How Citi analyst Steven Englander nearly got it right – 3 risks to Bitcoin V Quark

From Business insider article – :

http://www.businessinsider.com.au/citis-englander-on-bitcoin-risks-2014-2

This is a very good general analysis of the current Bitcoin situation post the MtGox failure, however i’d like to dive into some of the key aspects of the 3 risks Steven sees, because there are very relevant points that must be addressed for futures investors to factor in when looking at general crypto investment.

The reason I choose this article is because there are indeed great lessons to be taken from this latest event and they certainly point in specific directions.

First the risks summarized by BI :

  • That Joe Public runs away out of fear the safety of his money can’t be guaranteed
  • That other, better digital currencies come along, relegating Bitcoin to the sidelines
  • That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts

I’d like to address each in turn:

1. That Joe Public runs away out of fear the safety of his money can’t be guaranteed

It is apparent that Joe public has not run away from Bitcoin and crptocurrency but its a very relevant and important point that almost certainly touches on the very relevant subject of where “Joe public” get his information from.

In the world of fast declining “Main Stream Media” ratings , and with more people getting news from proxy or actual decentralized sources, it seems that general education of crypto is gaining real traction, this means that the MtGox issue will be interesting to watch moving forward, anyone with a basic education now understands that the issue was related to MtGox not waiting the 10 minutes  or 60 minutes, for a single (or 6) Bitcoin confirmations.

This is in effect “Breaking the Rules” of Cryptocurrency, Quark has 30 second confirmation times eliminating the problem as was highlighted in a video with Bill Still.

This also speaks to the demographic of investors in cryptocurrency, while no doubt there is billions of fiat dollars floating around in many questionable investment environments, it will only be the demographic that feels educated enough to invest in a fixed or deflationary asset such as a Cryptocurrency like Bitcoin or Quark.

But evidence seems to suggest that education is gaining traction and fiat investment environments continue to become more and more questionable, both of which may be more correlated in future.

So if we want a real analysis of the situation we can not discount the relevancy of the declining influence of “main stream” media IF they are holding a significantly different view to the decentralized information available, sometimes otherwise referred to as “reality”or the “reality of the events”.

As an investor if we see further trend in the decline in “established” Media ability to swing opinion this particular way or that particular way, then this is very bullish for the future of Crypto,  all other things being equal.

2. That other, better digital currencies come along, relegating Bitcoin to the sidelines

This is a very important aspect,  IF we the investing public can properly define what “better digital currencies” are, here in lies the catch.

And as discussed in point 1, the tools of manipulation for being told what that is appear to be quickly fading, why I underline this point is because it is very key in understanding the politically precarious situation the overall economic power structures have been presented with.

without diving into the economics of it, for example that “better” currency may be presented as something without a Block-chain and/or a centralized system, but as history already proves these are almost always immediate failures when presented to a decentralized educated market, the market will always select the entity that will benefit them, and then by default in a free market structure benefit the the whole.

This means by default that my theory of Neutral control is proven correct:

Is Quark a “better digital currency”, A list of the aspects that Quark has already fixed regarding issues that Bitcoin has:

  • Quark has 30 second confirmation times Bitcoin has 10 minute both has 6 confirms, MtGox (willingly or by default) did not want to wait 10 minutes for a single confirmation, that caused this issue, and theft – See Video here for explanation : { http://www.youtube.com/watch?feature=player_detailpage&v=rUocAK18plA }
  • Quark is fully distributed, that is to say apart from the EQ < <0.5% inflation> all the units that will exist are in the market now, this has proven and will prove to add to currency stability remembering that Quark is only 6 months old.  in contrast Bitcoin distribution will go out for years and is centralized by large ASIC computers.
  • Quark was only mined via CPU processors that are freely available to anyone on the face of the earth, there has been developed a GPU (graphic card) miner which only yields about as much as a CPU anyhow. this means that the distribution will continue in a very decentralized manner –  See video : { http://www.youtube.com/watch?feature=player_detailpage&v=YrNnrvet7Ao }

however indeed there is a first mover advantage that Bitcoin has , and we can not leave out the possibility that Bitcoin can innovate, so the answer is that Bitcoin is still very much the leader, but if the correlation of education and investment environment continues, Quarks low price point as measured in fiat starts to look more attractive against Bitcoin.

And another key aspect is how will the stability of a fully distributed currency be looked upon by merchants, if indeed this turns out to be the case, will micro businesses find Quark a more comfortable stable alternative?

3. That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts
I.e a bank may make a decentralized Cryptocurrency with attributes similar to Quark ( fast confirm times and well distributed CPU mine – or even distributed via an IPO )

We can’t discount this fact – but there are many basic monetary and economic reason why this has not occurred, they may seem obvious to anyone that is interested in monetary economics but lets talk about them:

  • Crypto currency can’t be fractionally loaned – it can have contracts but the block-chain secures the source.
  • Crypto does not provide free profit to any Banking institution by stealing wealth from the users and transferring it to the Bank, as Debt based Fiat currency currently does.
  • Crypto can not be loaned into existence, because it is a decentralized asset, in a peer driven market – an idea like that would simply be rejected.

Summary:

This was a sound analysis – with a few errors around the decentralization of Bitcoin, but understandable errors.

Cryptocuurency is based on decentralization and in an environment of both declining influence on media and declining fiat investment environments (with Financial institutions trust at nearly zero), how does any leading Financial institution introduce a centralized variant that still grants them the power of wealth issuance and wealth transference from the users to themselves?

That is a very difficult question indeed, and the MtGox debacle highlights to me one of the key aspects of that question.

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