Bitcoin Management Systems

Trade wars, sanctions, fear from private and decentralized cryptocurrencies. Regardless of the motive, a number of governments have recently taken the path of creating their own digital money. Turkey has become the latest country to announce plans for the issue of a “blockchain-based” national currency.

Also read: China Removes Bitcoin Mining From Unwanted Industries List

Digital Lira to Be Tested as Ankara Builds Fintech Ecosystem

The project to develop a digital lira has found a place in Recep Erdogan’s Annual Presidential Program, the state-run Anadolu Agency reported. According to the recently published document, Turkey is set to launch the coin as soon as it completes the design, development and testing phases. The program explicitly notes that a “blockchain-based digital currency” will be introduced.

Tests with the Turkish crypto are expected to commence as early as 2020 but the leadership in Ankara doesn’t stop there. The wider plan is to adopt a roadmap for the development of а full-fledged fintech ecosystem in the country. As part of these efforts, the presidential program envisages the establishment of a “financial technopark” in Istanbul, Turkey’s largest city and economic capital.

The digital lira initiative comes at a time when Turkey is facing mounting economic and financial challenges. Soured relations with the U.S. over Ankara’s rapprochement with Moscow and other independent moves by Erdogan’s administration have even led to a threat from President Trump to “totally destroy and obliterate the Economy of Turkey.”

Over the past few years Turkey was also struggling with high inflation of the paper lira, which has greatly increased the popularity of decentralized cryptocurrencies in the country. A fifth of the Turkish respondents in a study conducted this year stated they owned digital coins. The inflation trend has been reversed in the past months, however, with the rate dropping from over 20% in January to below 9% in October.

Last month, the Central Bank of Turkey cut interest rates to 14% from 16.5% in September and is expected to announce another cut in December. The issue of a central bank digital currency (CBDC) fits in with Ankara’s broader objective to improve and strengthen the country’s economy as well as to build a more stable financial sector with plans for Turkey to become a global financial center. These goals have also been specified in the new presidential program.

States Competing to Issue Digital Currencies

The Turkish government is not the only one working on a digital version of its fiat currency. According to a report published earlier this year by the Bank for International Settlements (BIS), 70% of 63 surveyed central banks are exploring options to introduce CBDCs. According to another report by the Official Monetary and Financial Institutions Forum think tank, as part of which officials from 23 central banks were polled, the first CBDC will be produced within five years, as news.Bitcoin.com reported.

The BIS study was quoted in a letter sent by two congressmen to the Chair of the Federal Reserve Jerome Powell in September. The lawmakers, democrat Bill Foster and republican French Hill, urged the Fed to consider creating a national digital currency, noting that 40 countries are already looking into developing CBDCs. Pressure on the U.S. government to put out a digital dollar has been mounting amid fears of possible decline of the greenback as the world’s reserve currency in competition with private and government-issued digital currencies.

Similar concerns have been expressed in the European Union as well. A recent report by Reuters quoted a draft EU document stating that the European Central Bank should think of introducing a public digital currency to counter Facebook’s project to issue a private coin for users of the social network. The document, prepared by the Finnish presidency for next month’s meeting of EU finance ministers, also urges the Union to develop a common approach and increase regulatory efforts regarding cryptocurrencies.

Meanwhile, the Chinese government has been working on a digital yuan for some time, with the People’s Bank of China recently posting a recruitment notice for six professionals with cryptographic and related experience. A project to issue a Chinese digital currency is part of the recently prioritized blockchain development of the country. A digital yuan would potentially give China an edge in the intensifying competition for global dominance with the U.S. and other major geopolitical players.

Do you expect Turkey to launch a digital version of the lira as early as next year? Share your thoughts in the comments section below.

Images courtesy of Shutterstock.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

The post Turkey Becomes the Latest Nation to Work on Digital Fiat appeared first on Bitcoin News.

