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  • The Osmosis Theory of Wealth Transfer: Gold to USD to Cryptos

    We are in the early stages of a new global financial epoch. The transfer of wealth from fiat into crypos is just beginning and will unfold over multiple decades. This article introduces a basic theory explaining how and why this wealth transfer is happening.

    Osmosis

    Do you remember from high school Chemistry the concept of osmosis?

    Here is the high school definition that I remember learning years ago: Osmosis is the movement of a solvent from an area of high concentration to an area of low concentration through a selectively permeable membrane.

    Here is the Wikipedia definition, with a nice diagram:

    Osmosis is the spontaneous net movement of solvent molecules through a semi-permeable membrane into a region of higher solute concentration, in the direction that tends to equalize the solute concentrations on the two sides.[1][2][3] It may also be used to describe a physical process in which any solvent moves across a semipermeable membrane (permeable to the solvent, but not the solute) separating two solutions of different concentrations.[4][5] Osmosis can be made to do work.[6]

    What has always fascinated me about this process is how it happens in a predictable and spontaneous manner. Also, if you study the Wikipedia diagram, you can see that the power of Osmosis is sufficient to actually counter the effects of gravity: the water on the one side of the beaker stands up higher than the water on the other side of the beaker.

    Just like a difference in the concentration of solute across two sides of a membrane causes the process of osmosis to happen spontaneously, and the solvent will defy the effects of gravity and flow upwards to a higher center of gravity, I believe that a difference in the relative security strength of two financial safe haven assets will cause money to flow in a similarly predictable and spontaneous way.

    Osmosis Theory of Wealth Transfer

    Just what causes money to flow? Fear and greed. Apart from day-to-day transactional usages, I would guess that 90%+ of money flows between savings accounts, Gold, ETFs, stocks, bonds, etc is driven by fear and greed. It is simple human psychology at work.

    As such, if some new safe haven asset for storage of wealth is introduced to the mix that is better than any prior safe-haven asset, then due to fear factors and greed factors investors will start to move some portion of their wealth into the new safe haven asset.

    As this process unfolds, the rising value of this new safe haven asset will lead more skeptical people in society to eventually jump on the bandwagon as fear of missing out takes hold. Thus fear and greed drive the popularity and allure of the new safe haven asset even higher.

    Thus, the pumping of financial wealth from the older safe-haven assets to the newly created and technically-superior ones will be as certain, predictable, and spontaneous as the process of osmosis “pumping of fluid” from one side of a selectively permeable membrane over to another.

    In formal terms, here is the “Osmosis Theory of Wealth Transfer”:

    If a differential exists in the security strength of two safe-haven assets, then this differential will lead to a certain, predictable, and spontaneous transfer of financial wealth, that is amplified by psychological factors of both human fear and greed.

    As this cycle proceeds, the new suitor for the crown of global safe haven asset gains in its credibility thus casting a spotlight on the potential weaknesses of the former safe haven asset that the masses are fleeing, thus quickening the pace and overall net effect of the wealth migration.

    Application

    This simple theory explains the meteoric rise we are seeing in the value of crypto digital assets today (e.g. BTC, XRP, etc). These digital assets are technologically-superior versus the old safe haven assets Gold and USD. USD was previously perceived as the safest asset, as it was backed by the strongest government, and at one point in time, the US government even had the bravado to disallow the usage of the prior competing safe-haven asset, Gold, as a medium of exchange. But, in the end, the USD is still backed by a government, and, indeed, all governments can fail. With the continuous lifting of the US debt ceiling, the rapid rise of inflation in the US economy over the past three decades, and the irrationality of the US Congress and White House Administration today, the end no longer seems implausible.

    In contrast, the crypto digital assets are supported by armies of decentralized computers across geopolitical boundaries, consensus protocols, and strong cryptography, and, this method is now successfully defending more than $150B of financial value. These new crypto assets are not at risk of government seizure or inflation, and they could survive even after the combined collapse of all of the political-economies in the West. Even with the entire world in utter chaos or World War III, there would not be any question of the safety and security of these assets.

    The Osmosis Theory of Wealth Transfer explains how the process of financial flows from the old safe haven asset to the new safe haven asset is a natural, inevitable, and spontaneous process driven by human psychology. We are still in the early stages of this cycle, but, the pace is quickening now.

    Reprinted from Medium


    Ryan Orr

    Dr. Orr is a Stanford University Professor, Consultant, Entrepreneur and Investor recognized around the world as an expert in infrastructure and technology.

    This article was originally published on FEE.org. Read the original article.



