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Back to paper and gold

January 30, 2018

I’ve been starting to broker a lot of bitcoin transactions that involve paper money.  Paper money has gotten a bad reputation for being evil stuff that only criminals use, but it turns out that paper cash is in some ways better and more secure than the electronic stuff.

First of all, when I broker high value transaction, I only do it between people that are properly licensed to move money, and people are careful to keep very accurate records and to proper AML/KYC.  I don’t deal with anyone that I think does anything involving criminal activity not just for moral reasons, but because there are issues of personal safety.  If you are a compliance officer at a bank, and you mess up, the worst that can happen to you is that you lose your job.  If you get involved with bad people, then you are looking at issues of personal safety, and that makes me extremely careful to deal only with good people moving clean money.  The nice thing is that I’m worried that they are dealing with a bad person, but they are worried that I’m also a bad person, and I’ve found that people that are in the business of moving money are generally more honest and ethical than most of the people I meet on Wall Street, and the money turns out to be cleaner.

So you might ask.  If you are not an evil criminal, why touch paper?  It turns out that paper cash is faster and more secure than electronic payments.  It can take 2 to 5 days to move electronic cash from place to place, and if the cash goes missing you are looking at weeks trying to track things down.  With paper cash, you can end up anywhere in the world in 12 hours, and you can always know where the cash is.  You can fit about USD 2 million in a carry on suitcase with a USD 1500 plane ticket.  It also turns out that you get security for free.  So it turns out that paper is faster then SWIFT.

As far as security, cash gets rid of the atomicity problem.  So here is the basic problem.  I want to give you USD 2 million in cash, you want to give me USD 2 million in bitcoin.  How do you know that one person won’t screw over the other person?  It turns out that paper cash solves a lot of these problems.  I had you paper cash, you hand me bitcoin and neither us leaves the room until the transaction is complete.  The failure modes are counterfeiting and theft.  For counterfeiting, it turns out that most cash counting machines can detect counterfeiting, and you can do the deal in a conference room.

And also it turns out that the people are nicer.

So you go into an investment bank in Central, and you end up in this marble room, whereas if you go to the money changing shops in Wan Chai, Worldwide House, and Chungking Mansions, you end up with a booth with hand written signs.  But the thing that I’ve started to figure out and what other people have figured out is that all of the marble and oak, it’s all fake.  It turns out that the bank is spending a ton of money to present an image, whereas the little currency shop doesn’t care about image.  Because the currency shop skimps on the oak panel and the marble they can actually provide something like decent customer service.

And the more I think about it, the more I think that banks are screwed.  So if you go into an investment bank, you have a meeting on the conference room, but they will never let you see the trading floor.  Now with a currency shop, you hand them cash, and one thing that you’ll notice is that all of their activities are behind a glass window so that you can see exactly what is going on.  You can see them, and they can see you.

Which brings up the most important reason why I think paper cash is more secure.  You can see it.  If I put my savings in paper cash, I know where it is.  I could lose it.  It could get lost or stolen, but it’s a physical artifact that you just can’t play games with it.  The same happens to be true with bitcoin.  Now if I take the paper cash and turn it into bank stuff, then God knows what the bank is doing with the money.  But of course, this is all silly.  You see the people in suits and the nice oak conference rooms, and you know that banks can be trusted not to do something crazy with your cash like put it into bogus mortgages or invest in derivatives that no one understands.

Yeah right….

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