Hong Kong’s Securities and Futures Commission has established a new regulatory framework that allows crypto exchanges to opt-in to be licensed and regulated. Starting Wednesday, centralized trading platforms can apply for a license, providing they meet certain requirements including adequate measures for the safe custody of assets, insurance, hot and cold wallets, and private key management.

Also read: 23 Central Banks Divulge Their Digital Currency Requirements

An Opt-In System

The Hong Kong Securities and Futures Commission (SFC) published a new regulatory framework for crypto exchanges on Wednesday. CEO Ashley Alder explained that the commission met with a number of crypto exchange operators after unveiling a conceptual framework that could be used to regulate crypto exchanges last year. “After an in-depth examination of the unique technical and operational features of these platforms, we finally concluded that some could be regulated by us,” he remarked.

The commission has been focusing on whether to regulate crypto exchanges. Alder elaborated, “We saw this as a priority because this type of platform has proliferated in Hong Kong and up to now has largely escaped any form of regulation,” adding that it is largely because crypto assets fall outside the legal definition of securities and futures contracts. Since bitcoin and other cryptocurrencies are not securities and “nothing in our new framework alters this position,” he admitted that the SFC can only regulate those platforms that choose to include at least one security crypto asset or token for trading. “But once this happens our new rules will apply to all platform operations, even if the vast majority of other virtual assets traded on the platform are not securities.” The CEO clarified:

So this, essentially, is a framework allowing a platform operator to opt-in to regulation … Once licenses are granted to those platforms which choose to opt-in, investors will then be able to distinguish easily between properly regulated platforms, and all the rest.

What the Regulation Entails

The SFC detailed in its “Position Paper” published on Wednesday the rules and requirements for crypto trading platforms to be regulated. The commission also emphasized that only centralized platforms in Hong Kong that provide crypto trading, clearing, and settlement services will be considered for licensing. Applications from peer-to-peer marketplaces will not be accepted at this time. The SFC confirmed:

As from 6 November 2019, a firm which operates a centralized virtual asset trading platform in Hong Kong and intends to offer trading of at least one security token on this platform may apply for a license from the SFC for Types 1 and 7 regulated activities.

The Type 1 license is for dealing in securities and the Type 7 is for automated trading services (ATS) activities. The commission also requires all trading activities of its licensees, including those conducted by their group companies, to be carried out under a single, SFC-licensed legal entity. The regulator explained that not only will it allow for comprehensive oversight, but it also “minimizes any uncertainty about which parts of the business are licensed and supervised by the SFC.”

Further, licensees are required to obtain prior written approval from the SFC for any plan or proposal such as for introducing or offering a new or incidental product or service, or to make a material change to an existing service or activity. Licensees must also provide monthly reports to the commission and engage an independent professional firm to review their activities and operations annually.

The Position Paper also outlines licensing conditions, the first of which details who can trade on licensed platforms. The SFC noted:

The licensee must only provide services to professional investors.

The definition of a professional investor is extensive; it includes an individual, a partnership or a corporation with a portfolio of at least 8 million HKD (~$1 million) or equivalent, or a trust corporation with total assets of at least 40 million HKD or equivalent.

For the safe custody of assets, the SFC requires licensees “to ensure that an insurance policy covering the risks associated with the custody of virtual assets held in both hot storage (full coverage) and cold storage (a substantial coverage, eg, 95%) is in effect at all times.” Licensed platform operators and their associated entities must also store 98% of client crypto assets in cold wallets and limit the amount stored in hot wallets to 2%. The commission also expects them “to set up and implement strong internal controls and governance procedures for private key management to ensure all cryptographic seeds and keys are securely generated, stored and backed up.” Moreover, the SFC added:

A virtual asset trading platform operator, upon becoming licensed, will be placed in the SFC Regulatory Sandbox. This would typically mean more frequent reporting, monitoring and reviews.

There are many more conditions that must be met, including complying with the SFC code of conduct and having adequate measures for know-your-client (KYC), anti-money laundering and counter-financing of terrorism (AML/CFT), preventing market manipulation and abusive activities, accounting and auditing, and risk management.

