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Why Is Bitcoin A Big Deal?

October 31, 2017 Tyler Durden 0

Authored by Charles Hugh Smith via OfTwoMinds blog,

Centralized banking and all other forms of intermediary rentier skims are presented as solid. If history is any guide, these supposedly solid entities may well melt into air.

Why is bitcoin considered such a big deal? Why has it grabbed so much mind-share, and why is it skyrocketing? And why is the cryptocurrency sector going bonkers?

The short answer is that cryptocurrency is the first major innovation in money in 300+ years, back when central banks first emerged in the late 1600s as centralized clearing houses for international payments and sole issuers of national bank notes/currency.

(Those who trace central banking to the Bank of Amsterdam’s founding in 1609 might say it’s the first major innovation in 400 years.)

Why is it an innovation? There are four basic reasons:

1. It’s a form of private-sector issued money. It is not issued or controlled by any government or central bank.

2. It is structured in a completely different manner than conventional central-bank issued currency: it is a digital form of money that is issued as payment for those who maintain the database (the blockchain) on their privately owned computers. Since the blockchain is distributed over numerous computers, it is decentralized and distributed rather than centralized.

3. It enables trusted transactions between parties without requiring the services of an intermediary, i.e.a bank which acts as a trusted clearing house for transactions.

4. In the case of the first cryptocurrency, bitcoin, its issuance of tokens (coins) is limited by its design to 21 million coins. No central authority can issue more bitcoins, nor does the structure of the bitcoin blockchain allow for further issuance.

To grasp the significance of these four characteristics, we have to go back to the early history of modern capitalism. My longstanding recommendation is to start with Fernand Braudel’s 3-volume history, Civilization and Capitalism, 15th-18th Century:

The Structures of Everyday Life (Volume 1)

The Wheels of Commerce (Volume 2)

The Perspective of the World (Volume 3)

Many of the functional pieces of modern capitalism were private-sector innovations, starting with banking and credit (some of which was borrowed from Arab traders). In the good old days of the 1500s, if the King of Spain wanted to finance a costly voyage around the world (Magellan’s circumnavigation in 1519-1522), he turned to private-sector lenders.

Insurance, stock markets, futures markets and options were all private-sector innovations designed spread the risk and reward of ventures such as trading voyages to the Spice Islands.

Since so many ships were lost at sea, backers sought insurance for the losses, and the trade in shares of the ship’s cargo and the insurance against its loss enabled a lively trade in these financial instruments that were the rough equivalent of modern-day options.

When a merchant vessel was seriously overdue, the value of the shares of its cargo plummeted as investors gave up hope of earning their hoped-for return. So some enterprising traders paid watchers to scan the shoreline for incoming ships matching the description of the overdue ships.

Should the overdue ship appear off the coast of France, runners would hurry to Amsterdam to inform the trader who would then promptly scoop up cheap shares of the cargo, scoring huge profits when the ship docked a few days later, cargo intact.

The rate of expansion of private-sector innovations is much higher than those of centralized authority. Centralized authority must act deliberately, and in consultation with all the various power centers of the society and economy. Disagreements can incapacitate the system for years or even decades.

The private sector, in contrast, is a free-for-all of a multitude of players with an enormous range of ideas, schemes, scams, risk appetites, insider knowledge (i.e. asymmetric knowledge), capital, expertise and so on, all networked through a fast-expanding spectrum of media and exchanges.

This private-sector ferment is on display in the cryptocurrency space. Scams and brilliant innovations are shoulder to shoulder in a fast-moving mob. No wonder so many players and traders want to join the mob and figure out some competitive advantage or gain some asymmetric knowledge, knowledge which can be as simple as the understanding that hard forks aren’t bad for bitcoin, as so many feared, as each new iteration claims to improve some aspect of bitcoin’s functionality.

Over 100 hedge funds and other institutional players are muscling into the market, anxious to scale in and scale up before competitors grab market share.

If we compare the market cap of all cryptocurrencies, currently $178 billion, with the total financial assets of the global economy ($300+ trillion) and real estate ($200+ trillion), we get a sense of “early days.” Bitcoin’s market cap of $100 billion wouldn’t even show up as a thin line on this chart of global financial assets:

Here is a one-year chart of bitcoin:

As Marx presciently noted, capitalism melts all that is solid into air. (All that is solid melts into air.) Centralized banking and all other forms of intermediary rentier skims are presented as solid. If history is any guide, these supposedly solid entities may well melt into air.

