ZimCoin Development, #1: Bitcoin Pegged to Zimbabwe Dollar

ZimCoin

In this series of articles we will outline our plans for the creation and marketing of a unique cryptocurrency called ZimCoin (ZZC). Our intention is to initially connect two very disparate forms of money to each other:
• The now defunct Zimbabwe Dollar (Z$), printed in 27 denominations ranging from $1 to $100 trillion.
• The leading cryptocurrency BitCoin (BTC) (market value exceeding $1 billion USD).

We do so by establishing a currency “peg” between the Z$ and the BTC.  We can also link Z$ to other cryptocurrencies such as LiteCoin, NameCoin and PPCoin.  Concurrently, we will be developing ZimCoin as its own unique form of cryptocurrency, utilizing the same open-source cryptographic protocol that serves as the backbone to BitCoin.

What does it mean to peg a currency? Investopedia explains: Currency pegs allow importers and exporters to know exactly what kind of exchange rate they can expect for their transactions, simplifying trade. This in turn helps to curb inflation and temper interest rates, thus allowing for increased trade.  Wikipedia continues: A fixed exchange rate is usually used to stabilize the value of a currency against the currency it is pegged to.  Another Wiki reference expands: The central bank of a country remains committed at all times to buy and sell its currency at a fixed price.

ZimCoin is Zimbabwe Banknote backed Cryptocurrency

How do we establish this peg? We do so by constructing a virtual banking system that maintains sufficient reserves to back up the peg.  At launch, we will possess in excess of One Quintillion Zimbabwe Dollars – Z$1,000,000,000,000,000,000. One quintillion equates to one trillion multiplied by one million.  (one trillion dollars explained statistically or portrayed visuallyThe illustration above depicts one trillion dollars in $100 bills stacked on pallets.

We think the idea of a peg will carry tremendous appeal with BitCoin enthusiasts because it will help to further legitimize and stabilize their investment and belief in virtual currency.

Our central bank sets the peg and backs up BitCoin with $Zimbabwe currency. Therefore, “X” number of BTC can always be exchanged for “Y” number of Z$.  Regardless of fluctuations in BTC market price, its value relative to Z$ dollars will always remain the same.  For instance, if our peg were: one BTC equals one hundred trillion Zimbabwe Dollars (or its equivalent), whether BTC were traded for $30 or $300, it would always equate to Z$100 trillion.  Thus, we have established a fixed rate of exchange.

The idea is far from novel.  Many currencies have, at one time or another, been “pegged”.  Typically, a government, in league with its central bank, establishes a fixed rate of exchange.  For decades, the Hong Kong dollar was pegged to the U.S. dollar at 7.75 HKD to 1 USD.  By so doing, they stabilized the HK currency while greatly expanding international trade capacities.  The Central Bank of Hong Kong guaranteed the viability of the peg by maintaining sufficient foreign reserves to back up their peg and any demand placed upon it.

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ZimCoin Development, #2: A Bit of Bitcoin History

Cryptocurrencies and the Bitcoin.

A cryptocurrency is a type of digital currency that relies on cryptography, in order to create and manage the currency. Cryptocurrencies are peer-to-peer and decentralized, and are currently all based on the first cryptocurrency, Bitcoin.  They are generally designed to have no inflation (once all the currency has been produced) in order to keep scarcity and hence value. Cryptocurrencies are also designed to ensure that funds can neither be frozen nor seized.

Bitcoin. Bitcoin is a cryptocurrency where the creation and transfer of Bitcoins are based on an open-source cryptographic protocol that is independent of any central authority. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. The concept was introduced in a 2008 paper by pseudonymous developer Satoshi Nakamoto, who called it a peer-to-peer, electronic cash system.

10,000 BitCoin buys one pizza

One of the first notable transactions utilizing Bitcoin occurred in May 2010 when 10,000 BTC bought a pizza.  Between 2011 and 2012, Bitcoin prices ranged between $2 to $30 with about 1,000 merchants accepting it as a legitimate form of payment.  2013 saw Bitcoin prices skyrocket to over $260 before settling back into its current, rather stable, trading range between $80 and $120. There are many online exchanges that have been established to facilitate trading of cryptocurrencies.  Most notable among them are Mt. Gox, BitStamp and BTC-E.