What do you think of Hong Kong’s opt-in regulation for crypto exchanges? Let us know in the comments section below.

Images courtesy of Shutterstock and Asianinvestor.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

The post Hong Kong Now Offers Opt-In Regulation to Crypto Exchanges appeared first on Bitcoin News.

U.S. regulators seek to curb binary options scams as they are entering the crypto sphere and becoming more clever.

Mainstream finance and cryptocurrency are becoming more closely intertwined with each passing day. Just over a year ago, the idea of centralized financial behemoths trialing blockchain or crypto solutions would have been unthinkable. 

Currently, cryptocurrency is traded like never before. In just the last few weeks, major players have launched both Bitcoin options and futures platforms, making cryptocurrency accessible to a whole new range of investors.

For crypto enthusiasts, each instance of wider integration with mainstream finance is a cause for celebration. For cryptocurrency’s many detractors, these new ways of trading are simply opening the door to a rogue sector whose instability could have serious ramifications. 

But with the growing proliferation of binary cryptocurrency options, regulatory bodies in the United States such as the Securities and Exchange Commission and the Commodity and Futures Trading Commission are being kept busy by a new generation of scammers seeking to relieve investors of their funds. In the last two months alone, the CFTC has clamped down on fraudulent binary options schemes operating in the U.S. worth over $15 million. 

Already a high-risk investment strategy, binary options platforms are often based online and are hard to regulate. Unfortunately, navigating binary cryptocurrency options has proven easier said than done for many inexperienced investors. 

What are binary options?

Binary by name, binary by nature. This method of options trading earns its name due to there being only two opposing outcomes for investors: a fixed sum or nothing. The notion of binary options is easy to understand. 

Investors bet on the value of an underlying asset at a certain period of time in the future. The outcome of the binary option is a simple yes/no proposition. If they’re correct, they can cash out on their previously agreed-upon winnings. If not, investors usually leave empty-handed. 

There are a number of binary options contracts in which the customer may be eligible for a small refund, but these are few and far between. For this reason, binary options are also known as “all-or nothing options.”

While binary options are an inherently risky trading method, some are listed on registered exchanges that are policed by U.S. regulators, namely the CFTC or SEC. According to the FBI, most binary options are available via a plethora of online platforms, many of which are not compliant with stringent U.S. regulatory requirements. 

An unfortunate truth of all methods of cryptocurrency trading is that there is always a high risk of falling foul of a scam. The same is true for binary options trading. By virtue of both operating online and the sheer volume of these platforms, it is hard for law enforcement and regulators to crack down on cowboy outfits. 

Braden Perry, a former attorney at the CFTC and partner at the Kennyhertz Perry law firm, told Cointelegraph, “On their face, binary options are not fraudulent,” but the proliferation of internet-based platforms has proved a useful environment for scammers: 

“Many binary options products are listed on exchanges and have regulatory oversight. But like Forex and Cryptocurrency trading, many internet-based platforms have surged into the market, and with that surge, the opportunity for fraudulent promotional schemes, overstatement of returns, and the failure to pay out for the wins have increased.”

How can investors be swindled?

The prospect of being wrong on the value of an underlying asset alone is not the only way for investors to lose their money with binary options. Not all platforms are created equal. Perry explained to Cointelegraph that binary options trading can be manipulated, leading investors to lose their money even after placing a successful bid: 

“Some actors are using manipulative software to rig the system, so ‘winning’ bids end up losing. This is new territory where some investors have made significant money. And where there are legitimate products, non-legitimate products follow. The main reason is the lack of clarity on the regulatory structure and the ability to make markets without oversight.”

A classic tactic to part investors from their funds is to refuse to credit accounts or reimburse customers. The ways in which this can be done vary from repeatedly cancelling withdrawal requests to accusing the customer themself of fraudulent behavior on its platform. 

Much like with many other fraudulent vehicles, identity theft is also rife. Investors should always be wary of handing over any copies of credit cards, passports, bills or any other personal data. Giving any or all of these to fraudulent binary options platforms can allow malicious actors to steal your identity. 

