The Future of Money

1. The Future of Money Ben Best Past President – Cryonics Institute Employee – Life Extension Foundation

2. Uses of Money • In a Free Market • Medium of Exchange • Store of Value • Unit of Account (prices) • By Governments • Means of covert taxation • Means of influencing the economy

3. World Monetary Socialism • In every country on earth governments control the means of production of money by means of their “central banks” (Federal Reserve System) • Governments prohibit non-government money • Legal tender laws only allow government money • Efforts to create alternate currencies have been crushed by governments • But governments may become helpless to do so

4. E-gold • When gold ownership was legalized for Americans in 1974, gold was allowed to be used as a commodity, but not as money • Barter in commodities is not prohibited • The company E-gold was created in 1996 to allow online transfers of gold in quantities as small as one ten-thousandth of a gram

5. E-gold • E-gold had five million users in 2008 when the company was shut down by the US government on charges of money laundering and operating an unlicensed money transmission business • E-gold unable to obtain a money transmission license because the Treasury Department would not acknowledge that gold is money

6. Liberty Dollars • Liberty Dollars were coins produced in the United States beginning in 1998 • Liberty Dollars were promoted as medallions which could be used in barter • In 2007 the FBI confiscated 2 tons of gold, silver, and platinum coins bearing the likeness of Ron Paul • The owner was accused of domestic terrorism and sentenced to 15 years in jail

7. Trends – paper and cards • Credit and Debit cards are replacing coins and paper currency • More durable, sanitary and convenient • Concerns with disease transmission • Financial transactions are increasingly digital • Online bill payments rather than checks (Generation Y) • Paper currency & coins gone in a couple of decades ? • Smart phones will replace plastic cards • Google wallet, MasterCard PayPass, Visa payWave… • Near Field Communication (NFC)

8. Trends – Cell phones universal • Cell phones are universal in third world countries that never had land-lines or telephone poles • Cell phones have become a means of money storage and transfer in some third world countries • M-Pesa allows people with no credit rating and no bank account to store funds on their cell phones • M-Pesa has tens of millions of users in Kenya, Tanzania, and South Africa • M-Pesa allows for transfer of funds between individuals and businesses

9. Bitcoin • Decentralized digital currency based on cryptography • Digital rather than physical entities • Ownership and transfer of ownership is validated by a distributed network with no central authority • New bitcoins are created by validating bitcoin transactions, a process called “mining”

10. Bitcoin • Released January 2009 • Maximum 21 million bitcoins can ever be created • Unlike fiat currencies, bitcoin is not inflationary • But bitcoin can lose value (like a stock price) if users sell their holdings • Bitcoins are valued because other people will accept them as payment • One bitcoin is currently worth about US$440

11. Ben Best’s Bitcoin Address at Blockchain.info (with QR code)

12. Wallet • A place to store bitcoins • Software on your computer • Software on the computer of a Bitcoin exchange • Software on your smartphone • Public address plus private key on a piece of paper • (“cold storage”) • “Brainwallet” – memorized phrase corresponding to address and private key

13. Bitcoin Exchanges • Company that exchanges bitcoin for fiat currencies • And, in some cases, other cryptocurrencies • Coinbase now the largest and most reputable • San Francisco company • Treasury Department requires Coinbase to register as a money transaction business • US government does not recognize bitcoin as being money • On-line transfer from bank account to Coinbase (and to bitcoin) • Others: Bitstamp, Blockchain.info, etc.

14. Canadian Bitcoin Exchanges • Bitcoiniacs, QuickBT, Coinclutch, etc. • Less stringent regulation than US • October 29, 2013 the world’s first ATM converting between bitcoin and fiat introduced in a Vancouver, British Columbia coffee shop • Bitcoin exchanges were not subject to regulation as money services business required to comply with money-laundering laws until February 2014

15. Mt.GoxBitcoin Exchange • Founded in Japan in July 2010 • By 2013 was handling more volume than all other bitcoin exchanges combined • Declared bankruptcy in February 2014 • Reported that a hacker had taken ¾ of a billion dollars worth of bitcoin • Mt.Gox was at fault for its lax security • Not an inherent problem with bitcoin

16. Acquiring bitcoin without using an exchange • Bitcoin can be mined (with your computer) • Bitcoin can be received as a donation or gift (e.g., transfer to a relative in a foreign country) • Bitcoin acquired online as payment for service • Computer programmers, artists, writers, etc. • LocalBitcoins.com • Company in Finland that allows users to negotiate to meet in person to buy/sell bitcoins in exchange for local fiat currency • ATM (if available)