Of related interest:

My labor-backed cryptocurrency community economy: A Radically Beneficial World: Automation, Technology & Creating Jobs for All

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If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

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Qatar Petroleum wins contract for oil exploration in Brazil

October 31, 2017 Middle East Monitor 0

A consortium comprising Qatar Petroleum, Shell and China National Offshore Oil Corporation has won a contract to explore and share deep-water production off the coast of Brazil. Qatar Petroleum said in a statement that the region, located in the Alto de Cabo Frio-Oeste block in the prolific Santos hydrocarbon basin is known for its large hydrocarbon reserves in pre-salt polygon region. The Alto de Cabo Frio-Oeste is about 1,385 square kilometres big and is one of four blocks offered by Brazil in the third production sharing bidding round, which covered four blocks in the Santos and Campos basins including Pau Brasil, Peroba, Alto de Cabo Frio-Oeste and Alto de Cabo Frio-Central. The relevant agreements, including the production sharing agreement are […]

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Palestinian dead, sister wounded by Israel soldier in West Bank

October 31, 2017 Middle East Monitor 0

Israeli occupation forces this morning opened fire on a Palestinian driver near the illegal settlement of Halamish to the west of the occupied West Bank city of Ramallah, leaving the driver dead and his sister with a shoulder injury, the Safa news agency reported. The Palestinian Ministry of Health identified the victims as Mohamed Musa, 26, and his sister Latifa Musa, 33, who is said to be in a stable condition in a Palestinian hospital. Mohamed died while receiving treatment at an Israeli hospital. Eyewitnesses told Safa that the Israeli occupation forces opened fire at the Palestinian driver and his sister while they were driving along a road parallel to the illegal settlement. Palestinians forced to travel along roads near […]

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<b>Oil</b>, Modi’s best friend, can now turn his enemy as <b>crude</b> prices start rising

October 31, 2017 http://crude-oil.top/ 0

NEW DELHI: When Narendra Modi was sworn in as prime minister in late May 2014, the price of the Indian basket of crude oil was around $108 per …

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Israel denies entry to Amnesty official on ‘public security’ grounds

October 31, 2017 Middle East Monitor 0

Israeli authorities yesterday denied entry to a senior official at Amnesty International USA, citing “public security” considerations. Raed Jarrar, MENA advocacy director at Amnesty International USA, and a prominent Arab-American blogger and activist, announced the news on social media. According to a public Facebook post, Jarrar was denied entry while on a “personal trip” to “visit my dad’s extended family and grieve with them in the wake of his passing”. Jarrar added that his father “was born and raised in Palestine”. That moment when working for @amnestyusa is a threat to “public security.” Also, the irony of denying a Pelstinian as “illegal immigration.” pic.twitter.com/Il1GWbgtcO — Raed Jarrar (@raedjarrar) October 30, 2017 Israeli officials, however, interrogated Jarrar about “Amnesty’s project calling […]

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Scenarios of change in Egypt

An interview with Professor of Political Science and member of the Damir Front Hassan Naf’ah The current regime in Egypt is the worst ever; I have never seen a regime this brutal. We did not expect this decline; the opposition is pathetically weak. There are three scenarios for change, including a coup against Sisi and the revolution. The Brotherhood has so far been the real opposition and it can return to power. I would have wished to see [Abdel Moneim] Aboul Fotouh inside the Damir Front but there is complete rejection of any Islamist. I reject any repression of the Islamic political trend; Rabaa Al-Adawiya was a massacre and its perpetrators should be prosecuted. We dread the “deal of the […]

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Apple To Dump Qualcomm Chips As iPhone 8 Sales Collapse In China

October 31, 2017 Tyler Durden 0

The bitter legal dispute between Apple and Qualcomm has escalated sharply overnight as the former designs out Qualcomm components from future products. According to the WSJ, Apple, locked in an intensifying legal fight with Qualcomm, is designing iPhones and iPads for next year that would jettison the chipmaker’s components.

Apple is considering building the devices only with modem chips from Intel and possibly MediaTek because “Qualcomm has withheld software critical to testing its chips in iPhone and iPad prototypes, according to one of the people.” The move is a dramatic reversal for the long-running relationship: Qualcomm, which has worked with Apple for a decade, stopped sharing the software after Apple filed a federal lawsuit in January accusing Qualcomm of using its market dominance unfairly to block competitors and to charge exorbitant patent royalties. Qualcomm has accused Apple of mischaracterizing its practices.

The dispute is centered on modem chips, but Apple’s strategy to reduce its dependence on Qualcomm has been underway since the iPhone 7 rollout. The WSJ continues.

Apple’s planned move for next year involve the modem chips that handle communications between wireless devices and cellular networks. Qualcomm is by far the biggest supplier of such chips for the current wireless standard. Qualcomm said its “modem that could be used in the next generation iPhone has already been fully tested and released to Apple.” The chip company said it is “committed to supporting Apple’s new devices” as it does for others in the industry. Apple in the past used only Qualcomm modem chips for iPhones, but started also procuring the chips from Intel for its iPhone 7 and 7 Plus models last year. It again used a mix of the two in the iPhone 8 and 8 Plus that started selling in September.

Some additional context on Apple’s significance to Qualcomm’s revenue.

The Apple plans indicate the battle with Qualcomm could spill beyond the courtroom feud over patents into another important Qualcomm business where it has the potential to send ripples through the smartphone supply chain. Qualcomm last year sold around $3.2 billion of modem chips a year to Apple, or 20% of its total chip sales, according to an estimate by Macquarie Capital. This year, Qualcomm’s chip sales to Apple are likely to come to $2.1 billion, or 13% of total chip revenue, reflecting more fully the iPhone 7’s mix of Qualcomm and Intel modems. Selling chips is generally less profitable for Qualcomm than its patent business. Apple paid $2.8 billion last year in Qualcomm royalties, which accounted for nearly 30% of the chip maker’s per-share earnings, according to Macquarie Capital. In the last year, Apple has stopped reimbursing those fees to iPhone and iPad manufacturers, which in turn have stopped paying Qualcomm.

