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In the wake of Uber CEO Travis Kalanick resigning from his position today, there is one thing many of us will never forget him for. And that is disruption. Through its peer-to-peer nature, Uber has successfully managed to revolutionize the way many of us commute. Disrupting a $11 billion industry in the process.
To compare the potential that Bitcoin (and cryptocurrencies in general) have to disrupt money as we know it would not be too far fetched. In fact, many of its enthusiasts refer to is as the “money of the future,” due to its decentralized peer-to-peer nature that enables irreversible, fast and low cost transactions.
Meet Lorien Gamaroff, who could pass as one of these enthusiasts. He is the Chief Executive of two startups that are pioneering in the disruption of the financial industry using Bitcoin.
Cryptocurrencies are changing the game when it comes to easy payment services, allowing people to transfer funds to different parts of the world minus the high costs and logistical delays. Your company Centbee is part of that disruption. However their use is still not as main stream as it potentially could. Why is this in your opinion?
Most people are still not aware of Bitcoin and cryptocurrencies. What little they do know has been negatively shaped by mainstream media. There are also few tools and services which allow non-technical people to acquire and interact with Bitcoin. There are few companies providing services around Bitcoin but not enough to make an significant impact. The era of cryptocurrencies is still in its infancy. A period of development and research is ongoing and regulatory bodies are working to understand the technology and its implications on society and law. Eventually guidelines for businesses will be created which will accelerate development of the types of services that will take cryptocurrencies mainstream.
Do you think crypto is a better option for commerce in developing economies that have high inflation to the extent where the national currency basically has no value? And do you foresee a future where in some nations crypto-currencies are the dominant means of trade over fiat currency?
Bitcoin has a finite and predictable supply. This solves the problems of excessive inflation and currency devaluation that fiat currency systems have. It is still early and relatively few people own Bitcoin which means the value can fluctuate significantly. This will stabilize over time.
I certainly do see a future where people will use Bitcoin as a store of value and a protection against inflation.
There might be other cryptocurrencies or second-layer technologies that allow for faster transactions and lower fees than are currently experienced by users of Bitcoin. These alternatives, however, will leverage and be built upon Bitcoin. Eventually this will lead to people gaining trust in the system and shifting their value exchange to Bitcoin and other cryptocurrencies. Another factor leading to widespread adoption is waning faith in existing financial institutions. This is a proactive force pushing people to consider alternatives.
How is inflation determined in crypto-currencies and how aggressive is it?
Cryptocurrencies have differing economic models. Some have fixed and steady rates of inflation capping off at some finite supply- thus making it deflationary (value continues to increase over time). This mimics the rate of inflation for gold. Others have no cap to their supply and are therefore infinitely inflationary- like paper money.
If currencies like Bitcoin have a deflationary nature over time, wouldn’t it be detrimental to its potential of replacing a national currency, since may not be good in stimulating an economy (i.e. people won’t spend if they know the value of their money will go up)?
There are two competing economic philosophies regarding money and its supply. One recommends an inflationary supply and the other a deflationary one. It can be argued that a gold standard, being deflationary, creates a more stable economic framework. It is not preferred by governments, though, because a gold standard limits spending unless unpopular taxation is forced upon their constituents. Since 1971 the world’s central banks have not been restrained by a gold backed currency and this has led to hyperinflation which will ultimately lead to a global collapse in currencies.
Bitcoin, being deflationary, aims to emulate the “sound money” principles of gold so that hyperinflation cannot occur.
If central governments aren’t regulating the flow of crypto-currencies, how do you foresee taxes being regulated?
Governments will be able to regulate those service providers that provide value around cryptocurrencies. So merchants, exchanges and other service providers that accept and use cryptocurrencies can still be regulated. An example of how business models will evolve to accommodate disruption is with the music and movie industry. Both went through a crisis phase when peer to peer file sharing became popular. It was predicted that those companies which publish and monetize media content would become obsolete. This did not happen because business models changed to accommodate these changes. Hence the rise of companies like Netflix, Spotify and iTunes.
Technical aspects are barriers for many people to enjoy the benefits of crypto-currencies. Do you see this problem protruding into the future or do you see this barrier diminishing as people get more informed?
When the early internet was being developed it was extremely complicated to use. Mass adoption only occurred when companies like Netscape and Google developed simplified tools and services for non-technical people to use. The same thing will happen with the average consumer.
It will not be required that they learn new skills to use cryptocurrencies.
What should people be weary of when considering newer crypto-currencies that are cheaper than Bitcoin and Ether? In other words, what are the signs a cheap coin is not necessarily a quality coin?
People should only invest in currencies that they understand or willing to lose money on. There are a multitude of coins being created and almost all of them will fail at some point.
Premined coins, which have been mined before their launch, and later redistributed to the public with the promise of high returns, such as Pipcoin, are becoming more common. How do you feel about these type of coins?
If they are not intended to be used as a currency but simply a token to facilitate some service then premining is not a problem.
The majority of premined coins are used for “pump and dump” schemes by its creators and should not be trusted.
What are some of the negative characteristics of investing in crypto-currencies that people should look out for?
There is much hype in the industry at the moment and this always leads to a bubble which pops. The only currency I have long term faith in is Bitcoin.
Lastly, what’s the best advice regarding money that you’ve received in your whole life and what’s the best advice regarding money that you can give to anyone reading this today?
Money is a means to an end and not an end in itself.
If money controls you it will enslave you.
The best way to free yourself from it is to be generous and donate to causes. The biblical story of the boy with the 5 loaves and 2 fishes demonstrates this. By being generous you will be rewarded.