Big Fortunes to be Made – Bitcoins for Beginners

More British Than Roast Beef

I’ll begin with a story: when I was 26 years old, I started dating the man who later became my first husband. One afternoon, at the height of courtship, I went to his place and we started kissing. We were interrupted by a knock at the door. A thin, gloomy-looking man (I honestly thought he dangerously resembled a gravedigger) had been sent by Lloyd’s of London and had to check all the valuable objects in the house – paintings, silver, antiques, etc. In one afternoon, I discovered how rich my date was, and also how much he was losing to the Lloyd’s.

In the 90’s, it is estimated that Lloyd’s losses led to about 30 deaths. Before that, the insurance firm was as much a part of Britain’s heritage as roast beef and Trooping the Colour, and being one of its “names”  (ie, an underwriter) had became a magnet for the rich and famous. It was considered the safest investment, the best circle to be in, and the closest thing to being a Royal – the status was enormous. When the losses started, it was like the world had gone upside down. I was freshly in love so I didn’t really analyse much. But I sure learnt a lesson I haven’t forgotten: the safest, best investment ever might not be what you think.

Crypto Valley

Thirty years, many bubbles and many scandals after, I find myself newly Swissed (a week ago I officially became a Swiss citizen) and living very close to Zug, a lovely village 35 km from Zurich that has recently been nicknamed ” Crypto Valley” because is trying to establish itself as the world’s leading blockchain and cryptographic technologies ecosystem.

You know…bitcoin, and all that.

Zug is famed for the low taxes that have drawn multinational companies and hedge funds to its lakeside shores, but with tax reforms and the end of banking secrecy posing a threat to its business model, the canton wants to reinvent itself as a base for start-up companies using virtual currencies like bitcoin and related technology. In the recent months, Zug has become a hub for virtual currency firms.

Corporate Glamour

Indeed, a quick Google search about Crypto Valley companies will reveal you a lot of fancy names. For example, if you go to Cryptovalley.swiss, you’ll read, in the homepage and very big, that the Association is welcoming “KPMG as  first strategic partner”. That sounds reliable, doesn’t it?

And if you have the time to check the advisory boards of many of the new firms dealing with virtual curriences, boy, will you find some pompous names. Board members with a brilliant past career in the best banks, academics, politicians, CEOs, old school white, middle age men who seem to take the leap at reinventing themselves. One has to concentrate not to go out and invest immediately, seeing this reliable, jolly successful group. Somehow it seems to me that the new guys desperately need the old names.

Real Fortunes…

You might have heard the Ethereum, a cryptocurrency, has risen in value by more than 2,500% over the course of 2017. I sure hear and read a lot of stories. Everybody, in Switzerland, seems to know someone who made a fortune: a friend, a cousin, an IT genius. And I get often asked what my opinion is. You guessed it right – I feel I shouldn’t touch it. Why? Here are my bullet points.

• I don’t get involved in what I don’t know. It’s as easy as that. For me it would be like investing in football. I have no idea.
• No Regulations. The biggest advantage of virtual money, and the only one everybody agrees on, is that bitcoin is decentralised and extremely resistant to censorship. This makes it radically different from conventional banking, where banks can, and do, intervene to freeze accounts, vet payments for money laundering or enforce regulations. That has made it a haven for activities from cybercrime and drug trading to enabling international payments to closed economies and supporting radically off-grid living (Alex Hern, The Guardian). If this is supposed to be the future, well, I don’t believe it in this form.
• Even charities are used for money laundering, some blockchain supporters say. Yes, but that doesn’t make crypto currencies any safer or better. What is the percentage of dirty money in blockchain activities? I guess very high. If you add the fact that I don’t know the people/the technology/the environment, investing randomly would really give me a high chance of hitting dirt. Pecunia non olet (money doesn’t stink), you might think. Well, it does to me.
• I want it all, and I want it now. And without working. This seems to me the underlying philosophy of most (if not all) people who invest their savings in bitcoins & co. I admit I am judging, now. But for a long distance runner like me (who believes that hard work always gets paid, and shortcuts don’t work), the underlying ethics of most of these investors are the exact opposite of whatever I believe in.

Should Traditional Banks Adopt The New System?

After being so negative, I must also admit that I do see the big potential of the new technology.

In the present system a central ledger is likely to act as the custodian of banking information. On a blockchain, the information is transparently held in a shared database, without a single body acting as a middleman.

What if all the major banks replaced their normal book-keeping with one shared, but still closed, database?

The Financial Times has spoken to almost a dozen bankers, consultants and analysts and came up with five areas of the industry most likely to see an effect: 1. clearing and settlement, 2. payments, 3. trade finance, 4. identity, 5. syndicated loans. These areas are most likely to be affected and improved with the new system.
I am curious to see the developments and believe that banking will ultimately arrive at a much needed improvement. In the  meantime, I don’t mess up with what I don’t know.

(My laptop bag comes with the story of the woman who made it – a beautiful project by Atelier Avanzar)