A Bit Here, A Bit There

Bitcoin is impossible.

Salvadore Dali: “The Persistency of Memory.” 1931. Source: MOMA

Although the digital-currency is accepted by more and more merchants, it’s hard to see why someone should convert dollars into bitcoins just to have a merchant convert them back. All these transactions are recorded at a bank, so there’s no real gain in anonymity—bitcoin’s main selling point.

Almost no one is paid in bitcoins; the folks with the best incentive to use them are those who bought some earlier and are now cashing out. The currency’s appreciation is its principal problem: there’s no incentive to invest. Since the supply of bitcoins is ultimately fixed, they become more valuable just by sitting in an account–or on a flash drive. Monetary deflation—with its attendant problems—is inevitable. Credit dries up. An economy stagnates without credit—just look at Japan.

But that doesn’t mean that there aren’t lessons to learn from the technology. A key part of what makes bitcoin work is its blockchain—the distributed database that validates every transaction—tracing the coin back to its creation. Blockchain has the potential to make bank payments and securities transactions more efficient and safe. Currently it takes over a month to settle some securities after they’ve been traded. Our financial infrastructure is centralized, antiquated, and insecure—based on 1980s technology.

Just because something’s impossible doesn’t mean it’s worthless. Thomas Edison once quipped that he hadn’t failed, he’d just found 10,000 ways that won’t work. Hopefully, it won’t take that many false starts to learn from bitcoin.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:26+00:00 October 1st, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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