A New Financial System is Being Born

If Bitcoin blew you away when you first discovered it, and continues to do so to this day, Spiral Dynamics can help explain why. Bitcoin was an expression in the physical world of the newly emergent leading-edge integral level consciousness. It drew lessons from history and attempted to take the best of orange and green worldviews and incorporate them into an entirely new form of money. We see the clear presence of free markets and individualism, as well as the intentional separation of the system from dominator hierarchies (bureaucratic government meddling), which had corrupted all money before it. Its greenness is evident in the fact that by design no individual or company controls the network. Global, decentralized, revolutionary technology. This is perhaps the perfect example of integral consciousness operating on our planet at this time from an economics standpoint, and why it has captured the imagination of so many, while at the same time being violently rejected by so many others.

From February’s post: Why Increased Consciousness is the Only Path Forward

Although I had heard about it much earlier, I didn’t truly start investigating Bitcoin until the summer of 2012. The more I learned the more my mind was blown away, and for a while I couldn’t think about anything else. What truly solidified its real world usefulness to me was when I discovered it had been used by Wikileaks to accept payments in the midst of a financial services blockade against the renegade publisher. This realization inspired my first Bitcoin related post in August 2012 titled, Bitcoin: A Way to Fight Back Against the Financial Terrorists? 

In that piece, I linked to a Forbes article that detailed the revolutionary events taking place. We learned:

Following a massive release of secret U.S. diplomatic cables in November 2010, donations to WikiLeaks were blocked by Bank of America, VISA, MasterCard, PayPal and Western Union on December 7th, 2010. Although private companies certainly have a right to select which transactions to process or not, the political environment produced less than a fair and objective decision. It was coordinated pressure exerted in a politicized climate by the U.S. government and it won’t be the last time that we see this type of pressure.

Fortunately, there is way around this and other financial blockades with a global payment method immune to political pressure and monetary censorship.

On its public bitcoin address, Wikileaks has taken in over $32,000 equivalent in more than 1,100 separate bitcoin donations throughout the blockade (1BTC = $10.00). But these amounts may be significantly higher, because it does not even include the individually-generated bitcoin addresses that WikiLeaks provides for donors upon request.

I knew right then and there that Bitcoin had the potential to change the world. My passion for Bitcoin was always framed by my ten years working in the financial industry. Many of us who lived through the 2008 crisis knew the financial system was dead. We knew it was corrupt, archaic and terminal, so many of us began bracing for what might come next. We did what we thought made sense at the time, which included buying precious metals like gold and silver given their historic track record of protecting wealth in periods of paradigm-shifting financial disruption. Others took more extreme measures to protect themselves from the end of the financial system, but a small group forward thinking geeks decided to do something much better. They decided to build an alternative.

Thus, Bitcoin was born and early adopters in the field of technology immediately began to build on top of it. As soon as I realized what was happening much of the “doom and gloom” that had enveloped my thinking began to lift. I now knew that even if the financial system crashed and burned tomorrow, the early stages of a new and far more honest financial system were already in place. The emergence of Bitcoin literally changed my life for the better as it allowed me to emerge from a cave of gloom and become optimistic about our long-term future. While I knew the path would be long and hard since the current entrenched interests wouldn’t give up without a fight, I could see a very bright light at the end of the tunnel, and the continued development in this space has been extraordinary to watch ever since.

The global financial system as it stands is completely archaic and corrupt. It enriches the wrong types of people for the wrong sort of behavior, and is entirely extractive and parasitic by design.  If there’s sector in the economy that needs a total redesign and reboot for the sake of humanity, it’s the financial system.

Being involved in the crypto world for the past five years has been a breath of fresh air and a shot of adrenaline to my system. Traditional markets are a rigged snooze-fest by comparison, grotesque financial Potemkin villages designed to make overly indebted, predatory economies look good. What I find so fascinating about the current environment is that many of the dreams we all read about in the very early days of Bitcoin are starting to be implemented and designed, slowly but surely. For those of you who still have a difficult time conceptualizing exactly what’s happening in the space, I think the following tweet may help.