Fraudulent platforms can be hard to spot. One of the most universal signs of a scam, regardless of the manner of investment it requires, is the promise of huge, low-risk returns. As per the FBI’s warning, fraudulent binary options websites advertise undeliverable promises on social media, trading websites and message boards to lure in unsuspecting customers. 

Related: Grand Theft Crypto: The State of Cryptocurrency-Stealing Malware and Other Nasty Techniques

They have also been known to harangue investors with cold-calls from boiler room operations, in which pushy salespeople try to trick naive customers into “once-in-a-lifetime” opportunities. Pankaj Balani, CEO of Delta Exchange, told Cointelegraph that the brief maturity of binary options means that they are at a higher risk of being manipulated. Balani also explained to Cointelegraph that investors should be aware of hastily constructed scam platforms online: 

“Many binary options platforms have popped up recently. Just a quick glance at some of these can tell you that they have been put together in a hurry. Most of such platforms don’t specify their price sources. Trading on such venues is risky as their product can be manipulated easily.”

CFTC dishes out multimillion dollar ban for ATM Coin 

Although binary options trading is relatively new to the crypto sector, scammers are quickly finding themselves in the dock, facing heavy fines. On Nov. 1, the CFTC announced that a New York court had ordered defendants to pay $4.25 million in penalties for an investment fraud scam involving the cryptocurrency ATM coin. The Eastern District Court of New York entered an order against multiple entities for committing fraud and misappropriating client funds. 

The defendants comprise a mix of both individuals and corporate entities spread across the globe, including Blake Harrison Kantor and Nathan Mullins, along with four corporate entities: Turks and Caicos-located Blue Bit Analytics, United Kingdom-based Blue Bit Banc and two New York-based firms, Mercury Cove and G. Thomas Client Services. 

Although the penalty was served only recently, the CFTC’s Virtual Currency Task Force first filed the case on April 16, 2018, charging defendants with fraud. According to the CFTC, defendants misappropriated customer funds obtained through binary options by converting Blue Bit Banc investments into ATM coin, telling investors they were worth a substantial amount of money.

Balani told Cointelegraph that, while options trading in the cryptocurrency sector is a positive development that could lead to wider adoption, he maintains that binary options are a step back for investors and the industry alike: 

“Growth in crypto vanilla options is a good sign and it will help is increasing institutional participation and reducing long term volatility of crypto markets. Binary options is an exception here, a lot of binary options platforms attract customers by selling them a dream of making astronomical returns in short duration. Binary options are high risk products and One should understand the mechanics of binary options completely before trading these products.”

$11 million Ponzi binary options scheme 

The $4.25 million penalty against binary options scammers in November was the CFTC’s second successful strike in the past two months. On Oct. 16, the regulator issued a civil enforcement action against Circle Society. 

In a press release, the CFTC announced that it would be charging the Nevada-based company and its owner, David Gilbert Saffron, with fraudulent solicitation, misappropriation and registration violations in relation to an $11 million binary options scheme. 

Tracing it back to December 2017, the CFTC claims that Saffron and Circle Society fraudulently solicited at least $11 million worth of Bitcoin and fiat currency to trade off-exchange binary options on foreign currencies and cryptocurrency pairs. 

Saffron allegedly lured in unsuspecting investors by promising astronomic returns of up to 300%. Instead of using investor funds to trade in binary options as agreed, Saffron transferred the funds to his own wallet to pay out previous participants, a textbook example of a Ponzi scheme. Echoing the thoughts of many, CFTC Chairman Heath P. Tarbert said at the time:

“Fraudulent schemes, like that alleged in this case, not only cheat innocent people out of their hard-earned money, but they threaten to undermine the responsible development of these new and innovative markets.”

The British Columbia Securities Commission has taken control of a cryptocurrency exchange which allegedly owes customers over $12 million. Einstein Exchange had planned to shut down amid complaints, lawsuits, and money laundering investigations. The Canadian regulator has also taken action against another crypto exchange after receiving multiple complaints.

