Draft Blockchain Report: The Biggest Myth
Below is a draft chapter of a blockchain report that is wrapping up research and organization. With all the President’s tweets and the Congressional hearings of the Fed Reserve Chairman, I wanted to begin sharing this immediately.
Please share feedback to feedback@coast2coastfinancial.com as it will be utilized to help me understand what is not clear and can be incorporated into the final report. I’m planning to send several other chapters out in this same manner.
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It’s been a while since the CPA Gone Mad newsletter has gone out. I took a corporate job that prevented me from writing about investing opportunities for the last two years. I’ll share more of my story during the official relaunch in September of 2019 but I’ve left that job so I can focus full time on helping folks learn how to get ahead in the financial world in the same manner I have.
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The Biggest Myth About Cryptocurrencies
Bitcoin is going to replace the dollar!
This myth is part of the reason why so many prolific investors have refused to put money in cryptocurrencies.
Smart, high-profile investors—the top 1%—know how powerful the government and financial institutions are.
They know that the US is able to run deficits because its dollar is the reserve currency that allows it to print as much as is necessary to fund deficits. The government and financial elite know that by printing money and creating inflation they are creating a stealth tax on the 99%.
My book, Gen X & Millennials: Protect your Money and Prosper, covers this in more detail.
So when Bitcoin (BTC) is touted as becoming money and replacing the dollar (or any cryptocurrency for that matter; I’m just using BTC as it’s the most widely known), the financial elite and smart investors scoff at the idea.
They know there is absolutely no way that the government or financial elite will ever allow money (the main medium of exchange in the US) to become controlled by individuals. This would cause all their power to go away, create a scenario in which there is no ability to run deficits, and lose the government’s ability to track all individuals’ financial transactions.
You can already see this with their response to Facebook’s Libra, which is not a real cryptocurrency in the truest sense because it is ran by a central organization.
The government is moving more toward tracking everyone. So the financial elite and smart investors know BTC will not ever replace the dollar and become the main form of “money.”
It’s the same reason they believe a return to the gold standard will not happen.
When JPMorgan Chase CEO Jamie Dimon and business magnate Warren Buffet say it’s a fraud, scam, or not worth putting your money into, it frightens people off.
What’s a fraud is telling people it’s a fraud because it’s not going to replace the dollar (which is most likely true) but failing to understand it better to help people know it is a life-changing opportunity.
Again, all cryptocurrencies will act like money and may be perceived as being money or replacing the dollar, but the reality is that cryptocurrencies are just acting like money for the services and utility of their specific blockchain.
But they most likely will still need to be converted back to US dollars (or whatever the main medium of exchange in the US is in the future) in order to operate in mainstream finance.
In other words, the dollar or more conventional forms of money that we have today may become “digitized” or “tokenized,” which means they run on the blockchain as tracking mechanisms but they do not have the “inflation-proof” or “gold-like” properties of bitcoin. (This is sort of what Libra was trying to do and why the government wants to shut it down.)
Nor will “digitized” or “tokenized” US dollars have the storage of value or access to the services features of other blockchains and their respective cryptocurrencies. This tokenized money will have the blockchain properties but with the same value as a paper dollar.
I believe there will be certain industries that adopt the blockchain and create the perception that the cryptocurrency has replaced the dollar, but in reality all it is doing is acting like a dollar until it is converted into the traditional banking system.
Let’s say the cryptocurrency DASH has widespread adoption in the marijuana space. DASH partnered with Alt Thirty Six a couple years ago in attempt to bring this acceptance of DASH to cannabis dispensaries.
I believe marijuana will become federally legal but may not be so for another five to ten years.
In the interim, numerous states have already legalized marijuana recreationally and numerous more will do so until it becomes legal federally.
Until it’s legal federally, marijuana dispensaries must operate outside of the traditional banking system.
Picture this scenario, which DASH and cannabis payment vendors, like Alt Thirty Six, may ultimately implement:
You fly to Vegas for a bachelor party and order an Uber to a recreational marijuana dispensary. Uber flashes an ad to download a DASH wallet to get 20% off your purchase.
You download the wallet and walk into the dispensary.
A pack of gummies, disposable vape pen, and five pre-rolls costs, minus 20% off, totals $96.
You go to the DASH ATM, put in your debit card, scan the QR code on your DASH wallet, and just like that convert $100 from your bank account to $100 worth of DASH in your DASH wallet.
The bud tender scans your QR code and takes the $100 worth of DASH to pay for your order (you wanted to give a $4 tip to spread good karma).
At the end of the day, the dispensary takes all of the DASH, uses it to pay any expenses, and then converts the rest to US dollars and deposits the US dollars in a traditional financial institution.
If you understood that scenario, DASH has not replaced the US dollar; DASH has just become money (a medium of exchange) within the cannabis industry and is not converted to US dollar money until it comes out of that industry. Then it might convert to dollars or another cryptocurrency for use in a different industry.
DASH’s value will be derived by how many dispensaries use it and how many consumers adopt the use of DASH over dealing with US dollar physical cash because they cannot use credit or debit cards.
Once the market becomes mature, DASH’s value will fluctuate against the dollar just like any other currency such as the Euro, and will not fluctuate as much (be as volatile in terms of DASH‘s US dollar price).
But until then, you can buy DASH as a speculative opportunity, hoping to catch the steep increase in DASH’s US dollar price as DASH becomes more widely adopted and matures to steady exchange rates.
If you wait until DASH is being used everywhere, then the opportunity is gone, as the exchange rate will not fluctuate once the market is mature.
This is not a recommendation for DASH, but rather an example of why the myth of cryptocurrencies replacing the dollar is just a myth.
In a later chapter, I’ll go into the another main feature of the blockchain, smart contract technology. And again, this has nothing to do with replacing the US dollar, but it will disrupt the financial and real estate industries.
To Your Health, Wealth, and Personal Freedom.
Chad A. Walker, CPA, MBA
P.S. If you have not received a copy of my book, Protect your Money and Prosper, please send an email to feedback@coast2coastfinancial.com and I’ll send you a pdf copy asap for being a subscriber.