  • Millennials Are Obsessed with Cryptoassets

    Millennials Are Obsessed with Cryptoassets

    Now, this is revealing. The New York Times ran a piece on Bitcoin with this sentence: “from less than a cent in early 2010 to around $2,600 currently.” The problem is that when the story went live, the price was actually $3,400.” An editor didn’t think to check it, because he or she didn’t know to do so.

    This is how quickly these markets are moving. Not even the people assigned to be experts know enough to do a competent edit.

    And this is precisely why so many of us are constantly intrigued by these markets.

    Cryptofriends 

    Last week, when the NYT story was being filed, I was sitting at the national convention of the Young Americans for Liberty, feeling a vague sense of discomfort for one ridiculous reason. It had been a full day since I had talked with anyone about cryptoassets. So I grabbed the nearest dude and threw out a couple of observations. He lit up. He could talk ICOs, trading platforms, obscure coins and services, with the best of them. Soon others arrived. Then more. Pretty soon we had a big crowd, all talking and thinking about these bizarre new ways to invest.

    Pretty interesting. I could never have assembled such a posse of group discussion if I had been talking about bank stocks and the S&P 500. Too boring. The crypto market, on the other hand, is incredibly interesting, lucrative, changing and wildly dynamic. Yes, many people lose their shirts. This is not a disgrace but a bragging right. If you have bought high and watched the thing fall to zero, it only demonstrates your derring do. If you have made money, you are a bit cheeky about it because, after all, these markets are edgy.

    There is some glory in checking your smartphone in the middle of the night to find that your assets are up 10% since you went to bed. When you wake up and you are down 20% total, it’s sad but still exciting. That’s why people play these markets. And some people are truly winning.

    What does it mean to be a millionaire but all your assets are in brand new digital things with names like BCH, NEO, GBYTE, FCT, or DSH? And do you really want this information known? Probably not.

    It’s a Mania

    Another scene: I’m at the UPS store and paying with a Bitpay debit card. The guy behind the counter nonchalantly says that his choice coin is Monero. I banter with him a bit. We do what everyone in these discussions does: we test the limits of each other’s knowledge. Who among us is the more tech savvy and experienced. Discerning that gives insight into the real question: what is your crypto net worth?

    How likely is it that some dude I bump into at a mail service would know anything about this new thing going on? Could be a coincidence. Or he could be the voice of a generation. According to the New York Times, the second conclusion is the more likely truth.

    After years as a niche market for technologically sophisticated anarchists and libertarians excited about a decentralized financial network not under government control, digital coins may be on the verge of going mainstream…. Cryptocurrency has understandable appeal to millennials who came of age during the 2008 financial crisis and are now watching the rise of antiglobalist populism threaten the stability of the international economy.

    Typically with such reporting, there are great insights in this story, despite the misquoted price. The 2008 financial crisis traumatized a generation. They no longer trust banks. Conventional financial markets are driven by electronic trading, and there is no way to beat the market in the short run. Plus, there is the draw of the new and techy. Young people have no assets but they do have tech skill. Crypto markets are easy to get into and you are rewarded for knowing your way around. Older people tend to lack such skill, and they are afflicted by incredulity: surely this market is nothing more than a techno tulip mania.

    I can recall being in front of an audience of 3,000 people some three years ago, interviewing a major and famous global investor. In passing – slightly expecting to be ridiculed – I asked about Bitcoin. He blew up in fury, as if I had committed a faux pas. This is a fake, he said, just like all social media platforms and time-wasting video games. If young people think this is productive, they are sadly mistaken. This country needs to get back to making things rather than taking food selfies.

    I was crypto shamed.

    And that was that.

    Meanwhile, the dollar exchange ratio of Bitcoin moved from $30 to $3,000. Our savvy and “mature” and responsible investor was completely wrong. And he had misinformed thousands of people who had paid for his advice. And he was wrong because of the old Latin phrase: “Damnant quod non intellegunt.” They condemn what they do not understand.

    The young have no such hangups. They don’t need a theory to justify their interests. They discern that the market is pointing a certain direction even if they do not know why. You could chalk it up to naivete of youth. Or you could look at the old investor and observe that his failure to believe is due to the foolhardy incredulity of age.

    What It Is

    Let me attempt, yet again, to explain why these markets are not tulipmania. Tulips had always existed. Cryptoassets, on the other hand, are a new innovation. What is it? Some people understood early on. For people not stuck in the old ways, not biased by prevailing practices, this was promising and exciting.

