Every once in a while a new idea blasts onto the scene
out of nowhere - typically it is at first met with suspicion and distrust. If
it has merit, it can start to become disruptive and awkward for incumbents,
let's call them the “Safe Guys”. Safety and security are heralded as reasons
why the new idea should be ignored.
New ideas only really take off when someone somewhere,
lets call him the “New Guy”, figures out how to monetise the hell out of the
idea -- then New Guy types start to get wealthy. Then and only then do Safe
Guys start to take notice and that brings a whole new level of scrutiny.
You see, unlike the established players, New Guy has
nothing to lose and so he can just “go for it”. Success follows and
suddenly the Safe Guy incumbents react, at first not by changing what they do
but they state, rather pretentiously, that while, yes it is an interesting
idea, they can do just as good a job as the upstart and in a far safer way.
They then pay some bloated consultant to explain exactly what the new idea
actually is, so they won't look so stupid next time. (You see, in many cases
success will in time hamper innovation as we give in to the human trait -- to
protect what we have and not risk it with some fan-dangled and convoluted
new-thinking!)
You can see this behaviour in so many industries: low cost airline travel,
music downloading, internet browsers, electric cars, even taxis.
Well, what if I told you that there is something new in the works and it is
happening right now, that it is so big and so transformative that it is
promises to rewrite everything you do and every way you do it. If you thought
the internet was a big deal, well, you are about to meet its big brother.
Before I explain what I mean, I need to cover some basic ground work first.
We humans can be a very distrusting lot. We can be “oh so nice” and polite
and civilised when it suits us, but when it comes to really trusting each
other, all that niceness goes out the window.
At the end of the day we have an overwhelming urge to acquire, to earn, to
build and to keep all manner of assets. We don't just want to have all the
assets we can get our hands on, we also then want everyone else to know we
have them too. Yes, there are saints amongst us who rise above all of this,
but they are the exception, (or perhaps the acknowledgement they seek is of a
more intellectual ilk). Because of our capacity to cut corners, tell outright
lies, misrepresent at every opportunity, we require a very energy intensive
and complex contract system. Either way, if you think about it, our desire to
acquire assets, at almost whatever cost and to account and protect those
assets governs so much of the net human enterprise.
It is a relatively recent phenomenon that we have realised that the sum of
our activities may be having a deleterious effect on the world around us,
(cough cough) on our neighbours or on our children's future. As such, we have
started to develop a collective consciousness about “how” we actually go
about our business and the unintended legacy effects we can have on our
environment.
At the heart of the global economy is a big list of assets, houses, land,
companies, intellectual property, brands, human talent etc. We spend an
enormous amount of time trying to figure out who exactly owns the asset, how
they own the asset, who can work the asset, how to protect the asset, how to
value the asset, how to extract value from the asset, how to maintain the
asset, how to make our asset more efficient than our neighbour's asset, how
to exploit the asset, how to attack our neighbour's asset, how to calculate
taxes on the asset. It is a small wonder that after all of this work that
happens around the asset, that when the asset is actually put to work, there
is any net actual value left for society.
Think of the army of “professional” analysts who are employed to manage the
asset: lawyers, bankers, auditors, tax departments, payment services,
developers etc. They are sometimes referred to, in part, as the
"services industry" and they are accepted as being the best type of
economic activity a new, technology focused economy can have. Some politicians
even refer to them as the “knowledge economy”, as if that actually means
something.
Now here is the big change that is coming. Imagine a world where every single
asset had a universally accepted “tag” attached to it. The tag will display
exactly which account owns the asset, who can control the asset, every
conceivable dimensional detail about the asset, how to buy and sell the
asset. Imagine if it was indisputable, as sure as 1+1=2. Imagine if you could
sell your house or any other asset without having to go into a legal mine
field of contract law. Imagine a world where you could buy a service or
product anywhere in the world in a microsecond and not have to pay outlandish
charges to some faceless, feckless banking guild.
You may have heard of Bitcoin, a cryptographic electronic currency that is
grabbing headlines all over the world. It is being described by Safe Guy
types, as “volatile”, the preserve of criminals, unsafe, scary etc. Indeed it
may be or become all some and none of these things in time. But behind it is
a technology that is as transformative as I have ever seen.
The technology is known simply as “blockchain". In origin, and partly in
design, it is similar to the original methods of accountancy dreamed up by the
the first international traders thousands of years ago. This modern day
incarnation of those hallowed concepts is infinitely more practical, dynamic
and accessible to the computer-clad and hyper-connected people of today.
The Block-chain is simply a register of assets on a public ledger that
clearly identifies: an asset, owner and any number of useful credentials that
may be helpful in understanding the properties of the asset. This means that
you can have certainty that what is there is there and can be bought and or
sold. It is public and it is virtually indisputable.
What this means is that the barriers to entry so many people will be lowered,
allowing much greater economic participation by more and more people at lower
and lower cost. It means that complex processes such as stock trading will be
near instant in terms of settlement of trades, property conveyancing could
happen in moments not months, tax collecting could be instant and at point of
transaction. The concept of paying professional fees to access certain
markets will be gone, as the cost of participation will be greatly reduced.
