True Wealth Ownership: Greeks and Chinese Learn the Hard Way

Think your money is safe in the bank? In stocks? In bonds? Think again.

To put it simply, when you store wealth with traditional financial institutions there is no guarantee of future access. Governments and banks can freeze or seize your funds at will. If your government decides you shouldn't have access to your funds anymore then there is no recourse, your family's wealth is gone. Furthermore, with traditional currencies, governments have sole control over the monetary supply, and through the creation of more currency they essentially devalue any funds you currently hold. The current system relies on trust, trust in your government and institutions to act responsibly to protect your wealth. In America and much of the developed world, citizens overwhelmingly trust their governments to act in their best interests, but in places where that trust has eroded, the system fails.

People throughout the world face asset seizures, currency devaluation, and other financial controls at the whim of their governments. These people are not necessarily criminals just because their government may have branded them as such, and Bitcoin is a key tool in their operations, allowing them to move money and securely store their wealth without government interference. When a government fails to serve its people, and citizens can no longer rely on positive change to occur from within their government, an outside solution becomes the only real possibility for change. Bitcoin is a tech based solution to this loss of trust.

These concepts aren't a dystopian alternate future, but rather are unfolding around the world today. Control of wealth is the ultimate tool of those in power to maintain their position in society. The privileged few continue to increase their wealth at the expense of those beneath them, through the use of a system rigged in their favor. As is commonly quoted in regard to casinos, “the house always wins.”


FIVE “REAL WORLD” EXAMPLES


GREECE

Any wealth Greeks have stored with traditional financial institutions has been completely inaccessible for weeks now, and the timeline for full access to be returned remains uncertain. The events that have unfolded in Greece over the last few months has shown the world what true ownership of wealth really means. Wealth stored in the traditional financial system is merely an IOU that can be revoked at a moment's notice by your country's government. In the midst of an economic crisis, the Greek government closed all banks in the nation and limited withdrawals to 60 Euros per day. This is because most banks in the developed world operate on a system called “fractional reserve banking,” where they hold much less cash than the total accounts in their systems.

When customers panic and attempt to remove their funds from a bank all at once, the bank will not have enough cash to pay their customers. This fact is true of pretty much every bank in the developed world today. If every customer of a bank attempted to move their funds out of said bank there wouldn't be enough cash to payout. That being said, countries that control their own monetary supply can create more money if a bank run happens and bail out their banks (as America did in the aftermath of the 2008 crisis). Greece on the other hand is not allowed to create more money without ECB permission, so they had to shut down their banks before they ran out of cash. With the banks currently closed, Greeks have been effectively cutoff from international commerce and their own life savings. Imagine having all the wealth that has been built up in your family, potentially the result of countless generations of hard work, completely lost. How can you trust such a system?

Greeks line up at an ATM to withdraw their maximum of 60 Euros for the day:

Greeks line up at an ATM


CHINA

Over the last three months, the Chinese stock market has been in continuous decline. In an attempt to stop the slide from worsening, the Chinese Government has instituted two controversial new tools. The first tool they use is to freeze trading of any stocks that are being sold substantially. Sometimes the trading is halted by the individual companies themselves, sometimes directly by the government, and other times they trigger the government's mandated 10% limit and are automatically halted. You didn't read that incorrectly, if a Chinese stock falls by 10%, trading is automatically halted until the following day. For instance, there was a large sell-off across most Chinese stocks on July 7th of this year, and as a result 40% of all Chinese companies halted trading.

The second tool implemented by the Chinese is a new restriction on company owners and executives. Anyone who owns more than 5% of a company or is an executive is banned from selling any stock of their company for the next six months. It is worth noting that this regulation is the first of its kind and the Chinese Government may ultimately extend the six month time-frame indefinitely.

The result of both of these actions by the Chinese government is that the Chinese stock market has become an ineffective wealth storage mechanism. It is now more difficult than ever for Chinese investors to sell their stock in order to buy real goods. Chinese who have invested heavily in the stock market now find themselves in a situation where they are effectively cutoff from much of their wealth. How can you trust such a system?


CYPRUS

In 2013, the citizens of Cyprus experienced the world's first large scale bank “bail-in.” A “bail-in” refers to the confiscation of depositor funds in a troubled bank, in order to use those funds to save the bank from collapse.