Also read: OSC Commissioner Debunks Arguments Against Bitcoin, Green-Lights Bitcoin Fund

Exchange Seized

The British Columbia Securities Commission (BCSC) has taken control of a Vancouver-based cryptocurrency exchange. The regulator announced Monday that the Supreme Court of British Columbia has granted its application for “an order appointing an interim receiver to preserve and protect any assets of Einstein Exchange.” Grant Thornton Ltd., the court-appointed interim receiver, entered and secured the premises of Einstein Exchange on Nov. 1, the commission revealed.

The documents filed in court detail that the BCSC had received numerous complaints about customers being unable to access their assets on the exchange. BCSC Executive Director Peter Brady told CBC News, “We had sent some requests for information to the exchange twice and we didn’t get an answer,” adding that on Oct. 31:

We were then talking to the company’s counsel and learned that the exchange intended to shut down within 30 to 60 days due to a lack of profit and subsequently that legal counsel stepped down, so that raised concerns for us.

Brady noted that the commission has also notified federal law enforcement regarding concerns about possible money laundering at the exchange. The commission started investigating the exchange in May.

The BCSC is the independent provincial government agency responsible for regulating capital markets in British Columbia. The regulator emphasized that it has not authorized any company to operate as a cryptocurrency exchange. However, it has granted registration to a fund manager to operate a crypto investment fund and approved a bitcoin trust.

The Investigation

Einstein Exchange was established in December 2017 by British Columbia resident Michael Ongun Gokturk, the sole director of the exchange. Einstein offered the trading of 19 cryptocurrencies against the USD and accepted customer deposits in CAD, USD, and cryptocurrencies.

In an affidavit, Sammy Wu, Lead Investigator with the BCSC Enforcement Division, said that “In the view of BCSC staff, the trading platform operated by Einstein involves trading in securities.” Pursuant to the Securities Act section 144, Wu requested financial information from the exchange, including its fiat and cryptocurrency balances, as well as the locations where its fiat and cryptocurrencies are stored. The exchange provided neither, and two hours after Wu made the request, the exchange’s counsel notified Wu that he no longer represented Einstein. Nonetheless, Wu learned of the exchange’s shutdown plan and its failed attempt to sell itself to a U.S. company, his affidavit details. He believes that Einstein improperly used its customers’ assets.

Unable to obtain needed information from the counsel, Wu proceeded to personally visit the exchange’s office only to find the elevator locked for all floors, the affidavit further describes. “I called Gokturk’s phone number listed on their website and the recording said all their agents are not available. I called Gokturk and his voice mail said that he is unavailable and to send a text message since he does not check voice mail. I sent him a text message,” Wu recounted.

The BCSC staff has determined that Einstein Exchange owes customers more than $16,322,705 Canadian dollars (~$12,398,726), including more than $11 million CAD in cryptocurrencies and about $5 million CAD in cash. While Einstein Exchange claimed it had “sufficient crypto assets to satisfy withdrawal requests from customers,” the regulator pointed out that the exchange’s lawyers refused to specify the location of those assets.

Complaints and Lawsuits

According to CBC News, Einstein Exchange is also facing a pair of civil suits filed last month, which Gokturk has yet to file responses to. The first suit was filed by Hong Kong-based Sino Allied alleging that Einstein Exchange repeatedly failed to pay the $1 million owed for the purchase of tether.

The second suit was filed against Gokturk by Vancouver technology entrepreneur Scott Nelson who said he was not paid for the transfer of 50 BTC. The entrepreneur claimed that Gokturk told him he would wire the money, but “repeatedly blamed technical issues for the failure,” then said he would give him a bank draft but none was ever delivered. Moreover, the news outlet reported that a default judgment was issued in April against Gokturk and his exchange in relation to money owed on an American Express credit card.