I recently attended a fantastic conference in Dublin called BitFin. It was a
mindblowing experience. The hall held approximately 400 people of all types.
I would say, crudely, they were made up of ultra geeks seeking investment,
Klondykers salivating at how they could get rich, interested parties and some
regulators from officialdom trying to make sense of it all. It got me a
thinking and since then I have not been able to temper my enthusiasm for what
might be. So now I might be metaphorising from “Interested Party” to
Klondyker, please bear with me.
Bitcoin is simply an application of Block-chain technology that is being
applied to currency. Currencies are a great starting point for this
technology. Suddenly the complex apparatus that is deployed to secure,
identify, verify, transact every transaction is being greatly reduced.
Imagine writing a book and having it distributed on Amazon, or other
retailer, a day after it is signed off. If the book is purchased the next
day, your account as the writer, is credited a millisecond after the
purchaser account is debited. Imagine every step in the procurement process
will become vastly more efficient, with little or no bureaucracy to slow down
commerce.
The cost of that book will be a fraction of current costs in new Bitcoin
currency. The innovative book company that can get their suppliers and
writers to accept Bitcoin as payment will have vertical integration bliss,
fast tracking the economic process. First movers will make competitors look
expensive and outdated. Block-chain is essentially and potentially straight
through processing on steroids for all industries, all assets and all
transactions. Fiat currencies Euro, Pound, Dollar), with their massive
industry of safety checks, will look like dinosaurs.
Another big win is the ability to tackle the mammoth abuse of governments
in our currency markets. Central banks' very existence could be rightfully
challenged as they would no longer own a currency that is truly international
and de-centrally managed.
Right now we are all eating monetary “cake”, to selectively quote Marie
Antoinette, and having our savings and pensions robbed and devalued by
pensionable bureaucrats. What's more, the loot is being selectively allocated
on the basis of status and access rather than merit. This is making the rich
richer and is and will lead to social unrest.
Even from technological development, the advent of robotic science is being
hampered by the confusion sowed by the human bureaucratic processes and
obscured ownership ledger systems. Because currently we have a very
convoluted way of managing assets, it is is near impossible for a logical,
procedure-driven, semi-autonomous system to really assist us. If you had an
efficient asset management register and complementary transaction and
security systems, robotic assets could, at last, be in a position to greatly
enhance our economic processes.
How will it change us? Well, it is hard to say. Clearly, it raises enormous
challenges for society, demographics etc. But it will come and it will change
everything we know and everything we do. Perhaps it will allow more human
resources to be deployed into finding new assets, exploiting their benefits
with greater accuracy and less waste, and thus in time allow us to focus on
the effects of our cumulative behaviour on our environment and our children's
future.
MARKET UPDATE
Today’s AM fix was USD 1,264.00, EUR 975.69 and GBP 774.80 per ounce.
Yesterday’s AM fix was USD 1,271.00, EUR 966.69 and GBP 772.36 per
ounce.
Gold fell $7.10 or 0.56% to $1,262.90 per ounce and silver slipped $0.04
or 0.73% to $19.08 per ounce yesterday.
The gold
price came under pressure yesterday in the New York market due to US
Dollar strength. After peaking near $1,275 in early New York trading, the
price moved steadily down and fell below $1,260. In overnight Asian trading
the gold price strengthened again and reached $1,263.50 at close of Singapore
trading. Gold is currently trading at $1265 in London, down 0.47% from
yesterday.
Like gold, the silver price strengthened yesterday in early New York
trading to $19.35 but then moved down below $19.00, before a slight recovery
in Asian market hours. In London trading, Silver is now quoted as $19.04,
down 0.93% from yesterday.
The volatility in the gold and silver prices yesterday did not reach the
platinum and palladium markets where prices remained in a narrow trading
range. Compared to yesterday, platinum has fallen 0.5% to $1,405 while
palladium has risen 0.55% to $887.
For the week, gold is down 1.63% from $1,286 on August 29, silver has
fallen 2.6% from $19.55, platinum is down 1.4% from $1425, and palladium is
1.15% lower compared to last Friday’s price of $897.
The European Central Bank announced further cuts in its key interest rates
yesterday while unveiling details of a quantitative easing programme. This
pressured the Euro while adding relative strength to the US dollar. US dollar
strength conversely had a negative impact on the gold price, hence gold and
silver weakened in morning US market hours after the ECB announcements had
filtered through.
The ECB rate reductions chopped 0.1% off its three main interest rates,
bringing its refinancing rate to 0.05%, its deposit facility rate to -0.20%
(minus), and its marginal lending rate to 0.30%. The quantitative easing
announcement revealed that the ECB will add liquidity to the markets via the
purchase of asset backed securities (ABS).
Geopolitical crises in Ukraine and the Middle East still remain unresolved
but the current Nato summit in Wales may lead to further clarity on these
issues over the coming weeks. Until these crises are resolved, the safe haven
benefits of gold should act as a support for its price in the near
term.
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