On that note, I want to talk about more than just Bitcoin, which I see as the reserve currency of the crypto world. Beyond Bitcoin, a lot of the buzz in the space right now revolves around a burgeoning phenomenon known as ICOs, or Initial Coin Offerings. So what are ICOs?

Yesterday, TechCrunch published an interesting piece on the topic. Here are a few keys points:  

Because this editor was still confused (I’m not proud), I talked yesterday with Stan Miroshnik, a UC Berkeley grad with an MBA from MIT who today runs L.A.-based Argon Group, one of the first digital finance-focused investment banks. Miroshnik nicely answered an array of questions about ICOs, including how these things get staged, how companies establish a value for their offerings, and more. If you’re still trying to get a handle of this latest investing trend, too, read on.

TC: ICOs are everywhere suddenly.  When was the first ICO staged?

SM:  You have to go back to around 2013, when Mastercoin, a protocol on top the bitcoin blockchain, raised $500,000. Then you had a number of other milestone token sales, such as Ethereum in 2014, then the DAO, or Decentralized Autonomous Organization, which was built on the Ethereum blockchain and that stored and transmitted Ether and Ethereum-based assets and that raised the equivalent of $150 million last year.

Momentum began to build after that, as a smaller group of [these offerings] grew in size, and by last fall, some companies were raising millions of dollars in minutes. That really kind of made people stand up and wonder if this is a new funding mechanism.

TC: How many ICOs have there been to date?

SM: There were 64 last year that collectively raised $103 million, excluding the DAO. So far this year, we’ve seen 25 offerings raise a bit more than $163 million, and we’re on track to see more than $210 million raised by the end of June.

TC: So how do these ICOs work, practically speaking? 

SM: There’s a cadence to these things. You do the prep-work and get your project to a natural technical milestone. Then you pre-announce when you’re planning to have a token sale, describing some of the terms, and telling a story of the project and its goals. You publish a white paper and disclosure and give people a chance to read it and comment. There are also usually threads that develop on Reddit, Bitcointalk, Slack, Telegram and elsewhere, where people actively debate the merits of the product. Then, on the landing page on the aforementioned date, there’s typically a tool that enables purchasers to acquire the tokens in exchange for bitcoin or ether.

TC: Is there a concern that U.S. regulators will crack down on these ICOs?

SM: Lawyers are relying on case law that defines what a security is. The most well-known case is the “Howey Test,” created by the Supreme Court for determining whether certain transactions qualify as investment contracts. If they do, then those transactions are considered securities and are subject to certain disclosure and registration requirements. When tokens are structured basically as the sale of a service or product, they’re designed to make sure the various prongs of the test are not triggered.

TC: What types of companies are primarily using ICOs?

SM: It’s still a financing mechanism that’s very organic to the blockchain community.

It all started with protocols like Ethereum raising funding through this mechanism, and it has stayed close to related projects, like the distributed storage company Storj and Civic, a company that provides identify through the blockchain and is announcing its token sale this Thursday. A lot of these founders and token buyers are part of bitcoin forums and Reddit, and that’s why [certain companies] are able to raise these large sums fairly quickly; they’re reaching out to thought leaders and getting their support and generating buzz about their projects. It’s  basically the open source community, now with an open-source funding mechanism.

TC: What happens when people want to sell the tokens they’ve bought?

SM: Well, first, you can use them in a company’s ecosystem. With Storj, maybe you buy storage. You can also accumulate these tokens over time, as a bet that with more enterprise demand for storage capacity, the coins will become more valuable, after which you can sell your tokens to someone else who needs to purchase storage space.

There are also a number of cryptocurrency exchanges where these tokens trade. In the case of Storj, you can sell or buy on Poloniex or Bittrex.

TC: Should VCs be nervous about ICOs? You mention Civic, which is staging an ICO. Civic has also raised some venture capital previously. But plenty of other companies seem to be skipping the VC part.