Despite the continuing escalation, both in commercial and legal terms, the situation is fluid and there is hope for compromise, the Journal notes.

Apple’s plans to exclude Qualcomm chips from next year’s model could still change. People familiar with Apple’s manufacturing process said the company could change modem-chip suppliers as late as June, three months before the next iPhone is expected to ship. Still, some of the people said Apple hasn’t previously designed iPhones and iPads to exclude Qualcomm chips at a similar stage of the process. Qualcomm Chief Executive Steve Mollenkopf earlier in October described the dispute with Apple as “fundamentally about pricing” and expressed optimism that the two companies would find common ground. “For big companies, you sometimes have these disputes but you have a broader relationship,” he said at the The Wall Street Journal’s WSJ D.Live conference.

While Qualcomm remains heavily exposed to Apple, the latter has a precarious course to steer if it is going to drop Qualcomm components entirely.

Jettisoning Qualcomm chips would create risks for Apple. Semiconductor analysts widely consider modem chips from Intel and MediaTek, a smaller chip designer based in Taiwan, to lag Qualcomm in performance in areas such as download speeds. For example, Qualcomm has shipped a chip in phones that can process 1 gigabit of data per second, while Intel and MediaTek haven’t demonstrated modem chips that fast, said Patrick Moorhead, principal analyst at technology research firm Moor Insights & Strategy. Also, Apple typically wants at least two suppliers of key iPhone components to bolster its negotiating leverage, according to people familiar with its procurement process. So it would have to add a new supplier such as MediaTek in addition to Intel to maintain that for modem chips.

Meanwhile, Intel has the biggest opportunity to grow its market share by a factor in modem chips.

If Apple—which ships more than 200 million iPhones annually—taps Intel and MediaTek to provide modems for future handsets, both would stand to gain a greater piece of the roughly $5 billion market for stand-alone modem chips. Qualcomm currently dominates that market with a 50% unit share while MediaTek has a 25% share and Intel a 6% share, according to market research firm Strategy Analytics. Intel’s chips so far have been designed to manage communications for only one of two earlier-generation cellular standards still in use, while Qualcomm’s chips have been capable of handling both. As a result, Intel has been trying to broaden its portfolio to catch up with Qualcomm and this year announced a chip compatible with both of those standards. The chip would be Intel’s first modem that works with a full scope of wireless carriers. Intel hasn’t said when the unit would be available. Qualcomm and Intel also are vying for leadership in the next generation of wireless technology, known as 5G. Phones featuring 5G-capable chips are expected to hit the market largely in 2019, and Qualcomm is ahead of many peers, said Mr. Moorhead of Moor Insights & Strategy.

Removing Qualcomm components is not Apple’s only near-term challenge to its iPhone franchise. Overnight, the South China Morning Post reported further headaches for Apple’s recent product offering, as retailers in mainland China are offering steep discounts only a month after the disappointing launch of the iPhone 8.

Unlike the frenzy generated by pre-orders for the wallet-busting iPhone X on Friday, the popularity of Apple’s other new smartphone, the iPhone 8, has quickly run out of steam in mainland China just a month after its release, with major e-commerce platforms offering big discounts to encourage customer orders. Suning.com, the e-commerce platform of China’s largest electrical appliance retailer, Suning Appliance, is offering discounts of as much as 1,100 yuan (US$165.5) on the iPhone 8 to customers, making its prices as competitive as or even cheaper than those offered in Hong Kong, where mainland visitors swarm to purchase Apple products for savings of up to 15 per cent. Customers who pay a 100-yuan deposit on Suning.com and Suning’s official store on Tmall will be offered discounts of 900 yuan or 1,100 yuan on different iPhone 8 models, which will ship after Single’s Day on November 11. The cheapest iPhone 8 model, the 64-gig variant, for instance, will cost 4,788 yuan (US721) after the discount by Suning, as compared with the official price tag of 5,888 yuan in China, which is 6 per cent lower than the phone’s HK$5,988 (US$768) price tag in the Apple Store in Hong Kong.

The SCMP article contained a stinging assessment from one analyst.

“The iPhone 8 might be the most poorly sold flagship iPhone model in China, as such huge discounts have never been seen before in the country,” said Zhao Ziming, a senior analyst at Pintu Tank in Beijing. Zhao said a month after the iPhone 7 was launched last year, the models were still hard to find in the market and consumers had to compete for an order online, let alone any huge discounts offered by authorised retailers. The iPhone 8, which offers few upgrades in terms of appearance over the previous version, has failed to trigger any shopping spree in China since its launch on September 22.

With hindsight, the lack of upgrades and, to some extent, cannibalization of iPhone 8 sales by the imminent rollout of iPhone X has exposed poor judgement on behalf of Apple’s senior management. Will the Qualcomm decision have a similar fate?

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