Besides Einstein Exchange, the BCSC is reportedly investigating complaints against another crypto exchange, the Nanaimo-based Ezbtc. A BCSC spokesperson told the press that the regulator has taken action against the exchange because “customer assets are at risk,” noting that several complaints have been received about this exchange.

What do you think of the BCSC seizing Einstein Exchange and taking action against another? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock and the BCSC.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

The post Canadian Regulator Seizes Troubled Crypto Exchange appeared first on Bitcoin News.

Secularization is the process of converting something from a religious status to a nonreligious one. In its usage here, the word “religious” has no necessary connection to a deity. The word refers to the mystification of a thing in order to elevate it to the status of the divine where it becomes unquestionable.

Also Read: The Big Lie Perpetuated by Central Banks

Mystifying Money

The state is mystification on overdrive. Past governments have sanctified themselves through “the divine right of kings,” by which monarchs claimed to be chosen by God to rule. Rebellion against the king, therefore, was rebellion against God himself. Contemporary states use more modern concepts like “democracy” or “the motherland” to justify their status. These concepts arouse feelings of awe and reverence, which further sanctifies the state and discourages dissent.

The state’s goal is to usurp power and wealth from society—the productive sector.

Taxation is the most visible way it does so, but the state’s ability to issue fiat that becomes mandatory currency is equally or more important. To do so successfully, however, the state needs society to accept and use the paper money. Some people will comply out of fear of being punished, but it is far more efficient if society conflates fiat with real wealth. If fiat can be mystified as legitimate, then the resistance is sidestepped.

Much of fiat’s perceived legitimacy comes from its source—the state—because the state is still seen as a rightful authority. Fiat is further cemented into society through state-validated means like legal tender laws and the Federal Reserve System. “High finance” is removed from average, unlicensed people and channeled through bureaucracies like the SEC and the central banking system. And, in case some people still question, tax-paid academics and experts provide the state with intellectual ammunition. Like court historians of the past who rewrote history to glorify their monarchs, the experts present convoluted economic theories that support the state’s monetary policy, using as much math and arcane language as possible.

As long as money is “created” by politicians, bureaucrats, and experts, society and individuals will never control their own wealth—at least, not in a sanctioned or safe way. A heresy is growing, however. Call it private money or cryptocurrency, nothing is more heretical than free-market money that the individual decides is of value to him.

Free Market Money vs Inflationary Paper

The state calls private money “the enemy.” Crypto is new, and it moves like the wind. The state cannot compete with it; the state does not even understand how to reproduce or to regulate it. Nor is this likely to happen in the future because blockchain-crypto is antagonistic to the mindset and mode of statists. Blockchain-crypto is the individual’s control of his own assets according to his own judgment. It is the secularization of wealth.

The fastest way to speed along the secularization of assets is to delegitimize fiat by exposing the intentional damage it does to society and individuals. In 1963, the Austrian School Economist Murray Rothbard wrote an influential book entitled What Has Government Done to Our Money? (An advocate of private money, Rothbard’s use of the word “Our” is notable.) The short book springboards off the insights of other Austrian School thinkers, such as Ludwig von Mises, who argued that money originated spontaneously due to the need of individuals to exchange on a more complicated level than barter. Money is a free-market phenomenon that the state appropriates through force. Fiat and the free market are antithetical.

Rothbard’s book explains one way in which free-market money and fiat cannot coexist: inflation, by which the first recipients of an increase in fiat money are enriched at the expense of the end recipients for whom the money has been debased. In short, the end recipient is robbed. Rothbard refers to inflation as “counterfeiting” because it is a creation of new money that is backed only by the false sanctity of the state, and its guns. But even the state cannot prevent its paper money from decreasing in value. Rothbard writes:

“Suppose the economy has a supply of 10,000 gold ounces, and counterfeiters [the state]…pump in 2000 ‘ounces’ more. What will be the consequences? First, there will be a clear gain to the counterfeiters [the state]. They take the newly-created money and use it to buy goods and services. In the words of the famous New Yorker cartoon, showing a group of counterfeiters in sober contemplation of their handiwork: ‘Retail spending is about to get a needed shot in the arm.’ Precisely. Local spending, indeed, does get a shot in the arm…As the new money spreads, it bids prices up—as we have seen, new money can only dilute the effectiveness of each dollar. But this dilution takes time and is therefore uneven; in the meantime, some people gain and other people lose…The first receivers of the new money gain most, and at the expense of the last receivers. Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race.”

