Couple of weeks back Endaget published an article titled “NASA probe on a fast track to reach metallic asteroid”. I am sure many of you here have read or heard about it; NASA is sending across a probe to an asteroid called 16 Psyche that will launch in 2022 and reach the asteroid in 2026. The article itself is a poor piece of journalism calling the asteroid “Psyche 16” and then “Psyche 6” in different occasions and also largely in part failing to elaborate anything outside a possible press release from NASA. However, the reason this is important is much subtler. 16 Psyche is one of the 10 most massive asteroids known that is almost entirely made up of metal – mostly iron and nickel but also has other trace elements that are much more valuable on earth. And the value of just the iron present in the asteroid, at today’s price, is an astounding 10 quadrillion dollars; yes, American dollars.
If you are thinking 10 quadrillion dollars orbiting the sun somewhere in space that takes 4 years for an unmanned probe to reach is nothing worthy of attention then think again. Asteroid mining is something that is getting a lot of folks interested. 2 companies – Planetary Resources and Deep Space Industries have already been set up with the prime objective of mining valuable resources from outer space bodies. Heck even NASA wants to relocate an asteroid to the lunar orbit sometime in next decade – not explicitly for mining, though I am sure it’ll start selling royalties once it can.
So where does Mr. Nakamoto come in here? Well this is where it gets very interesting. Global GDP in nominal terms was a little more than 78 trillion USD in 2014. Growing at a paltry 3 to 5% on an average, it’s probably just going to double in next 20 years. What do you think will happen once asteroid mining gets commercially viable (and yes it’ll happen!)? Commodity prices will crash and burn taking down much of the economy with it.Commodity prices will adjust this new access of metal surplus into existing GDP values with some nominal increments.
Still no Nakamoto you say? Well stop scratching ... whatever you are scratching and think. All governments in the world use gold as their reserve currency. That is the fundamental basis of value storage countries and economies use so that theoretically if depositors (i.e. suckers like you and me) tomorrow turn up and say ‘well take this worthless piece of toilet paper back and give me something of value in return’, it’s supposed to be gold. However, don’t bet on that or even try that, unless you really want to see the insides of a mental institution. Now if you find a goldmine that just keeps giving at not so unaffordable price (read SpaceX type reusable shuttles and Kiva type robots hauling shiny metals from space) be rest assured you are going to make a lot of powerful people panic.
Enter Mr Nakamoto with his shiny secret numbers and private keys. All of a sudden you have the possibility of an alternative reserve currency that is non correlated to commodity prices, can be easily stored and exchanged and has a predictable supply for the foreseeable future. Bingo! We have our new gold. However, hold on before you get a hard on and start playing pocket billiards; these are all logical conjectures, but with too many variables. Also gold has been the default reserve of value since the inception of that concept; it’s not going to be an easy or instant change. There will be resistance, confusion, hatred, anger and denial before the dust settles and we all enter the church of Mr. Nakamoto.
Now a quick note here. Bitcoin will not become the regular currency for exchange like USD. My prediction is we are yet to see that coin that'll be able to replace currencies - there are a couple of positive candidates in my mind but it's too early to say. And if you don't agree with my opinion of Bitcoin then we'll revisit this after 5 or 10 years when blockchain itself has become mainstream. Instead it'll be the reserve of value like gold. And that's nothing to scoff at; till today the total value of gold that has been unearthed/ mines is close to 8 trillion USD. Even if Bitcoin reaches half of that value each of the 21 million bitcoins are going to be worth a whopping 200,000 USD! Now a few reasons for why I believe it'll be reserve instead of a medium of transaction:
- Bitcoin transactions will be always too slow for regular use as a currency. Imagine checking out of your grocery store but waiting for block confirmations with 10 impatient customers behind you
- However as the 1st digital currency it'll always be honored and bench marked against
- This is very important - Bitcoin will probably carry the maximum network effect - that is it's value is because of the value attributed to it by other people. I say probably because there is a chance ethereum will replace bitcoin eventually as the standard for reserve. And yes that also means I don't think ethereum will replace fiat either.
But would governments make this transition, ever? Well they will have to do and even if not bitcoins, block chains are very probable candidates. They might launch their own ‘BureaucracyCoin’ or something equivalent that comes with high transaction fees and takes forever to confirm transactions but it’ll have to; the writing is on the wall. And in addition now that we are thinking of being multi-planetary species how do you think we’ll move reserve currencies across planets. There have been instances in the past when reserve currencies had to be shipped physically for countries to provide collateral during bad times, read this.
Alright! So why Mr. Nakamoto will be surprised you ask? He probably knew this all along when he came up with a plan to change money once and for ever.
That’s for next time because it's been too long since we last checked the exchange rates!
(All pictures are sourced through Google Images)