“The terms of European creditors for its bail-out included not just the usual demands for austerity and reforms but an unfamiliar demand for a banking “bail-in”—getting debt holders and uninsured depositors to absorb bank losses and to stump up new capital. The experience of this small island has big implications; bailing-in creditors will be how future banking crises are tackled in Europe.” The Economist

Put simply, the key difference between a bailout and a “bail-in” is that the former uses taxpayer funds to rescue a bank while the latter uses funds stored with the bank by depositors. While the use of both are controversial, “bail-ins,” in particular, set a dangerous precedent. The possibility of a “bail-in” taking place in the future reduces confidence in all deposits stored with banks. The people who had been saving their wealth and working hard to earn it didn’t cause the banks’ collapse, but their savings were taken without their permission to pay for the bank's rehabilitation. How can you trust such a system?


FRANCE

In March, France instituted new restrictions on the flow of cash.

Starting in September, French citizens can't...

1) Make a purchase over 1000 Euros in cash.

2) Withdraw more than 10000 Euros in one month without government approval.

3) Convert more than 1000 Euros to or from another currency without registering an ID.

The French Government claims the move is to prevent terrorism financing. The move is similar to restrictions placed on cash usage in Italy in late 2011, but that measure was implemented under the guise of thwarting tax evasion. Cash is much harder to control than wealth stored in traditional financial institutions that keep extensive records. Regardless of claimed reasons, the end result is the same, governments increasingly want to control and track their citizens' wealth. How can you trust such a system?


AMERICA

Civil Asset Forfeiture is a system in the United States that allows police departments to seize property if it is deemed to be connected to a crime. In 2013, Iowa state troopers used a false claim to pull over two poker players driving through their state. The trooper said he pulled them over because they failed to use their turn signal when passing another vehicle, but his dashcam footage clearly shows that they did signal. They proceeded to search their car and find $100k worth of cash that the pair had won in a poker tournament in a neighboring state. They also found trace elements of marijuana in the trunk. The police confiscated the cash, saying carrying such large amounts of it was proof of criminal activity.

The core of the problem is that Police departments receive 100% of cash obtained through civil forfeitures, so they are incentivized to “steal” as much as possible. A common tactic for the Iowa State Troopers is to pull over individuals with out of state plates. Individuals from other states are more likely to be carrying cash and are less likely to fight the case, because it would be inconvenient to travel back to Iowa to fight it in court. They are the perfect targets for what basically amounts to government sanctioned highway robbery. Between 2011 and 2013, the Iowa State Troopers alone have seized about $7 million in cash from motorists.


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Civil forfeiture is not the only issue with the efficacy of the American financial system. As stated earlier in regards to the Greece crisis, America has sole control over its money supply. This enables an endless supply of dollars to be created, and with each dollar created, the dollar in your pocket becomes worth less. This process is referred to as monetary inflation.

A simple example: Imagine there were only 10 dollars in existence, and you held one, your dollar would become worth less if two more dollars were created, bringing the total to 12. You'd go from having a 10th of the total value of the “economy” to having a 12th.

Since the 2008 financial crisis, this process has occurred on a national scale, and anyone holding cash or money in the bank has lost a significant amount of their purchasing power (and wealth) as a result. Furthermore, since wealth stored in stocks and real estate is unaffected by this process, and since wealthier individuals are more likely to be invested in those assets, the middle and lower classes have been the ones who have lost the most as a result. How can you trust such a system?

Graph of the amount of US Dollars in circulation, provided by the St. Louis Federal Reserve:

USD Monetary Supply Graph


BITCOIN: TRUSTLESS GLOBAL WEALTH STORAGE

Bitcoin is a trustless global wealth storage and transfer system that does not rely on third parties such as governments and corporations. It is a secure store of value that cannot be seized or blocked, a capability that has never been possible before. For the first time in human history, you can store your wealth by merely memorizing a passphrase, with nobody other than yourself able to access it, or even know it exists. Bitcoin provides financial freedom, in a way that has never been possible before. The disruption potential is enormous, and financial systems will be changed forever.

If we all agree that there is tremendous value in an independent / decentralized trustless wealth storage system then the price of bitcoin should rise as more and more people store their wealth in bitcoin. Our societies have encouraged spending over saving for decades through the implementation of worldwide fiat currencies with built-in inflation. It is time to remove the stigma of saving your money. For the first time in almost half a century, the average person can once again safely store their wealth and watch it appreciate in value so their children can have a better life. Bitcoin enables secure wealth storage in a way that doesn't rely on governments or corporations and goes above that even, since it also enables users to easily transfer that wealth to others.


Editor's Note: For the sake of full disclosure, the author of this post currently owns bitcoin, US Dollars, American stocks, and real estate in NYC.

If you have any questions or comments, feel free to post in the comment section below or to tweet at us @CoinPricesIO, or our Executive Editor @Matt_Odell or through email matt@CoinPrices.io


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