This was meant to be rather short, but it ended up being really long... 2 hours to think through properly and write, slightly haphazard in flow, and not edited, but message is quite important.
An excellent video that highlights the fact that no single person would ever be able to create a pencil, but for the voluntary contributions of millions of people worldwide to create the most everyday of items, and potentially the least appreciated for its complexity - the pencil.
https://www.youtube.com/watch?t=343&v=IYO3tOqDISENow, imagine making the process with which these millions of people that co-operate voluntarily trade with one another faster and easier, while adding new features like in the case of digital currency. How many new versions of the pencil will be created?
3+ days for an international payment to clear between bank accounts!? Well that means a minimum of 3 days added on to the time until your order will be sent, to add on top of the shipping time! Then the wholesaler will also have a 1 night delay of payment between them and the retailer and so forth, with the original payment from the consumer having a little 'fee' siphoned off at each connecting bank account it is routed through. This could add 4-5 days of 'slowdown' in the trading and delivery of products that are crucial inputs of production to other 'value added' goods (Smartphones, computers, pencils etc).
Crypto allows for FREE instant transactions; companies can ship goods the moment they are paid for and at significantly reduced rates. When prices are cheaper, more business is done, meaning more businesses in operation that order inputs to in turn invent the next 'pencils'.
To be honest, while digital currency has economics and other sciences that may be applied to model 'human behaviour', the pencil is probably more complicated than digital currency is when viewed as the product of millions of people who require different skills from different countries just to assemble it. It of course makes incredible sense to have a safe, secure, simple, stable, efficient and CHEAP way to transfer value around to facilitate its creation.
The inefficiencies and increased costs incurred by businesses and people who use fiat money is serving as a barrier to trade. A barrier to trade is bank fees and taxes that must be added on to the final costs of goods sold. Higher costs mean fewer customer purchases, because their budgets only go so far. Fewer purchases by consumers affect manufacturers / businesses bottom lines. When the bottom line of a business is affected, they hire fewer people, or don't enter the market at all. More unemployed people means a larger drain on welfare, which means more government debt - yet another mechanism by which fiat money increases government debt - by reducing employment opportunities as a result of bank fees making the difference between doing business and not operating.
How many people are unemployed just because bank fees and taxes make hiring them, and therefore and the cost of business too expensive!? How many 'pencils' have not been invented because the people who would have worked in the market to 'invent' them decided it wasn't profitable startup thanks to bank fees and taxes so they went and got a job at a bank or in the government sector, working jobs that have service delivery methods that have now outlived their usefulness thanks to blockchain technology?
The following is a purely hypothetical example (not intended to be 100% accurate, but it paints a fair picture of potential crypto has):
I want to order flowers from Smokey, and I'm a wholesaler in NZ (larger transfer), I opt to pay with either bank transfer or VISA;
VISA:On Janruary 1, I buy 100 plants for 10 dollars each, that I want to make $10 profit on each plant by reselling in NZ (100%). I order thinking I can sell for $20 each.
Smokey has worked hard in his gardens, and wants close to $600 for his 100 flowers. He knows that the US government has a 35% corporate tax rate, so to end up with $650, he would need to sell them for 1000.
I pay $1000 to Smokey, of which 1% is taken by VISA, and somewhere between 2-4% is taken by the participating banks EACH as a merchant Fees and a foreign exchange fee. This leaves Smokey with $600.
But did you catch it? Something here is beyond morally repugnant... and I don't mean the fact that nearly half of the money sent to Smokey is taken away from him in taxes. Did you spot it? (This is the first time I've done calculations like this.. so I just noticed it myself - I'll cover it later)
The payment is pending for a couple days with VISA, and it won't process for about 3 working days if I had sent using bank transfer (which is also charged fees by both sending and receiving banks)... Smokey isn't going to send me my flowers until after the payment clears.
January 4th or so, my payment finally clears into Smokey's account, and the goods are shipped to NZ, taking around 9 days to arrive.
January 13th, the goods arrive in NZ 13 days after my order, but it could have received them after 10 if the payment had cleared instantly, but instead I need to wait an extra day for delivery to my shop - I waited 13 days instead of 10 - 30% increase!!! That is time that my personal capital is tied up in something that I can not yet sell; money I can't use for any other purpose - hence it should be easy to see why so many small (low cash-flow) business owners struggle when so much of their money is tied up in inventory.
Anyway, because the flower order is worth more than $400, I need to pay duty taxes on them before NZ customs will release them, which depending on what the NZ government thinks we have too much of, is between 5 and 10% usually. My costs are now $1050-$1100 for goods that COULD have been as low as 600 if it weren't for nobody else expecting a cut from something they had no part in producing.
