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 always been about 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 must receive 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 $5,000) in 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 sum of money. This distribution is why SWIFT is primed for disruption by Bitcoin.
This topic was also discussed in an article I wrote in March. It is important to note that Bitcoin cannot be used to pay for conventional payments in fiat currencies. 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
Can I keep physical gold in an IRA?
Not only is gold paper currency, but it’s also money. It is an asset that people have used over thousands of years as money, and a way to protect wealth from inflation and economic uncertainties. Investors use gold today as part of their diversified portfolio, because it tends to perform better in times of financial turmoil.
Today, many Americans invest in precious metals such as gold and silver rather than stocks and bonds. Although owning gold does not guarantee that you will make money investing in it, there are many reasons to consider adding gold into your retirement portfolio.
Gold has historically performed better during financial panics than other assets. Gold prices rose nearly 100 percent between August 2011 and early 2013, while the S&P 500 fell 21 percent over the same period. Gold was one asset that outperformed stocks in turbulent market conditions.
Another benefit to investing in gold? It has virtually zero counterparty exposure. Even if your stock portfolio is down, your shares are still yours. However, if you have gold, your value will rise even if the company that you invested in defaults on its loans.
Finally, the liquidity that gold provides is unmatched. This means that, unlike most other investments, you can sell your gold anytime without worrying about finding another buyer. Because gold is so liquid compared to other investments, buying it in small amounts makes sense. This allows you to profit from short-term fluctuations on the gold market.
Should you open a Precious Metal IRA
It is essential to be aware of the fact that precious metals do not have insurance coverage before opening an IRA. It is impossible to get back money if you lose your investment. This includes losing all your investments due to theft, fire, flood, etc.
This type of loss can be avoided by investing in physical silver and gold coins. These coins have been around for thousands and represent a real asset that can never be lost. If you were to offer them for sale today, they would likely fetch you more than you paid when you bought them.
If you decide to open an IRA account, choose a reputable company that offers competitive rates and products. It is also a smart idea to use a third-party trustee who will help you have access to your assets at all times.
If you decide to open an account, remember that you won’t see any returns until after you retire. Don’t forget the future!
What is a gold IRA account?
The Gold Ira Accounts are tax-free investment options for those who want to make investments in precious metals.
You can purchase physical bullion gold coins at any point in time. You don’t have to wait to begin investing in gold.
Owning gold as an IRA has the advantage of allowing you to keep it forever. When you die, your gold assets won’t be subjected to taxes.
Your heirs inherit your gold without paying capital gains taxes. It is not required that you include your gold in the final estate report because it remains outside your estate.
To open a Gold IRA, you’ll need to first set up an Individual Retirement Account (IRA). Once you’ve completed this step, an IRA administrator will be appointed to your account. 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 returns.
Once you’ve established your gold IRA, you’ll be able to purchase gold bullion coins. The minimum deposit required for gold bullion coins purchase is $1,000 The minimum deposit is $1,000. However, you will receive a higher percentage of interest if your deposit is greater.
You’ll have to pay taxes if you take your gold out of your IRA. If you are withdrawing your entire balance, you will owe income tax plus a 10% penalty.
If you only take out a very small percentage of your income, you may not need to pay tax. However, there are some exceptions. However, there are exceptions. If you take 30% or more of your total IRA asset, you’ll owe federal Income Taxes plus a 20% penalty.
Avoid taking out more that 50% of your total IRA assets each year. If you do, you could face severe financial consequences.
How is gold taxed by Roth IRA?
An investment account’s tax is calculated based on the current value of the account, and not on what you paid originally. If you invest $1,000 into a mutual fund, stock, or other investment account, then any gains are subjected tax.
The money can be withdrawn tax-free if it’s deposited in a traditional IRA (or 401(k)). Dividends and capital gains are exempt from tax. Capital gains only apply to investments more than one years old.
The rules governing these accounts vary by state. Maryland’s rules require that withdrawals be taken within 60 days after you turn 59 1/2. Massachusetts allows you to wait until April 1. New York has a maximum age limit of 70 1/2. You should plan and take distributions early enough to cover all retirement savings expenses to avoid penalties.
How Does Gold Perform as an Investment?
The price of gold fluctuates based on supply and demand. Interest rates also have an impact on the price of gold.
Due to their limited supply, gold prices fluctuate. You must also store physical gold somewhere to avoid the risk of it becoming stale.
Statistics
- If you take distributions before hitting 59.5, you’ll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- You can only purchase gold bars at least 99.5% purity. (forbes.com)
- 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)
- (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)
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
External Links
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 plans
forbes.com
- Gold IRA, Add Sparkle to Your Retirement Nest egg
- Understanding China’s Evergrande Crisis – Forbes Advisor
finance.yahoo.com
wsj.com
- Saddam Hussein’s Invasion Helped Uncage a Bear In 1990 – WSJ
- Do you want to keep your IRA gold at home? It’s Not Exactly Lawful – WSJ
How To
A rising trend in gold IRAs
The gold IRA trend is growing as investors seek ways to diversify their portfolios while protecting against inflation and other risks.
The gold IRA allows owners to invest in physical gold bullion and bars. It is a tax-free investment that can be used to grow wealth and offers an alternative investment option to those who are concerned about stocks or bonds.
Investors can manage their assets with a gold IRA without worrying about market volatility. They can also use the gold IRA as a protection against potential problems like inflation.
Investors also get the unique benefits of owning physical Gold, including its durability, portability, flexibility, and divisibility.
The gold IRA also offers many other benefits, such as the ability to quickly transfer the ownership of the gold to heirs, and the fact the IRS doesn’t consider gold a currency.
All this means that the gold IRA is becoming increasingly popular among investors seeking a haven during financial uncertainty.
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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
