#Blockchain

Last week I went to the Auckland bitcoin meet up. The people were pretty cool! Its a great excuse to drink beer and eat chips bought with bitcoins and talk smack! Go the doggy! Here's my latest odes to the blockchain.

#Blockchain "straight out of Compton"

#Blockchain the catch 22 for banks

Bitcoin is gold. everything that it isn't is #Blockchain

#Blockchain, don't even worry about it

Bad Bad Debt

We hate to be negative but there are so many negative things going on in the world economy at the moment. Not only do we have a new default issue in Puerto Rico, but we still have not fixed Greece.
they still have a withdrawal limit on their accounts! In January, new laws passed in the European union that will no longer be able bail out banks. This is a step in the right direction, but what happens next? Without bailouts what is the point in staying in the union? It certainly feels like a precarious position.

Of most concern is the way that debt has developed over the last 10 years. Since the global financial crises debt has not been paid down and has actually increased overall. The cost of dept in advanced countries is very low whilst the cost for developing countries has increased. The most developed counties have the most dept. This phenomenon creates an increasing divide between countries We are also seeing more and more wealth inequality.

Whilst overall debt levels are increasing (somewhat exponentially) this is happening in different sectors than before the global financial crisis. Banking dept has slowed whilst government and corporate dept has skyrocketed. We have a shifting of burden of debt. From our banks and onto our governments and our jobs. Corporations that employ people are bigger and operate internationally fed by cheap dept from their home countries. New debt for governments and corporations has been funded from money printing. It adds up to do the opposite of what was the intended response to the 2008 financial crisis.

See the graph bellow show global dept over the last 14 years.

Although banks can be fairly disposed of, countries don't particularly like to go bankrupt. This could be the difference this round. Over the course of history there is quite a list of countries with sovereign debt issues. It even includes the UK and the United States. These types of events lead to major currency fluctuations and major problems.

So with the destabilised currency environment Bitcoin and crypto currencies become more appealing. They can be transacted with easily despite the external conditions. Also transparent real time accounting offered by crypto currencies can prevent these unseen debt movements in the future. What seems like an uncontrollable issue with debt might finally be able to be cured.

Negative interest rates are on the cards for many countries around the world. Money printing presses are getting warmed up in Japan and Europe. this is not a good sign for savers around the world. Crypto currencies like Bitcoin also starts to look like a much more sound way to store value now having 8 years of history.

New debt is different in that it's not centered around the banks. We can call it bad bad debt because it directly effect our countries and our jobs. Bitcoin offers a solution to this on multiple fronts. It reduces reliance on the country for financial stability, it guards against inflation, negative interest rates and it allows debt free banking and  and encourages a debt free economy. Hopefully with the issue getting closer to home, this time we might really be able to solve it.

The Big Short, High Yeild Bonds and Inevitable Chinese Stock Declines

The stock market crashed 10% in January and as an investor and bitcoin enthusiast I have been unlucky enough follow this closely. It's not looking to rosy for stock and bond traders,  When you listen to mainstream media you just get a blur of intensity and confusion. If you've seen The Big Short, you can probably imagine why. It's worth while to summarise the situation and how the world got here. It may be a major set up for crypto currencies.

Media are blaming the crash on China, but this is not entirely fair. China's stock market has climbed rapidly in previous years and having such high valuations, more than twice the PE levels of the US, it was always more volatile. Also its markets open earlier in the day than those of the US making it easy to blame.

After the dive in global stocks in August the Chinese government bought in a range of policies to control its stock market. These included banning large investors from selling stocks immediately and phasing in circuit breakers, which close the stock market if it moves to much at once.

In January China was due to have their stock sales ban removed but its market crashed the day before.  Their market hit circuit breakers two days in a row. The world market also dropped sharply, pretty much in unison. In response the Chinese government decided to continued the ban on selling stocks until further notice.

Capital controls have become a major attribute of the Chinese economy. Wealthy Chinese citizens are continually trying to find ways to get their money out of the country, often investing in property or family businesses overseas. There is an annual limit of around $50k per person.

The Chinese government have built up huge foreign exchange reserves over the last 20 years in efforts to keep the Yuan at a low price. These overseas investments often go into government bonds built sometime into high rates corporate bonds. This three trillion investment had held up the value of these investments in the US.

The tendency for people to want to get money out of the country is often caused by a depreciating Chinese Yuan. In response to this now the Chinese government are reclaiming their own foreign investments which helps boost the Yuan value and maintain stability against its basket of currencies. With the US dollar rising so much out of sync with this basket it has become increasingly difficult for the Chinese cover this pair.

On December 16 the US Fed raised interest rates, In the days before the rate rise Wall Street high yield bond funds started getting into trouble. this was in part due to the low oil prices which they are exposed to through their investments. After an initial positive pop, the US market continued down within the week. Boosting the USD against world currencies the global divergence of interest rate policy further exacerbated the apparent Yuan/USD devaluing.

