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Niall Ferguson on Why Bitcoin and China Are Winning the Monetary Revolution

by Nathaniel Whittemore
December 6th 2020

On today’s Long Reads Sunday, NLW reads Niall Ferguson’s latest Op-Ed for Bloomberg: “ More

331 Welcome back to the Breakdown with Me and L. W. It's a daily podcast on macro Bitcoin and the big picture Power shifts remaking Our World. The Breakdown is sponsored by crypto dot com. Next Addario and All Nodes and produced and distributed by Coindesk. What's Going On, Guys? It is Sunday, December 6th, and that means it's time for long, reads Sunday. And I have never had as many requests for our specific piece as I have for this one. It could Onley be the piece in Bloomberg By Neil Ferguson Bitcoin is winning the cove in 19 monetary revolution. So instead of giving you some big, long intro, let's just dive in. In Sugi Bain, Douglas Stewart's award winning and harrowing depiction of alcoholism, sectarianism and deprivation and post industrial Scotland money is always scarce and often dirty, deserted by her second husband and unable to hold down a job

should his mother, Agnes, relies on her twice a week benefit to feed her Children or her booze habit, as the latter nearly always wins. She and sugi are regularly reduced to desperate expedience to fend off starvation, extracting coins from electricity and television meters Ponting there few valuable possessions and ultimately selling their bodies for brutal sexual favors. Stewart vividly captures the miseries of a Glasgow of greasy coins and filthy banknotes after one of many wretched populations in the back of a taxi. One of Agnes is lovers inadvertently showers her with coins from his pocket. Should his father briefly reappears, at one point handing his son to 20 pence pieces from his taxis change dispenser by way of a gift, gradually adding 4 50 pence pieces. When the boy looks nonplussed, don't ask from our the rag and bone man who goes from house to house, buying old clothes and junk pays with role of grubby pound notes bound by an old band aid. The images especially startling because banknotes have so rarely featured in the narrative. Theo Nly credit in this world is from rent to own catalogs, the provident doorstep lender and a few hard pressed shopkeepers

. I grew up in middle class, mostly sober glass cow, but I still remember the tyranny of those damned coins, the nightmare of having too few for a bus fare or the wrong sort for a phone box to my Children. All this is is much a part of ancient Laura's pirate chest into balloons once for To me, coins are fading fast from their lives, soon to be followed by bank notes in some parts of the world, not only China but also Sweden. Nearly all payments air now Elektronik in the U. S. Debit card transactions have exceeded cash transactions since 2017. Even in Latin America and parts of Africa, caches yielding two cards in a growing number of people manage their money through their phones. We're living through a monetary revolution so multifaceted that few of us comprehend its full extent. The technological transformation of the Internet is driving this revolution. The pandemic of 2020 has accelerated it. To illustrate the extent of our confusion, consider the divergent performance of three forms of money this year. The U S. Dollar gold and Bitcoin. The dollar is the world's favorite money, not only dominant in central bank reserves but in international

transactions. It is a Fiat currency. It's supply. Determined by the Federal Reserve in US banks, we can compute its value relative to the goods consumers buy, according to which measure it has scarcely depreciated this year. Inflation is running at 1.2% or relative to other Fiat currencies on the latter basis, according to Bloomberg's dollar spot index, it is down 4% since January. Gold, by contrast, is up 15% in dollar terms. But the dollar price of a Bitcoin has risen 139% year to date. This year's Bitcoin rally has caught many smart people by surprise. Last week's high was just below the peak of the last rally in December 2017. When Bitcoin subsequently sold off the New York University economist Nouriel Roubini didn't hold back. Bitcoin, he told CNBC in February 2018, had been the quote biggest bubble in human history. Its price would now crashed to 08 months later, Roubini returned to the fray in congressional testimony denouncing Bitcoin as the mother of all scams in tweets. He referred to it as Bitcoin fast forward to November 2020

and Roubini has been forced to change his tune. Bitcoin, he conceded in an interview with Yahoo Finance, was maybe a partial store value because it cannot be so easily debased because there is at least an algorithm that decides how much the supply of Bitcoin raises over time. If I were a font of hyperbole as he is, I would call this the biggest conversions in ST Paul. Roubini is not the only one who has been forced to reassess Bitcoin this year among the big name investors who have turned bullish or Paul Tudor Jones, Stan Druckenmiller and Bill Miller. Even Ray Dalio admitted the other day that he quote might be missing something about Bitcoin financial journalists to our capitulating. On Tuesday, the Financial Times, Isabella Kaminsky, a longtime Cryptocurrency skeptic, conceded that Bitcoin had a valid use case as a hedge against the dystopian future quote in which the world slips towards authoritarianism and civil liberties cannot be taken for granted. She is on to something there, as we shall see. So what is going on? First, we should not be surprised that a pandemic has quickened the pace of monetary evolution in the wake of the black death. As the historian