Describing inflation as “counterfeiting” is a charming departure from the usual legitimacy granted to fiat; it nicely captures the idea of inflation as theft and the state as illegitimate.

Most people have some understanding of the effect of direct inflation on prices because they see their own cost of living rise. But other, more subtle effects are as disastrous. One is a market distortion that Rothbard calls a “keystone of our economy: business calculation.” This calculation occurs when a business compares the cost of operation to the expected demand by customers. The calculation is one of the main cost-benefit analyses without which the free market cannot function well. The impact of crippling business calculation is rarely noted, however.

Inflation Distorts Critical Economic Calculations

Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of consumers or the cost of their operations. For example, accounting practice enters the “cost” of an asset at the amount the business has paid for it. But if inflation intervenes, the cost of replacing the asset will be far greater than that recorded on the books. As a result, business accounting will seriously overstate their profits during inflation—and may even consume capital while presumably increasing their investments. Similarly, stock holders and real estate holders will acquire capital gains during an inflation that are not really “gains” at all. But they may spend part of these gains without realizing that they are thereby consuming their original capital.

The illusory profits also “suspend the free market’s penalizing of inefficient, and rewarding of efficient, firms.” Equally, inflation distorts people’s personal lives by punishing economic virtues like thrift. If $100 borrowed today can be repaid tomorrow with money that has a lower purchasing value, then at least three consequences are likely to follow. People will embrace borrowing rather than saving. They will spend the money they borrow or earn; “people will say: ‘I will buy now, though prices are high, because if I wait, prices will go up still further’. As a result, the demand for money now falls and prices go up more, proportionately, than the increase in the money supply.” Lenders become tight fisted.

The state typically addresses this “money shortage” by cranking up the printing press again, and the cycle of inflation continues. At some point, the entire system of fiat begins to break down, and individuals—even those inclined to obey—seek out alternative currencies or stores of value. At this point, the state’s veneer of sanctity also starts to crack. To maintain its monetary hold, it must either ban the alternatives or control them. Either tactic carries danger, however. Just as legitimization of the state makes individuals obey, the blatant misuse of power makes them resist.

Leaving the Church of Force-Based Money

The best time to resist and demand financial freedom is right here and now before the system goes any farther off the rails. The rebellion comes when a nexus of at least three factors occurs.

The first is when people fully grasp the monetary scam being committed by the state. In this endeavor, What Has Government Done to Our Money? is invaluable.

The second factor is when they realize the state and society cannot peacefully coexist. The state destroys all of value in society such as voluntary exchange, respect for rights, and a reputation built on honesty. The battle against monetary statism is not against any particular politician or public policy like inflation. The issue is deeper. The battle is against an entrenched tolerance of the state’s aggression. The 18^th-century anarchist William Godwin expressed the human importance of rejecting aggression. “Force is an expedient, the use of which must be deplored. It is contrary to the intellect, which cannot be improved but by conviction and persuasion. Violence corrupts the man who employs it and the man upon whom it is employed.” If Godwin is correct, as I believe he is, then sanctifying the state is an act of inhumanity.

The third factor in the nexus is the existence of practical alternatives to fiat. Without alternative forms of free-market currency and wealth, those who stand up for financial freedom can all too easily become martyrs crushed by the state. And religions have already produced enough of those.

What are your thoughts on the “church” of fiat money? Let us know in the comments section below.

Op-ed disclaimer: This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.

Images courtesy of Shutterstock.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The Local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

The post Crypto Secularizes Wealth by Returning Power to the People appeared first on Bitcoin News.