Bitcoin can be used as an exchange medium for entities that would normally make up the bulk of SWIFT transactions.
This opinion editorial is by Shinobi, who is a self-taught teacher in Bitcoin and a tech-oriented Bitcoin podcast host.
The Lightning Network has seen bitcoin become a popular means of exchanging money. This is an essential component of anything that aims to become money. Without the ability to exchange value easily, Storing value is pointless. Lightning is the best tool to help you do this.
The concept of exchange has been centered on consumers. They are the ones who fulfill the daily needs of people like you and me, whether they're shopping online or buying groceries. However, this is only one scale of economic exchange. Businesses must pay suppliers. They also have to pay contractors and services. International shipping companies need money from customers all over the globe. Most of these are not consumers but businesses. Global imports flow on a large scale and require that they deal with complex foreign currency exchanges among many national currencies.
Medium of Exchange does not mean that people pay for coffee. It also refers to the function of medium exchange at all levels and scales of the economy, for purchases with a greater value than your Starbucks daily latte.
This is where bitcoin can really shine as a medium for exchange at large scale, and not Joe buying coffee every day. SWIFT processes approximately $5 trillion dollars worth of payments every day, or $1.25 quadrillion annually. To see the risks of relying upon SWIFT to settle international payments, one need only look at the many Russian banks that have been cut off from it. The distribution is curved with 5% of all payments processing accounting for 95% of value and the majority of payments for lower amounts (the average payment being $400,000 and the median $5000 as of October 2010). The vast majority of value transfers across the network are made by large value payments. However, the remaining 10% of value is distributed among a wide range of actors who make small payments that still contribute to the grand scheme and not a small amount. This distribution is why SWIFT is primed for disruption by Bitcoin.
This topic was also discussed in March's article. I mentioned that the main limiting factor in using Bitcoin to pay for conventional payments in fiat currencies, is liquidity. Even if Iran had 5% of the total mining hashrate, the government could still acquire $700 million worth of Bitcoin each year to pay imports. This is not much in the grand scheme of things. Iran imported $38 Billion dollars worth of goods in 2020. $700 Million is a small fraction.
When you consider a country that has a strong fiat market for Bitcoin, this dynamic changes. Iran's situation was that they considered burning oil instead of being able export it directly. They then turned to Bitcoin mining to make up the difference. It is limited by the amount of mining hardware that they have access to. Imagine a country that isn't so heavily sanctioned but could be at risk. It can still export goods and has a thriving Bitcoin/fiat marketplace with a volume of approximately 10 million dollars per day. There is a market of 10 million dollars per day that could be used to convert Bitcoin into fiat currency if people around the world wanted to buy exports from this country using Bitcoin. This is potentially 10 million dollars a day coming into the country to pay for exports. But, just to be clear, the simplified analysis is sufficient. This is a staggering $3.6 trillion dollars per year. Imagine a market volume of $100 million dollars per day. That's $36 trillion dollars per day. This is almost Iran's annual imports starting in 2020.
Imagine the last 5% value that SWIFT processes, which accounts for 95% of all individual transactions. Think of all the international payments made by individuals and businesses. Bitcoin can be used to settle international payments. As long as the recipient country has sufficient liquidity to purchase it and the source country has enough fiat/Bitcoin markets to enable them to make a payment, Bitcoin can process the payment quickly and with minimal slippage. The Lightning Network is also available to make it possible for international payments to be settled in a matter of seconds.
Bitcoin's speculative liquidity is increasing, which means that more value can be transferred between different jurisdictions in order to facilitate international commerce. To see this value, you don't need to be from a sanctioned country or entity. Settlements can happen in a matter of minutes. SWIFT can take up to days or even weeks depending on the money being moved and the checks SWIFT runs for a payment. Bitcoin eliminates this delay and makes it impossible for any third party to prevent the payment from happening. This boils down to the two points of exchange in Bitcoin and fiat in each jurisdiction in terms of counterparty risks the transactors are exposed.
However, this can be easily avoided by controlling and custodying the Bitcoin yourself. At that point, the only risk is Bitcoin's volatility. You can also deal with. A small amount of Bitcoin held by a company can be transferred to an exchange that offers futures products. Leverage can also be used to shorten the Bitcoin price to hedge against volatility. To hedge against volatility, you will only need 10% of your Bitcoin to leverage 10x. If Bitcoin's price rises and your short position is liquidated, the Bitcoin price appreciation will compensate and you will still have the same fiat value. If the Bitcoin price falls, the money you make from the short position will compensate for the Bitcoin's declining value and you will keep the same fiat value.
DLCs, or Discreet Log contracts (DLCs), allow you to hedge against Bitcoin's price volatility by using a smart contract. This allows you to control Bitcoin directly, have contracts settle in your self custody after it closes, and allows for multiple price oracles to ensure that no one can honestly report the Bitcoin price.
Many people believe that Bitcoin must reach hyperbitcoinization to be a major backbone for processing payments around the globe or as an economic system as SWIFT. It doesn't. A market volume above a certain amount means that Bitcoin is being bought and sold regularly. This means that there is enough demand to process transactions for Bitcoins within the same value range over whatever time frame you are looking at. Futures markets are the same. People who wish to own Bitcoin instead of being subject to counterparty risk can do so in whatever amount is available. This will allow them to protect their business from potential losses if Bitcoin prices crash to an alarming level.
