cultural conditions. In a lawless world where no one can be trusted near of far, some interesting questions are posed. primitive human behaviors are a big part of it. hard resources are the first priority. Food Water and weapons are best. When moving around however those things do still get a bit heavy and a mechanism for trade is in demand. the better that you can physically hide it the better store it will be. If the system is run openly by anyone and simply out of self interest, the way bitcoin miners are, then there are no problems when everyone must fend for themselves.

What better token then one that you can send to an unknown address miles away with the flick of a thumb across a cracked screen whilst the villain still has the spear to your head. he now has nothing to still and now way to find it. 

One thing that we can always trust is math. 1+1 will always equal 2 even if the whole world is up side down andt there's a gun to your head. This makes bitcoin appealing in the Mad Max world. There are only 21 million bitcoins and people can understand this. People can judge the value on that fixed basis and on their experience with the tribe down the dusty path. This fundamental difference to our current money, where supply is continuously changing, is key to the trust issue. In a world where nobody can be trusted, you can only trust math. You can not trust an organisation or person producing valuable tokens at all. In a state of such persecution you simply coluldn't accept someone else having such an unjustified luxury.

With bitcoin every part of the code is publicly available. you need not trust anyone to its workings, you only need to look it up. Dessert bases could harbor bitcoin mines and Rockatanski, with an old Huawei phone in his pocket, might just be richer than you think!