Mark Bailey noted in his masterful 2019 Oxford Ford lectures, there was an increased monetization of the English economy prior to the ravages of bubonic plague. The feudal system had bound peasants to the land and required them to pay rent in kind, handing over a share of all produce to their Lord. With chronic labor shortages came a shift toward fixed yearly tenant rents paid in cash in Italy to the economy after the 13 forties became more monetized. It was no accident that the most powerful Italian family of the 15th and 16th centuries, where the Medici who made their fortunes as Florentine money changers in a similar way Cove in 19 has been good for Bitcoin and for crypto currency generally. First, the pandemic accelerated our advance into um or digital World. What might have taken 10 years has been achieved in 10 months. People who had never before risked an online transaction were forced to try for the simple reason that banks were closed second, and as a result, the pandemic significantly increased our exposure to financial surveillance as well as financial fraud. Both of these trends have been good for Bitcoin

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guys, this week we've got a special product launch sponsor looking for the best way to stake Ethereum. Two point safely and affordably goto all nodes dot com The number one enterprise grade hosting and staking platform type in promo code Coindesk three and enjoy three months of free hosting for your validator notes. The platform is easy to use comes with instant node monitoring and multi level protection for your validator keys. Five Minutes is all it takes to get started staking on all nodes dot com, the platform preferred by people who make a difference. So visit all nodes dot com and use the promo code Coindesk three to get started for free today. Okay, I never subscribed to the thesis that Bitcoin would go to zero after it plunged in price in late 2017 and 2018 in the updated 2018 edition of my book The Ascent of Money, the first edition of which appeared more or less simultaneously with the foundational Bitcoin paper by the pseudonymous to Toshi Nakamoto, I argued that Bitcoin had established itself as quote a new

store of value and investment asset, a type of digital gold that provides investors with guaranteed scarcity and high mobility as well as low correlation with other asset classes. Satoshi is goal, I argued, was not to create a new money, but rather to create the ultimate safe asset capable of protecting wealth from confiscation and jurisdictions with poor investor protection. as well as from the near universal scourge of currency depreciation. Bitcoin is portable, liquid, anonymous and scarce. A simple thought experiment would imply that 6000 is therefore a cheap price for this new store of value. Two years ago, I estimated that around 17 million Bitcoins had been minted. The number of millionaires in the world, according to Credit Suisse, was then 36 million, with a total wealth of 128.7 trillion. If millionaires collectively decided to hold just 1% of their wealth as Bitcoin, I argued, the price would be above 75,000 higher if adjustment is made for the Bitcoins that have been lost or hoarded. Even if the millionaires held just 0.2% of their assets is Bitcoin, the price would be around 15,000

. We passed 15,000 on November 8th. What is happening is that Bitcoin is gradually being adopted not so much as a means of payment but as a store of value. Not only high net worth individuals, but also tech companies are investing. In July, Michael Sailor, the billionaire founder of MicroStrategy, directed his company to hold part of its cash reserves in alternative assets. By September, MicroStrategy's corporate treasury had purchased Bitcoins worth 425 million square. The San Francisco based payments company bought Bitcoins worth 50 million. Last month, PayPal just announced that American users can buy, hold and sell Bitcoins in their PayPal wallets. This process of adoption has much further to run, in the words of Wences. Cesar is three Argentine born in tech investor who is one of Bitcoin's most ardent advocates. After 10 years of working well without interruption, with close to 100 million holders adding more than one million new holders per month and moving more than one billion per day world wide, it is a 50% chance of hitting a price of one million per Bitcoin in 5 to 7 years time. Whoever he is or was, Satoshi summed

up how Bitcoin works. It is a purely peer to peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution. In essence, Bitcoin is a public ledger shared by a network of computers to pay With Bitcoins, you send a signed message transferring ownership to receivers, public key transactions or group together and added to the ledger in blocks. And every note in the network has an entire copy of this Blockchain at all times. A node can add a block to the chain and receive a Bitcoin reward Onley by solving a cryptographic puzzle chosen by the Bitcoin Protocol, which consumes processing power nodes that have solved the cryptographic puzzle. Miners and bit speak rewarded not only with transaction fees five Bitcoins per day on average, but also with additional Bitcoins 900 new Bitcoins per day. This reward will get cut in half every four years until the total number of BITCOINS reaches 21 million, after which no new Bitcoins will be created. There are three obvious defects to Bitcoin as a means of payment, it is slow. The Bitcoin Blockchain can process only around 3000 transactions every