Bitcoiners are so focused on grass roots adoption, which isn't necessarily a bad thing. But they have lost sight of the other side. Large players, large value settlement. Bitcoin is poised to disrupt systems like SWIFT and I believe that it will happen sooner than expected.
I believe that Bitcoin and Lightning will be widely adopted by businesses before it is widely accepted as a method of consumer payment. It is much easier to convince just a few hundred businesses of the utility and value, and then get the work done to incorporate it there, than to convince hundreds and millions of people. The former would likely be easier to do if it was done first. Most people follow the lead of what seems credible.
You can't find a better way to build trust in your everyday life than hearing about how Bitcoin is used to settle international business payments, and then dragging businesses away from traditional settlement systems.
Shinobi contributed this guest post. These opinions are not necessarily those of BTC Inc.
Frequently Asked Questions
What are the pros and cons of a gold IRA?
The main advantage of an Individual Retirement Account (IRA) over a regular savings account is that you don't have to pay taxes on any interest earned. This makes an IRA great for people who want to save money but don't want to pay tax on the interest they earn. But, this type of investment comes with its own set of disadvantages.
You may lose all your accumulated savings if you take too much out of your IRA. You might also not be able to withdraw from your IRA until the IRS deems you to be 59 1/2. If you do withdraw funds from your IRA you will most likely be required to pay a penalty.
You will also need to pay fees for managing your IRA. Many banks charge between 0.5%-2.0% per year. Other providers may charge monthly management fees, ranging between $10 and $50.
You can purchase insurance if you want to keep your money out of a bank. A majority of insurance companies require that you possess a minimum amount gold to be eligible for a claim. Insurance that covers losses upto $500,000.
If you choose to have a gold IRA you will need to establish how much gold to use. Some providers limit the number of ounces of gold that you can own. Others allow you to pick your weight.
It's also important to decide whether or not to buy gold futures contracts. Futures contracts for gold are less expensive than physical gold. Futures contracts provide flexibility for purchasing gold. They enable you to establish a contract with an expiration date.
You'll also need to decide what kind of insurance coverage you want. The standard policy doesn't include theft protection or loss due to fire, flood, or earthquake. The policy does not cover natural disasters. You may consider adding additional coverage if you live in an area at high risk.
Insurance is not enough. You also need to think about the cost of gold storage. Storage costs will not be covered by insurance. For safekeeping, banks typically charge $25-40 per month.
Before you can open a gold IRA you need to contact a qualified Custodian. A custodian keeps track of your investments and ensures that you comply with federal regulations. Custodians cannot sell your assets. Instead, they must retain them for as long and as you require.
After you have decided on the type of IRA that best suits you, you will need to complete paperwork detailing your goals. You must include information about what investments you would like to make (e.g. stocks, bonds and mutual funds). The plan should also include information about how much you are willing to invest each month.
Once you have completed the forms, you will need to mail them to your provider with a check and a small deposit. The company will then review your application and mail you a letter of confirmation.
When opening a gold IRA, you should consider using a financial planner. A financial planner is an expert in investing and can help you choose the right type of IRA for you. They can help you find cheaper insurance options to lower your costs.
Can I buy or sell gold from my self-directed IRA
You can purchase gold with your self-directed IRA, but you must first open an account at a brokerage firm like TD Ameritrade. Transfer funds from an existing retirement account are also possible.
The IRS allows individuals to contribute up to $5,500 annually ($6,500 if married and filing jointly) to a traditional IRA. Individuals may contribute up to $1,000 ($2,000 if married, filing jointly) directly into a Roth IRA.
You might want to purchase physical bullion, rather than futures contracts if you are going to invest in gold. Futures contract are financial instruments that depend on the gold price. You can speculate on future prices, but not own the metal. But, physical bullion is real bars of gold or silver that you can hold in one's hand.
What precious metal should I invest in?
This question depends on how risky you are willing to take, and what return you want. Gold has been traditionally considered a haven investment, but it's not always the most profitable choice. If you are looking for quick profits, gold might not be the right investment. Silver is a better investment if you have patience and the time to do it.
If you're not looking to make quick money, gold is probably your best choice. However, silver might be a better option if you're looking for an investment that provides steady returns over long periods.
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- You can only purchase gold bars at least 99.5% purity. (forbes.com)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- Fraud Advisory: Precious Metals Fraud | CFTC
- Saddam Hussein's InvasionHelped Uncage a Bear in 1990 – WSJ
- Do you want to keep your IRA gold at home? It's Not Exactly Legal – WSJ
- 7 U.S. Code SS7 – Designation boards of trade as contract market authorities
- 26 U.S. Code SS 408 – Individual retirement accounts
Guidelines for Gold Roth IRA
Starting early is the best way to save for retirement. You should start as soon as you are eligible (usually at age 50) and continue saving throughout your career. It's vital to contribute enough money each year to ensure adequate growth on an ongoing basis.
You can also take advantage of tax-free savings opportunities like a traditional 401k (k), SEP IRA (or SIMPLE IRA). These savings vehicles allow you the freedom to contribute without having to pay tax on your earnings until they are withdrawn. These savings vehicles are great for those who don't have access or can't get employer matching funds.
It is important to save consistently over time. You may not be eligible for any tax benefits if your contribution is less than the maximum allowed.
Title: Bitcoin Will Replace SWIFT Before It Replaces Visa
Sourced From: bitcoinmagazine.com/business/bitcoin-will-replace-swift-before-visa
Published Date: Wed, 21 Sep 2022 17:45:00 GMT