SM: To some degree they should, but we’ve also talked with a lot of very smart VCs who are looking at this space, including August Capital, Tim and Adam Draper, Blockchain Capital. Many are doing the work to understand how to be involved and active in the space and the fundamental value of these protocols. Union Square Ventures has said it now has a mandate from its LPs to hold these assets.

For companies that raise funds through a token sale and that have had traditional angel or venture rounds previously, for example, their equity investors get to skip one or two rounds of dilution, which is great; it means their returns are hyper-levered.

There are two points I want to emphasize from the above. First, just how early we are in the development of this area. The numbers are absolutely tiny at this point despite all the hype. Recall that in 2017, we’ve seen 25 offerings raise a bit more than $163 million. That’s an infinitesimally small number in the scheme of things, thus room for growth is massive. That being said, people considering getting involved in this space as a buyer of ICOs need to be extraordinarily careful.

Investing in general is risky and challenging, but putting money into an ICO adds several other layers of complexity and risk. First, as noted above these things are not equity investments since they aren’t allowed to be under current regulations. Therefore, you’re not simply investing in a startup, which is always extremely risky, but you’re making a bet that the token itself is useful and will accrue in value over time. Therefore, not only do you need to be right about the success of the business or product itself, but the token also must have a real value-creating purpose to succeed in the long-run. Many people will not understand this and think they are buying into the equity of the underlying businesses, which sets up a perfect environment for fraudsters. You also need to bear in minds there’s a ton of Bitcoin liquidity flooding around the space given the massive run its had. Most early Bitcoin adopters and investors are very passionate and dedicated to this space. They don’t want to sell coin for dollars, but want to put it in new projects to keep the broader ecosystem growing. I think this is a fantastic thing, but it also means there’s a lot of crypto currency sloshing around trying to find a home.

Despite the risks, I think the emergence of the burgeoning token market is a game-changing and extraordinarily empowering development. The only thing preventing the crypto-coin world from rapidly displacing the middlemen and bureaucrats of the traditional financial system are the barriers around the traditional financial world. While we’d like to think these barriers are there to protect the little people, we all know that the SEC and other such regulatory bodies largely exist to protect the rich and powerful and secure the moats around their castles.

We saw this under Obama’s Mary Jo White, and we will surely see it under Trump’s pick Jay Clayton, who seems to have all sorts of conflicts, including a wife who works at Goldman Sachs. The SEC doesn’t protect the people, but as long as it pretends to, it can continue to function as a gatekeeper for financial oligarchs and slow down the pace of displacement of the dying financial system with the new parallel one currently being created.

All of that is fine I suppose, and innovation in the crypto world will continue until one day we will actually see equity offerings in startups to regular people as opposed to just allocations to the wealthiest clients of brokerage firms. The innovation in this space has the potential to flatten the world of investing in a meaningful and powerful way, starting today with tokens, but ultimately in many other ways as well. It’s gonna take time, but it’ll happen.

At this point, I just want to briefly address the common retort that “governments will never let this happen,” which I get all the time. Here’s what I had to say about it yesterday on Twitter, and I don’t really have much to say beyond this.

To conclude, I’d like to dedicate this post to all the brilliant geeks and the dynamic entrepreneurs pushing hard every day to realize this incredible dream of a decentralized future. A future that breaks down barriers, removes middlemen and empowers humanity to take its next evolutionary leap forward. You are the ones creating this brand new world brimming with potential and optimism, and I want to thank for all you have done and continue to do.

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In Liberty,
Michael Krieger

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19 thoughts on “A New Financial System is Being Born”

  1. Michael, you make a much more convincing case for the need–and the value–of replacing the dying system than for this particular specie of specie, pun intended. Between where we all would like to see this process go, and a viable plateau that would actually support at least widespread if not universal use, is a yawning gulf that crypto currencies will have to cross successfully.

    Will it happen? I don’t know. I would never underestimate the efficiency–and ruthlessness–of governments to act in their own best interests, which doesn’t include loss of faith, and use, in their fiat currencies.

