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 $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 short money you make 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
How does a Gold IRA account work?
Gold Ira accounts are tax-free investment vehicles for people who want to invest in precious metals.
You can purchase physical bullion gold coins at any point in time. You don't have a retirement date to invest in gold.
The beauty of owning gold as an IRA is you can hold on to it forever. Your gold assets will not be subjected tax upon your death.
Your heirs inherit your gold without paying capital gains taxes. Your gold is not part of your estate and you don't have to include it in the final estate report.
To open a gold IRA, you will first need to create an individual retirement account (IRA). Once you've done so, you'll be given an IRA custodian. This company acts as a middleman between you and the IRS.
Your gold IRA custodian is responsible for handling all paperwork and submitting the required forms to the IRS. This includes filing annual reports.
Once you've set up your gold IRA, it's possible to buy gold bullion. Minimum deposit is $1,000 You'll get a higher rate of interest if you deposit more.
You'll have to pay taxes if you take your gold out of your IRA. If you take out the whole amount, you'll be subject to income taxes as well as a 10 percent penalty.
However, if you only take out a small percentage, you may not have to pay taxes. There are exceptions. There are some exceptions. For instance, if you take out 30% or more from your total IRA assets, federal income taxes will apply plus a 20 percent penalty.
You shouldn't take out more then 50% of your total IRA assets annually. You could end up with severe financial consequences.
What is a Precious Metal IRA, and how can you get one?
A precious metal IRA lets you diversify your retirement savings to include gold, silver, palladium, rhodium, iridium, osmium, osmium, rhodium, iridium and other rare metallics. These are “precious metals” because they are hard to find, and therefore very valuable. These are excellent investments that will protect your wealth from inflation and economic instability.
Precious metals are often referred to as “bullion.” Bullion refers only to the actual metal.
Bullion can be bought through many channels, including online retailers, large coins dealers, and some grocery shops.
An IRA for precious metals allows you to directly invest in bullion instead of purchasing stock shares. This allows you to receive dividends every year.
Unlike regular IRAs, precious metal IRAs don't require paperwork or annual fees. Instead, your gains are subject to a small tax. You can also access your funds whenever it suits you.
Can I buy Gold with my Self-Directed IRA?
However, gold can only be purchased with your self-directed IRA. To do so, you must first open a brokerage account at TD Ameritrade. If you already have a retirement account, funds can be transferred to it.
Individuals can contribute as much as $5,500 per year ($6,500 if married filing jointly) to a traditional IRA. Individuals may contribute up to $1,000 ($2,000 if married, filing jointly) directly into a Roth IRA.
If you do decide you want to invest your money in gold, you should look into purchasing physical bullion instead of futures contracts. Futures contracts can be described as financial instruments that are determined by the gold price. These financial instruments allow you to speculate about future prices without actually owning the metal. Physical bullion, however, is real gold and silver bars that you can hold in your hand.
Who is the owner of the gold in a gold IRA
The IRS considers anyone who owns gold to be “a form money” and therefore subject to taxation.
To be eligible for the tax-free status, you must possess at least $10,000 gold and have had it stored for at least five consecutive years.
Although gold can help to prevent inflation and price volatility, it's not sensible to have it if it's not going to be used.
If you plan to eventually sell the gold, you'll need a report on its value. This could impact the amount of capital gains taxes your owe if you cash in your investments.
To find out what options you have, consult an accountant or financial planner.
How does gold perform as an investment?
The supply and demand for gold affect the price of gold. Interest rates also have an impact on the price of gold.
Because of their limited supply, gold prices can fluctuate. Additionally, physical gold can be volatile because it must be stored somewhere.
Statistics
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- (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)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
- Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
- 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)
External Links
wsj.com
- Saddam Hussein's Invasion Helped Uncage a Bear In 1990 – WSJ
- Want to Keep Gold in Your IRA at Home? It's Not Exactly Legal – WSJ
finance.yahoo.com
law.cornell.edu
- 7 U.S. Code SS 7 – Designation of boards of trade as contract markets
- 26 U.S. Code SS 408 – Individual retirement account
investopedia.com
How To
Tips for Investing Gold
Investing in Gold has become a very popular investment strategy. There are many benefits to investing in gold. There are many ways to invest gold. Some people purchase physical gold coins. Others prefer to invest their money in gold ETFs.
You should consider some things before you decide to purchase any type of gold.
- First, verify that your country permits gold ownership. If your country allows you to own gold, then you are allowed to proceed. You can also look at buying gold abroad.
- You should also know the type of gold coin that you desire. You have options: you can choose from yellow gold, white or rose gold.
- Thirdly, you should take into consideration the price of gold. Start small and build up. When purchasing gold, diversify your portfolio. Diversifying your portfolio should be a priority, including stocks, bonds and real estate.
- You should also remember that gold prices can change often. Therefore, you have to be aware of current trends.
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By: Shinobi
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
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