10 minutes. Transaction costs are not trivial. Coin base will charge a 1.49% commission if you want to buy one Bitcoin, there is also a significant negative externality Bitcoins. Proof of work consensus algorithm requires specialized computer chips that consume a great deal of energy. 60 terawatt hours of electricity a year, just under half of the annual electricity consumption of Argentina. Aside from the environmental costs, one unforeseen consequence has been the increasing concentration of Bitcoin mining in a relatively few hands, many of them Chinese, wherever there is cheap energy. But these disadvantages air outweighed by two unique features. First is we have seen Bitcoin offers built in scarcity in a virtual world characterized by boundless abundance. Second, Bitcoin is sovereign in the words of saris. No one can change a transaction in the Bitcoin Blockchain, and no one can keep the Bitcoin Blockchain from accepting new transactions. Bitcoin users can pay without going through intermediaries such as banks they can transact without needing governments to enforce settlement. The advantages of scarcity are obvious

at a time when the supply of Fiat money is exploding. Take them to a measure of money that includes cash bank accounts, including savings deposits and money market mutual funds. Since May, U. S M two has been growing on a year on year rate above 20% compared with an average of 5.9% since 1982. The future weakness of the dollar has been a favorite 2020 Talking point for Wall Street economists such a Steve Roach. You can see why there really are a lot of dollars around. Even if the velocity of circulation has slumped because of the pandemic, the advantages of sovereignty are less obvious. But maybe more important, Bitcoin is not the only form of digital money that is flourished in 2020. China has been advancing rapidly in two different ways. Nowhere in the world are mobile payments happening on his largest scale, as in China. Thanks to the spectacular growth of Alipay and wechat pay, those electronic payment platforms now handle close to 40 trillion of transactions a year, more than double the volume of Visa and MasterCard combined. According to calculations by RIBBIT capital, the Chinese platforms are expanding rapidly abroad, partially

through investments in local fintech companies by and group and 10 cent. At the same time, the People's Bank of China has accelerated the rollout of its digital currency. The potential for a digital yuan to be adopted for Remittance payments or cross border trade settlements is substantial, especially if, as seems likely, countries participating in the one belt one road program are encouraged to use it. Even governments that are resisting Chinese financial penetration, such as India, are essentially building their own versions of China's electronic payment system. Some economists, such as my friend Ken Rogoff, welcome the demise of cash because it will make the management of monetary policy easier and organized crime harder. But it will be a fundamentally different world when all our payments air recorded, centrally stored and scrutinized by artificial intelligence, regardless of whether it is Amazon's Jeff Bezos or China's Xi Jinping, who can access our data. In its early years, Bitcoin suffered reputational damage because it was adopted by criminals and used for illicit transactions. Such nefarious activity has not gone away, as a recent Justice Department report makes clear. Increasingly, however, Bitcoin has an appeal

to respectable individuals and institutions who would like a least some part of their economic lives to be sheltered from the gaze of Big Brother. It is not, as the term Cryptocurrency misleadingly implies, that Bitcoin is beyond the reach of the law or the tax man. When the Federal Bureau of Investigation busted the online illegal goods markets Silk Road in 2013, it showed how readily government agencies can trace the counter parties in suspect Bitcoin transactions. This is precisely because the Blockchain is an indelible record of all Bitcoin transactions, complete with senders and receivers Bitcoin addresses. Moreover, the Internal Revenue Service is perfectly prepared to demand information on Bitcoin accounts from exchanges has coined based. Discovered in 2016. A rumor of new U. S. Treasury regulations requiring greater disclosures by exchanges caused a sharp crypto selloff over Thanksgiving. The point is simply that the financial data of law abiding individuals is better protected by Bitcoin than by Alipay. As the Stanford political theorist Stephan Krasner pointed out more than 20 years ago, sovereignty is a relative concept. Rather than seeking to create a Chinese style digital dollar

, Joe Biden's nascent administration should recognize the benefits of integrating Bitcoin into the U. S. Financial system, which, after all, was originally designed to be less centralized and more respectful of individual privacy than the systems of less free societies. Life in the east end of Glasgow in the 19 eighties was nasty, brutish and short of money, But all those transactions and grubby pounds and pence genuine shit coins were, if nothing else, private. If Agnes Bain bought special brew instead of oven chips. It was a matter for her, the shopkeeper and her long suffering kids. The state was none the wiser. That was stand consolation for poor sugi. But as we have learned again this year, a free society comes at a price that is not always payable in cash.

Niall Ferguson on Why Bitcoin and China Are Winning the Monetary Revolution
Niall Ferguson on Why Bitcoin and China Are Winning the Monetary Revolution
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