In line with Ben Rickerts legacy from The Big Short I have been inspired to research the bond market, in particular High Yield bonds. It has proven difficult but I have found that corporate bonds are highly interdependent with the bond market in general. High Yield bonds make up at least 5 and up to 30 percent of A grade mutual fund portfolios. Bonds are also giving very low returns. At the moment, one year returns are often negative. These returns have been somewhat offset by a strong US dollar, but this is not likely to last much longer.

The situation leaves us with the following factors

• The Chinese stock market cant go up in the shorty term because why would you buy when you may not be allowed to sell? 

• The current pattern will continue at least until we no longer have divergent interest rates and the USD has dropped in line with world currencies. Chinese stabilisation policies will have a negative effect on the US bond markets as they will remove funds from this area

• The problem is exaggerated by low oil prices which are disproportionately bad for the US. If the USD was to go down this would also put pressure on the US bond markets.

So if the Chinese market continues down, the bond markets get clobbered and eventually the US dollar drops around 20% what happens for crypto currency? People in China may well want to move more investments into something less restricted and people in the US may no longer hold so much faith in US dollars and US bonds will become a bad deal. It is a good case for increased crypto currency adoption. Could it also be an opportunity for a bitcoin treasury bond?

The Political Mausoleum

Following the American presidential debates lately, you might realise how ridiculous its become. Polarised politics no longer conform to the norms of center, left and right. On the conservative side people are grabbing sound bites and boycotting debates strategically, Donald trump is not conservative enough, yet Sarah Palin calls him a "beer drinking, gun slinging redneck". On the democratic side people are criticising other leadership challengers for getting negative on people of there own party. People are straying from the for running contender Hillary Clinton, because she's not seen as anti establishment enough. The whole thing is a nightmare to watch. Politicians recite their strategic voter demographic policy points over and over. Finding a new thought towards progress is a rare occasion. Despite the thousands of questions we are just getting the same answers. It would be to much of a risk to veer from the campaign agenda. Many of the character involved have become parodies of themselves. It's is a sure sign that politics as a constructive part of a society moving forward is dead!

On the other hand crypto currencies are on the cusp of creating a political system that makes sense in the modern world. There is a leadership debate and a whole host of cohesive solutions developing and vying for popular approval. Its multi dimensional, people are debating the policy structure in its self. Miners are actively voting on their views and users are promoting there own agendas. The political developer structure in itself is evolving with multiple competing core like groups. On top of that once ad hoc political bitcoin groups are giving good clarification of their positions, clarifying the divisions of their existing power structure, and new alternative groups are immerging. The Bitcoin Unlimited group just release a detailed manifesto. It is substantial stuff, not sound bytes.

This has been catalysed by pressure built up naturally and over the last two months due to increasing transaction load on the network. Every detail of bitcoin governance is being discussed, scrutinised and progressed. With the escalating drama and media attention there has been a huge amount of progress in this area though some may stress not enough. The positive thing is that there are valuable ideas, creative solutions and actual actions taking place. Things that many people have lost faith in with politics around the world.

Funding is a common area of concern in both the American and the bitcoin political arenas. This is clearly more transparent in the bitcoin scene. Could this simply be caused by size, or is there something else. Is transparency allowed by crypto currency an integral part of our future democracies? Is there new value to be found in the optional participation model of governance in bitcoin? When you compare these two political universes we find a clearly less offensive solution in new models for cryptocurrency. We are all sick of these old guys babbling on about themselves. Old politics may be coming to an end.

Exahash

Very soon the bitcoin network may reach a milestone level in computing power. The "exahash" will be a world first and a game changer in network processing. No other entity could hope to achieve this. The theoretical 2nd place competition record less than 1% of this hashing power (in petaflop equivalent).

Achieving the exahash may be delayed. The approaching mining reward halving will act as a disincentive for new miners and may slow down what has been an incredible increase in computing power. If it is achieved this round however it will be something worth celebrating. It makes for a very strong security against external threats to the bitcoin network.

Visualising an exahash is difficult. A hash being one cycle of cryptography. Where any parcel of data can be turned into one of those stings of strange characters we have grown to love. Say like turning potatoes into hash browns, except it doesn't matter how many potatoes you put in, it always just looks like one tater patty. Sound hashy?  Anyway, an exahash does what it does at 10 to the 18th that's 1,000,000,000,000,000,000 times per second!

In other words two million of these. A wall about two meters (6 units) high and 83 kilometers long.

What was once almost impossible to get (the miner above from two years ago) is now almost insignificant and obsolete. We need to talk about the significance of what has been achieved and how to use it for good. Bitcoin has definitely come a long way.

Core Crew - Intimidation?

Only fair to cartoonise these guys as well.

Mike and Gavin - Caption This. . .