17. Why businesses accept bitcoin • Convenient for on-line merchants • Superior to Credit cards • Negligible transaction fees • No chargebacks • Simple international payment • No risk of credit card theft • In 2013 retailer TARGET had 40 million credit card numbers stolen • Merchants gain status as early adopters from the enthusiastic Bitcoin community

18. BitPay simplifies transctions • BitPay is an American company which simplifies Bitcoin transactions for on-line merchants • BitPay services over 20,000 merchants • Has processed over $100 million bitcoin transactions • Converts bitcoins to US$ in less than 15 minutes • For on-line commerce, prices are quoted in US$, but paid in bitcoin upon checkout

19. Businesses accepting bitcoin • WordPress.com • Reddit • Virgin Galactic • Tesla motor company • Mises Institute • TigerDirect -- $1 million in sales after 2 months • Oversstock.com – $10-$15 million for 2014 expected • Yelp now lists “Accepts Bitcoin” below “Accepts credit cards”

20. Anonymous Transactions • Government can monitor all transactions of banks and credit cards under its powers of anti-money laundering • Many people want to be able to purchase erotica, gamble, or donate to unpopular political causes without being monitored • Bitcoin allows for anonymous transactions on the internet

21. Anonymous Transactions • Wikileaks was able to accept donations in bitcoin after being cut-off from the banking system, PayPal and credit cards • National Security Agency whistleblower Edward Snowden was able to accept donations in bitcoin when he fled to Hong Kong

22. Massachusetts Institute of Technology • In the Fall of 2014 MIT will give each of 4,000 students $100 worth of bitcoin • MIT students will be encouraged to experiment with Bitcoin in a wide variety of ways

23. Low-cost Transactions • Like the internet, no national boundaries • Third world immigrants are able to send money to their home countries through bitcoin, avoiding the 10-15% transaction fees of banks and delays of up to 5 days • Governments with the most inflationary practices have higher rates of bitcoin adoption • Buenos Aires, Argentina has 30% more bitcoin-accepting sites per capita than New York City

24. Chinese Bitcoin prohibition • In December 2013 the Chinese government forbade domestic financial institutions from conducting payments in bitcoin • Individuals in China are not prohibited from buying or selling bitcoins

25. Russian Bitcoin prohibition • Mixed messages • In February 2014 the Russian government declared that using bitcoin as a parallel currency is illegal • All of the Russian bitcoin exchanges ceased operation • Individuals in Russia are not prohibited from buying or selling bitcoins • Government is still developing guidelines

26. Clownish Bitcoin prohibition • In June 2013 the California government issued a “cease and desist” order against the Bitcoin Foundation charging the organization with engaging in money transmission without a state license. • The Bitcoin Foundation is a non-profit organization that promotes the use of bitcoin, but does not engage in money transmission • There is no central authority for bitcoin • Bitcoin has no point of attack for governments

27. Bitcoin US legal status • The US Treasury Department does not recognize bitcoin as being money but requires Bitcoin exchanges to get money transmitter licenses • The IRS has ruled that bitcoin must be treated as an investment, with all capital gains reported on all buying and selling • By the IRS ruling, buying and selling in bitcoin is like buying and selling stocks • Every monetary transaction a taxable event? • Compliance? Enforcement?

28. Silk Road • Company started in Feburary 2011 on the Tor network selling goods for bitcoin • Bitcoin transactions provide anonymity • Tor network provides anonymity • By March 2013 70% of the transactions were for illegal drugs such as heroin, cocaine, and LSD • Prohibits child pornography, stolen credit cards, and murder contracts • Provides illegal drugs that are safer than what is often obtained on the street

29. Silk Road • In October 2013 a Silk Road owner was arrested by the FBI • The FBI seized 144,000 Silk Road bitcoins (valued at $28 million) • In November 2013 Silk Road 2.0 was launched by other Silk Road employees • Silk Road 2.0 is bigger than ever in May 2014, based on its reputation for high integrity in its dealings with its customers

30. Bitcoin Price in US$ (Coinbase)

31. Bitcoin Price in US$ (Coinbase)

32. Bitcoin and libertarianism • The majority of bitcoin enthusiasts are libertarians • Bitcoin is seen as an escape from government-controlled central banks and inflation • Idealistic motivations • Believe that central banks damage and hamper the economy, hurting everyone but government officials and banking industry cronies • Hope that bitcoin will replace fiat money

