Bitcoin’s Straightforward Use Case

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Cyprus

In 2011, I started researching digital currencies because my sons had been telling me about video game ecosystems. I started to realize that digital goods could be commodities. I then stumbled onto Bitcoin while researching other digital commodities.

It was going for about one dollar! I started to buy some. I literally had entered everything into a checkout screen but had not clicked the final send for the transaction on my credit card. Right at that moment, the CTO of the company I was working for at the time came up and asked for status on a project. Oops! I dropped out of that browser tab right quick.

I had a good status to report. It was no big deal to show off the progress to him. He went away satisfied. However, the “checkout session” had expired. I was going to have to jump through all the hoops again to get to the point where I was about to buy 100 bitcoins. And you know, I had a thought. I said to myself, “You know Tony, this seems like a good way to evaporate $100.00.” Maybe fate has smiled upon me and saved me a C-note? I did not go back to the site for three years.

Do I regret that choice? Yes, I guess I do, but it was mine. I could have chosen differently. I could have chosen to surf digital currencies on my home computer and not on company time but I did not do that. I did what I did and I decided what to do next. I decided. I was the decision maker. If you make your own decisions, I find the regrets a “little” easier to deal with.

In any case, even though I decided not to buy in 2011, I still kept an eye on Bitcoin. The price went up and down and all around, but in 2012 going into 2013, it really shot up. It went well over $1000 and stayed there. It did not take long to figure out why. The sovereign debt crisis in Europe was in full swing with Greece leading the way downward.

This affected another European nation closely tied to Greece, Cyprus. Citizens of Cyprus got hit hard. Imagine you woke up one day to discover your bank account has been raided by another country’s government. This is true power. When it gets ugly, you just make new rules and take from the less powerful to prop up the status quo. Proof of stake can allow for these kinds of things, but that is for another essay.

The deal to bail out Cyprus had been strict. Just like that, $1 in every $16 of your supposedly safe money is gone. If you’re wealthy enough to have more savings, it could be $1 in $10. That became the new reality facing bank depositors in Cyprus.

The German Central Bank came to the rescue but there was a price. Cyprus had to pick up SOME of the cost. It could not afford much but the Germans were determined to get something back. There had to be consequences for Cypriot behavior.

The terms of the Cypriot bailout were shocking. Germany would cough up about $13 billion, and, in exchange, Cyprus would levy a “one-time” tax on bank deposits to raise an additional $7.5 billion. The tax took 6.75 percent from insured deposits of €100,000 or less, and 9.9 percent from uninsured amounts above €100,000. Depositors could get bank stock equal to whatever they lose from the tax. Yahoo!

If you’re wondering why anybody kept their money in a Cypriot bank, well, they didn’t. It became an open invitation for an old-fashioned run on their banks, so the banks were closed. An extended holiday was declared. Big depositors were trapped in Cyprus as it had been seen as a tax haven for many well-off Russians.

Very tight controls were instituted on the banking systems in Cyprus. People were allowed very limited access to their money for some time. Bitcoin’s price began to rise. It broke through one thousand dollars and kept going. I understood the Bitcoin use case better as I watched this crisis unfold. Rich people were not going to allow Bitcoin to die.

The Bitcoin use case allowed rich people access to their money when the bankers ask for a mulligan. The original backers of Mark Zuckerberg, the Winklevoss twins, jumped in with both feet. The Winklevii have been Bitcoin evangelists ever since. The sovereign debt crisis in Europe cemented the Bitcoin use case for the world’s rich and powerful.

The 21st century had already seen the United States ratcheting up the financial sanctions in the name of reducing terrorist financing their evil agendas. If they caught a few tax evaders in the process so be it. The United States being the owner of the world’s reserve currency coupled with the computerization of money in the late 20th century even brought the great tax haven of Switzerland to heel.

The Cypriot banking crisis demonstrated the extent of control the banks had over the systems which moved money. The banks in conjunction with the sovereign nation states had more control than ever before due to the 20th century computerization of all things money. Now could clearly see the Bitcoin use case. The wealthy needed an alternative to a system which had become too tightly controlled by nation states and their geopolitical machinations.

When things settled down and the Bitcoin price went down, I put some money on the cryptocurrency wheel. The fact is Bitcoin may or may not be the end all cryptocurrency. It may not last. It may be made illegal, but this idea of a digital asset to move “wealth” outside of the banking system through a “proof of work” system will not go away.

The genie is long out of the bottle. Remember I first went looking for digital assets because my sons told me virtual commodities were being traded for real money in the video game universe. Having the commodities was a kind of proof of work as there were video gaming farms where people were paid to play video games by a single entity. That single entity then went and sold those assets into various video game ecosystems.

The nation-states and the central banks are not going to roll over here. There is going to be a big battle ahead. Those with wealth are looking for ways to shelter it when this great reordering really starts moving. If cryptocurrency were to go away, the old video game commodities would be just one place the money might go. Cryptocurrency’s use case is this mobility of all else. Its mobility has utility for the rich and powerful to gain independence from the nation-states and central banks.

That is a solid use case for cryptocurrency of some kind into the future. If enough nation-states adopt Bitcoin, this may be a bloodless coup. However, it seems doubtful that the big nation-states are going to capitulate so easily. HODL’ing.

Disclaimer: The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.