    There is the very big question of the wisdom of putting any significant portion of one’s wealth in something as ephemeral as crypto currencies. If the Deep State can penetrate even government funded high security systems, why would we believe that a disruption of even this process is beyond them? Chanting “Decentralizing of money creation” can only go so far in reassuring one before it starts to sound like Zulus and British bullets reprised.

    The democratising of information was used as an example of government losing control of self-serving narratives. That leaves aside the fact of overwhelming government surveillance and even disruption of those channels when it serves their purpose. I tend to think crypto currencies could be another example of much power that could be co-opted to the wrong ends when the balloon goes up.

    Anyone with any sense of integrity can see why disempowering central banks and the governments they own would be a very good thing. What I would love to see is an impartial critique of the idea that it could happen in the midst of a global collection of powerful players with every incentive to neuter or destroy it. Until someone can tell me how that process will manage to defeat TPTB, I will continue to look at crypto currencies as interesting speculations but not any place to sink the rent money.

    Reply
    • No one here is suggesting sinking rent money into Bitcoin or any of these things. I continue to answer questions the way I always have. Put 1% of your assets in it and forget about it.

    • I didn’t mean to imply that you did. What I meant was that one has to have a meaningful position in any asset in order to materially benefit by its increase in value. Your 1% position is what I would call, at least in my book, a prudent and conservative speculation, or interesting as I described it.

      The point I was getting at was that for any one of us to make enough off of something this currently speculative, a much more significant position would need to be taken. It sounds like we both agree that would not be a good idea, at least at this juncture.

      I’m with you on the philosophy of why this would be a good thing. I just haven’t been able to look at it and see how we get from here to there without the hammer falling on anything that works like a crypto currency and isn’t controlled by the same folks we all love to hate. If you can, I would be much interested in hearing that case being made.

    • Personally, I do think Bitcoin or something like it could succeed where you think the power structure can or will stop it. In the spirit of “Nothing is as powerful as an idea whose time has come.”

      Of course, I could be wrong. Either way, it’s worth supporting and testing the boundaries of what is possible always, whether it’s ultimately successful or not.

  2. I commented on Bitcoin before. I said Bitcoin was the symptom and not the disease. The disease is the World Banking Cartel. It is a world wide criminal Enterprise working against the bottom 99% of the people. The problem with bitcoin is it can be wiped out quickly by a few govnt rules and regulations. Yet the Elites havn’t even made one move against it yet. Not one move. Why?

    That is the big question everyone must be asking now. The U.S. Govt has outlawed any and all currency in the United States that isn’t govt backed. They have destroyed everything that came before it. Except Bitcoin and other similar Cryptocurrency. Why? At one time Gold backed currency was popular and the govn’t wiped it out. People were saying we will store your gold and give you a spendable credit card. Again the USA govnt wiped that out.

    I think the Elites have a use for Bitcoin. I think they like it. But they are to cheap to spend money on R&D in the crypto currency space. Besides the banksters have always been horrible innovators. So they let others do that for them.

    So they will wait and then launch there own cryptocurrency. Since they control the politicians they will then send the regulators out with warrants of arrest for everybody in the bitcoin space.

    The other thing is maybe the govnt or the elites have the computer power to dominate the mining process. Or maybe they know how to hack and destroy the mining process.

    I would be happier if the press hated bitcoin more than President Trump or Julian Assange. Because if the Elites feared Bitcoin, The press would be all over Bitcoin, writing horrible things about it and the people who created it. But they didn’t. They never attacked anybody who developed Bitcoin.

    The Elites don’t fear Bitcoin. I am very suspicious of that.

    Reply
  3. Bitcoin is like treating the symptom and not the disease. Problems with currency is the symptom of a badly run and corrupt economic system controlled by the world banking cartel. The disease is the World Banking Cartel. You must wipe out the disease and the symptoms will then fix themselves.

    Reply
  4. I have to admit that if the press and politicians hated bitcoin I would love it. The more I think about it. Bitcoin is a great idea.