January 14th the goods arrive at my shop, and I put them up for sale. Now I need to factor in the fact that I will need to pay Goods and Services tax (like VAT in Europe and Sales Taxes in the USA) of 15%, so I bump my price up by 15%, on top of the 33% tax I'm going to need to pay that is added to the $10 profit per plant to double my investment. This all assumes also that the only cost for my business is the flowers (unrealistic, but makes my tax easy to subtract from profit), I calculate that:
Smokey's Gardens Price they were prepared to sell at$600 + Taxes (350) + VISA & bank fees (50) = $1000
TeeGee's Gardens:
Cost equals $1000 (to Smokey) + $50 to $100 in dutry taxes = 1075 (mid-point)
Prepared to sell at:
$1075 (Smokey + duty tax)+$1000 (to make $10 profit per plant) + 15% (GST) = $2386 (for 100 plants)
Still need to add NZ corporate tax @ 33%
$2386 divided by 0.67 - to get final figure including NZ corporate tax (1-0.33=0.67) = $3561
Of which:
Smokey who did all the work growing the flowers receives: 600
TeeGee who did all the work to raise the money to buy the flowers receives: 1000
VISA receives: $10 (plus extra if I paid duty fees using credit card)
Banks receive: $40
Governments receive: $1911
Price per plant: $35.61
When will this insanity end?Now imagine if I decided to do the same order, but completely p2p by using a cryptocurrency in a utopian world where the government was responsible and only paid for things people actually wanted (by voting with their money - i.e. You want a local bridge, you try to crowdfund it - if nobody pitches in, then clearly that bridge was of little to no value to the community).Smokey offers flowers for $600 for 100 flowers, I pay $600 in cryptocurrency, the funds clear instantly and the flowers are shipped that exact day. After that point, it is up to the individuals who participated in the transaction if they feel they should make payments to third parties (taxes etc) for any
services they
provide, rather than a shakedown on account of just being born on a particular patch of land.
Ignoring the remaining potential duty taxes in NZ;
Smokey Receives: $600
I receive: $600 (only want to double my investment, not make $10 per plant)
Government receives: ...? Well depends on the value they are providing, government is meant to serve the people, and not the other way around. In the future it could one day be up to us to pay what we think is necessary to pay for building roads and public healthcare etc.
Cost per plant to consumer: $12
Now, what do you think happens at this juncture? Will customers demand more or less flowers at $12 than at $35?
Well hopefully you said $12. The lower prices would create an economic boom that would increase demand for the products I sold. I'd be able to hire more people to sell more flowers and create more jobs. It would also mean that other people who decided not to enter the flower market because the price of importing flowers was so high would reconsider, creating only more jobs.
This whole thing is very much just for illustration purposes of what p2p could potentially look like one day, but remember what I was saying before above - these fees that are in excess of what was agreed between two consenting traders are what create unemployment. A much more likely near-term solution would be a crypto transaction that won't necessarily eliminate the tax component of produced goods (unless you think the IRS are reasonable people that will leave you alone), but at the very least they will decrease, no, eliminate the bank fees involved which can be significant when a there is a retailer - wholesaler - importer - foreign exporter - local business continuum with bank fees being collected at every step of the way. This can compound to some ~10-15% of the price of a good... crypto could also increase the speed at which global trade is done, and shipments sent. After all, time is money.
As for the morally repugnant part I mentioned earlier?
Well it struck me while I was writing, that VISA and the banks charge merchant fee's (to the best of my understanding) on the TOTAL amount paid through their network, not the pre-tax amount of the good being sold. I can't believe I missed this one til now, but this literally means that VISA and the banks not only make profit on the value of the good that you transferred (which is fine), but they also charge a fee (4-5%) on the TAX component built into the price of the good. Most people could argue there is perhaps some benefit given back to them from their taxes, but there is absolutely no benefit for them in this additional 'VISA fee' as I'll call it that is added on top. This makes goods even MORE expensive and is a further conflict of interest when banks give money to politicians... I mean they're making a percentage fee on all of the tax that is inbuilt into every product sold world-wide... Higher taxes = more expensive goods world-wide = higher bank fees to them. It reminds me of sales taxes in NZ being charged to the excise tax component for NZ gas for our cars (1.50 US per Litre here or about $5.60 gallon). VISA and banks should only be taking fees from the pre-tax value of goods, it is possible to do today without an accounting headache by flagging VISA and bank transactions with "Goods sold" tags in accounting software that automatically reduce the fee by 35% to eligible businesses for example... or just use crypto...
There will be no technology more empowering for humanity, that puts power back into the hands of the many than decentralized, global money; cryptocurrency is the ultimate freedom.
Wow TeeGee. Great write up and example.
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