According to BitcoinWatch, as of August 3, 2013, there were 11.5 million Bitcoins in circulation with a market cap of 1.1 billion USD.  Typically, monthly BTC trading volume ranges from 400 and 800 thousand.  See BitcoinCharts.  The number of new Bitcoins are halved every 4 years until the year 2140 when this number will round down to zero. At that time no more Bitcoins will be added into circulation and the total number of Bitcoins will have reached a maximum of 21 million Bitcoins.

Bit Coin Chart 1 year
Bitcoin pricing from September 2012 to August 2013

Bitcoin’s unprecedented, meteoric rise – over a few short years – represents the largest increase in value ever experienced by any currency, of any kind, throughout history.

Bitcoin originated as just an idea.  The concept was penned in 2008 by Satoshi Nakamoto and distributed to a Cryptography Mailing List at metzdowd.com. Mr. Nakamoto, presumably a 37-year-old Japanese man, integrated many existing ideas from the cyber punk community, in his treatise describing the Bitcoin digital currency.  His little idea took hold and henceforth has created a tsunami.

ZimCoin Development, #3: Zimbabwe Hyperinflated Currency

Hyperinflation and the Zimbabwe Dollar

Hyperinflation in Zimbabwe began shortly after destruction of productive capacity in Zimbabwe’s civil war and confiscation of private farms. Zimbabwe’s peak month of inflation is estimated at 6.5 sextillion percent in mid-November 2008.  In 2009, Zimbabwe abandoned its currency. As of 2013, Zimbabwe still has no national currency; currencies from other countries are used.

Ironically, Z$ rate of devaluation coincides almost precisely with BTC rate of increased valuation.

The Zimbabwean dollar Although the dollar was considered to be among the highest-valued currency units when it was introduced, political turmoil and hyperinflation rapidly eroded the value of the Zimbabwe dollar to become one of the least valued currency units in the world, undergoing three redenominations, with high face value paper denominations including a $100 trillion banknote.

Although the Zimbabwe dollar was abandoned as a form of legitimate currency in 2009 and became virtually worthless as a form of payment within the country, it soon became a valued collectible item throughout the rest of the world.

Hyperinflation in 2008 caused widespread financial woes throughout ZimbabweAccording to a Wall Street Journal article published May 2011: The notes are a hot commodity among currency collectors and novelty buyers, fetching 15 times what they were officially worth in circulation.  Dealers prescient enough to buy Zimbabwe’s biggest notes while they were in circulation are now taking their investment to the bank.

Frank Templeton, a retired Wall Street equities trader, bought “quintillions of Zimbabwe dollars” through a broker from Zimbabwe’s central bank. On eBay, he now does a brisk trade in the bills from his home in the Hamptons.  Most pristine bills are already in the hands of wholesalers or dealers, which means merchants looking to stock up now are having a difficult time. “For something that was printed in the millions, it’s hard to actually get your hands on.”

There were 27 different denominations of Zimbabwe banknotes printed during the second redenomination of the currency.  An eBay search using the term Zimbabwe Dollars performed in early August retrieved over 4,400 listings.  Results included individual banknotes, sets of various denominations, uncirculated bundles (100 notes) and bricks (1,000 notes). Prices ranged from a high of $99,000.00 to a low of $1.20.  Uncirculated 100 trillion notes fetch the highest price.  Uncirculated bricks are almost impossible to find.

Lately, prices have been skyrocketing.

No one sells Z$ for BTC.  Our bank will.  We have already stockpiled a sizable cache of high denomination Zimbabwe currency.  At our anticipated exchange rate of Z$100 trillion to one BTC, we have sufficient reserves to acquire over 10,000 BTC (worth over $1,000,000 USD at the present market rate).  Of course, this presumes acceptance of the Z$ to BTC peg and a sufficient number of interested buyers.

ZimCoin Development, #4: The Strengths and Weaknesses of Bitcoin

BTC: Strengths and Weaknesses

In the wake of so many financial crises throughout the world, many are growing increasingly dubious about the efficacy and legitimacy of governments, central banks, and financial institutions in general.  Cybercurrencies offer an attractive alternative.

Bitcoin, as the leading digital currency, has several points of appeal.  First of all, as noted in a recent BBC article, it is free of banks.  It is not subject to government regulation and control. It is not governed by the whims and manipulations of money moguls.  It is anonymous and incorruptible. Being a peer-to-peer, universal form of trade, it is essentially democratic. It is not subject to inflation.  There is a finite money supply.  It is infinitely divisible.  If Bitcoin prices were to soar, as some speculators anticipate, to $1,000,000 or more, transactions could still be performed down to the dollar and cent level.