    For the rest of us, it took time. It’s true that it is a way of hacking the internet to make a market-driven money. It’s true that the blockchain technology that backs cryptoassets makes for a great payment system, far faster, cheaper, and better than existing practices. Millennials know that the old way failed and, because of experience, they trust that there is a technological solution, even if old-world institutions are slow to adopt it.

    There’s more going on than just that. This technology is the newest and best iteration of a universal human demand to document ownership rights. After many years of struggling to understand this, this is my best-possible explanation. Humanity documented “mine and thine” since the ancient world: stones, clay, parchment, vellum, databases. There must be a record to compel social assent to anything.

    And it is not only about rights. It is about rules. But the failing of every previous piece of technology has been that it has been centralized: only one authoritative copy. Blockchain distributes that knowledge and authority to an infinite number of nodes.

    Is that an innovation? Yes. It’s everything. With millions of applications, only one of which could imply the possibility of abolishing government money and central banking in favor of a market-controlled money. And that’s just the most obvious. Blockchain actually offers up the hope that humanity can learn to master its own affairs on a purely voluntary basis: no need for coercive relationships, geographical jurisdictions, or preemptive revenue collection by force. It’s the realization of the old liberal dream.

    But not yet. It will take decades to get there. In the meantime, young people are having a blast. Good for them. They understand more about the world than those who are charged with copy editing the New York Times.


    Jeffrey A. Tucker

    Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

    This article was originally published on FEE.org. Read the original article.


  • What Cryptocurrency Can Teach Us about Political Governance

    What Cryptocurrency Can Teach Us about Political Governance

    It’s a marvel to me to witness what is happening on planet Earth as it regards cryptocurrencies. Satoshi Nakamoto, whoever or whatever he/she/zhe is, began a revolution as big as the wheel and the printing press and the Internet that came before it, or so it seems to me.

    Over $93 billion, and counting, have poured into the cryptocurrency market since Bitcoin was released in 2009. Millions of individuals have come together without central direction to build this worldwide phenomenon.

    Changes are happening every day that have global ramifications, all of which are happening without permission by governments, and often in spite of governments’ supposed authority to control other people. That is truly awesome.

    Decentralized Governance 

    There is governance, to be sure, as it regards cryptocurrencies, but such governance is without centralized structure. Cryptocurrency manipulation must follow specific rules, and changing those rules requires popular acceptance by users and stakeholders of each given cryptocurrency. Nobody can implement their preferred change arbitrarily. The only thing arbitrary about cryptocurrencies is one’s desire to get involved in the hundreds of different systems, and once involved, they must follow the rules.

    I think there’s a model here for political governance, or in others words governance around the idea that people have rights, and those rights should be protected, with physical violence if necessary. While people mostly agree that behaviors such as murder, rape, robbery, assault, and battery are undesirable and we all should be protected from them, there’s a lot of disagreement on the smaller stuff, like who’s entitled to what, provided by others that haven’t themselves committed any of the foregoing behaviors (ie. crimes). That’s not to say that people don’t disagree on the big stuff, but the disagreement is more a matter of definition than of undesirability.

    Who should decide which entitlements should be enforced? The current model says that for a given arbitrarily-derived geographical area, one entity should decide, even when a party to the dispute and that entity may be influenced in any number of ways. In other words, one size fits all, like it, leave it, or hope you get enough popular support to change it.

    Spontaneous Order

    Alternatively, using the cryptocurrency model, there would be no single entity per arbitrarily-derived geographical area to force one set of rules onto everyone else. Instead, individuals would pick and chose which rules they wish to engage with. When someone violates their rules, they have the option of dealing with it personally or calling on their rights protection agency to do so.

    Everyone involved now has a strong financial incentive to remedy the dispute as peacefully as possible. How so? Because everyone involved is bearing the costs of resolution personally. There’s no forcing those costs on to innocent third parties. Any attempt to do so will be met with the same type of response the original dispute was met with.

    Of course, I can’t predict how all of this will develop, spontaneously, just as I couldn’t predict the effects of the wheel, the printing press, the Internet, and of the emergence and spread of cryptocurrencies. But I can say that I’d prefer governance based on this model over governance based on the old model. Seems far more effective, efficient, justified, and just plain ‘ole right, to me.

    In any event, to what extent the cryptocurrency phenomenon pushes against old models in the financial industry, and beyond, should be a welcome change for anyone tired of getting “landline government in a cell phone world,” quoting Michael Malice. I don’t think it can be stopped. I think that now that it’s begun, it’s here to stay.

    Reprinted from Everything-Voluntary.


    Skyler J. Collins

    Founder and editor of Everything-Voluntary.com, Skyler is a husband and unschooling father of three beautiful children.

    This article was originally published on FEE.org. Read the original article.