    Another thing, I just read that the founder of Bitcoin is anonymous. Thats harder to attack the source then.

    Still I don’t trust the Elites course of no action against bitcoin. I just know the Elites are up to something no good in the crypto currency space.

    Reply
    • digital money is want the elites want. then they can shut off ur credit whenever they feel the need to. whatever u do don’t go all in. the timing is perfect for the world currency predicted by the economist yrs back.

  5. When the current petro dollar based system goes bankrupt and we default on the dollar and all our bonds; when the “trigger event” happens. The new system to replace the dollar will be new world currency that they pick. This will be a new digital world currency backed by Gold, Silver national assets and GDP (this is why these trade deals are such a big deal). It’s the set up for the new system. Everything will drastically change. There may be no room for Bitcoin, it will be declared illegal, as will all bartering, hording or buying and selling outside the new digital universal system. You do this, you will be treated like a drug dealer and your neighbors will turn you in because you will be betrayed as selfish, unfair and cheating that hurts others.
    What is to come will be far worse than anyone has imagined. This is from the mouth of a major Banker VP.

    Reply
  6. it is amazing to me that people who decry Federal Reserve computer “digits” and fiat debt proliferations embrace so-called crypto-currencies.

    if you think there is any kind of security similar to hard assets in a crypto-currency you didn’t swallow the red pill but rather you have been captured by conceptual left brain memes and cannot see your connection to your tangible authentic direct experiences.

    crypto-currencies are just on more step into extended left brain fictions like trans-humanism or Tesla AUTODRIVE! lol

    Reply
  7. Everything bitcoin enthusiasts claim concerning its usefulness as a medium of exchange is undoubtedly true. But it is not a currency — as of yet. It is a speculative commodity right now. Its wild price shifts make it far too unstable to be used as a medium of exchange. The Venezuelan Bolivar or Belarusian Ruble are on par in terms of instability and wild value changes. Who can trust that kind of unpredictability for their economic needs?

    Maybe someday it or another ecoin can be a currency. But not now. Not until it gets treated as a currency with a stable value and broader network.

    Reply
    • Have you seen the devaluation in CAD the last few years? That’s not stable or normal at all. That’s a currency from a supposedly stable country.

      We are in the time frame when masses of people are going to realize what they think is solid, stable, dependable and safe in the financial markets will turn out to be just the opposite.

      The new financial frontier is currently being built before our eyes and Mike Krieger just wrote about it.

      After the current down move is done in the crypto currencies, just wait till you see the next move up. It will make this move look like peanuts.

      Bitcoin will probably head towards $5000 and Ripple towards $0.75 on the next move up. This is the beginning of the digital crypto boom and it will be bigger than the dot com experience.

  8. People who don’t believe that blockchain technology will fundamentally disrupt current financial and accounting practices hasn’t read enough about it.

    Reply
  9. Great read, thank you. I too have great hope for human freedom in our lifetime due to cc.

    The US govt is still trying to figure out what Bitcoin is. The cc space moves too fast for them to understand and slow it down.

    Just wish the cc innovators would use a different term other than ICO. Investors just looking to make a quick buck and not truly investing in the space will jump in on the latest scamcoin and whine to SEC when they lose money. “ICOs” are merely opportunities to fund the development of a software product.

    Reply
  10. World governments are pushing for cashless societies and only a few of you posting on a “alternative news” website don’t find it convenient that said world governments haven’t outlawed cryptocurrencies and its potential???

    Y’all must be shills…

    Reply
  11. I am in financial services too and am very excited about the possibilities for Bitcoin, actually more excited about the possibilities for other altcoins. I think the gulf between money (fiat issued currency) and wealth (resources) has widened to a point that this needs to happen. I don’t think government decree can exactly outlaw cryptocurrency the best they can do is demonize it and then drum up public support for jailing the users of it. M best guess is this exchange medium needs to stay far far far away from any government backed government mandated fiat…until the day that it starts getting accepted as payment on your smartphone….

    Reply

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