33. Central bank money • Federal Reserve System (US central bank) started in 1913 to stabilize money and banking • Great depression, repeated financial crises, bank failures and inflation • If goods and services increase faster than the money supply, money becomes more valuable • Purchasing power of dollar doubled between 1813 and 1913 due to gold standard and rising productivity • Purchasing power of dollar in 1913 was 23 times purchasing power in 2013 despite rising productivity

34. Federal Reserve intends inflation • Fed targets 2% price inflation per year • 3% increase in goods and services per year • (increased productivity due to technology) • 5% increase in money by Fed • NET: 2% price inflation, but 5% covert taxation • Keynesians think inflation is good for economy • Inflation reduces the real value of government debt

35. Can bitcoin replace fiat? • Bitcoin could be protection against government-caused inflation BUT Bitcoin is very vulnerable to price-drops due to political and technical reasons rather than monetary inflation • When and if bitcoin price stabilizes or adopts a trend of increasing value, it can become a refuge against inflationary central banks around the world.

36. World reserve currency • The US Dollar has been the world reserve currency, but this is unlikely to last • When the British Sterling ceased to be the world reserve currency in the 1930s, its value dropped by 30% overnight. More loss of value would be expected for the US Dollar • China, Russian, Arab nations and other countries want a more stable world reserve currency • Could bitcoin replace the US Dollar as the world reserve currency?

37. May 2014 Top 8 Cryptocurrenciesby Market Capitalization

38. Keegan MacIntosh on Bitcoinin CRYONICS magazine • October/November 2013 • Cryonicists and Bitcoin (Merkle, Finney,Metzger) • Public Key Cryptography, “Merkle Trees” • If Bitcoin is a house, Ralph Merkle provided nails • BrainWallets • Memorize a phrase that can decode a bitcoin address • Brain damage could result in loss • Creates an incentive for thieves to “pick your brain”

39. The future of money • Fiat money may become worthless • All central bank currencies, all government money • Bitcoin may lose considerable value to a superior cryptocurrency in the future • Bitcoin has deficiencies not in other cryptocurrencies • Bitcoin was the first cryptocurrency, but newer cryptocurrencies have been devised with improved features

40. Money as store of value for cryonics • Money should not be regarded as a store of value • Fiat currencies may become worthless in decades • CI Member with French Francs in a safe deposit box • Cryptocurrencies may be superseded by better ones • Jewelry should not be used as a store of value • The quality of synthetic diamonds is approaching that of natural diamonds and the cost of production will probably drop • Gold or platinum is harder to synthesize but could be plentiful on asteroids

41. Alcor Memory Box • Underground Vaults & Storage (UVS) company • Hutchinson, Kansas salt mine • Cost included in cryopreservation charge • Boxes 13”wide X 15”tall X 18”long • Boxes are sealed in tape • Only UVS employees have access • Precious metals might be safe to store • Additional boxes $250 each • Employee theft seems possible

42. Stored valuables • Safe deposit box for precious metals? • Could be in Switzerland or elsewhere • Who would be the owner? • Bury precious metals like the pirates? • Like a brain wallet – remember the location

43. Predictions: 5-20 years • US Dollar will cease to be world reserve currency • Paper currency and coins will cease being used • Not just cell phones, but smart phones with cameras will become universal • Monetary transactions will primarily be done on smart phones • bitcoin prices will become less volatile • One or more cryptocurrencies will replace Bitcoin as the predominant cryptocurrency

44. Predictions: 20-50 years • Cryptocurrency will replace fiat as the de facto national currency in an increasing number of third world countries with central banks having the most extreme inflationary policies • There will be a monetary Armageddon between the central banks of the most developed countries and cryptocurrency • Cryptocurrency will become the de facto and ultimately the legitimized world currency

45. Uncertain prediction • The irresponsible financial practices of the US government (massive borrowing by the Treasury Department, with rising interest rates on that debt) and Federal Reserve central bank (massive money creation) could lead to a financial crisis from which cryptocurrency is the only recourse

46. Store of value for cryonicists? • Not fiat money • Not cryptocurrency • Precious metals? • Coins? • Numismatics is becoming less popular and less valuable • Stocks? • What companies can retain stocks value for decades? • Objects of art? • Where and how to store such assets?