Cryptocurrencies will replace country issued currency as a safehavenHowever, Bitcoin has several shortcomings, too.  Its tradeability is limited by the number of vendors that will accept it as a viable form of exchange.  It remains widely unknown and misunderstood.  It has garnered a reputation of being a currency of choice for those involved in nefarious activities including those trafficking in weapons, drugs, child pornography and even contract killing.

Perhaps the greatest weakness of cryptocurrencies, however, is the fact that they are only “virtual”.  They seem to exist in an ethereal dimension that does not coincide with the “real” world.  Cyber money, therefore, appears to many to be as real as accumulating points within a video game.  Electronic publishing has faced significant hurdles in achieving mass acceptance.  Most people still prefer holding something tangible in their hands. Books are familiar and tactile.  They have a distinctive feel to them.  Therefore, readers continue to pay a significant premium in order to purchase the real version of a book versus downloading an electronic version.  Currency is the same.

cryptocurrency: the future of money?Another pressing issue is the extreme volatility of Bitcoin.  This makes it impossible for buyers and sellers to have a consistent, dependable form and formula for trade.  It can be argued that Bitcoins only have any value at all because enough people have bought into a shared illusion of its worth, period.  That delusion could quickly burst. Bitcoin prices, like those of penny stocks, are subject to a frenzied quagmire of fear, greed and misperception.  However, with Bitcoin, as a fledgling form of virtual money, these factors are even more acutely exacerbated.

ZimCoin Development, #5: Similarities Between the Zimbabwe Dollar and Bitcoin

An Unlikely Couple with Uncanny Similarities

Strange as it may seem, the Zimbabwe Dollar and the Bitcoin are akin in many ways.

1.  First of all, there is a finite number of Bitcoins that will ever be produced; 21 million to be precise.  There is also a finite number of Zimbabwe banknotes that have been produced.  Since Zimbabwe abandoned its currency altogether in 2009, it is fairly certain that no additional Z$ will ever be produced.  All denominations of Zimbabwe currency carry assigned serial numbers and security features embedded into them to prevent fraud and counterfeiting. The finite and secure quantity of both the Bitcoin and the Zimbabwe Dollar not only help insure against future inflation but also tend to create greater demand (and hence value) over time because of their scarcity.

As the WSJ notes, “Only Zimbabwe’s secretive central bank officials know the true figures, but dealers estimate that the regime printed roughly five million to seven million bills in the 100-trillion-dollar denomination. Based on the serial numbers and known supply of bills in the collector’s market, they believe only a few million were actually released.”

Cryptocurrency Bank2. Bitcoin is not administrated by any central bank and thus cannot be manipulated by any government.  The Zimbabwe dollar, since it is now defunct, is essentially a currency without a country.  As such, it is also free of bureaucratic control.  The only ways that the Z$ money supply could be inflated is either by the Central Bank of Zimbabwe releasing its remaining stocks of uncirculated currency (if any) or by its re-establishment as the national currency, which would be highly unlikely.

3. Bitcoin is infinitely divisible.  If one Bitcoin were valued at $100 USD, the value of .10 Bitcoin would be $10.  Therefore .01 BTC would equate to $1.00 and .001 BTC to 10 cents.  Since the Zimbabwe dollar exists in twenty-seven denominations ranging from $1 to $100 trillion, it is also, for all practical purposes, infinitely divisible as well.

4.  Bitcoin is anonymous.  Bitcoin bank accounts (called wallets) and transactions are untraceable. They can’t be monitored or regulated.  As such, Bitcoin has been labeled an underground currency.  Transactions utilizing Zimbabwe dollars, as with most forms of cash exchange, are also very hard to track, tax or control.

5.  Bitcoin and Zimbabwe dollars are both unique in the fact that they are not (yet) considered legitimate currency and thus currently fall outside the normal legal definitions and regulations governing business and commerce.  This is likely to change in years to come.  However, even if Bitcoin and other cryptocurrencies fall prey to government oversight and control, it is unlikely that Zimbabwe dollars could ever be subject to the same kind of scrutiny, anymore than Confederate currency or the WWII German Mark could be.

ZimCoin Development, #6: Bitcoin – Zimbabwe Currency Marriage

A Marriage Made in Heaven?

So both forms of esoteric exchange – the Bitcoin and the Zimbabwe dollar – have unique, if divergent histories.  They have experienced inversely proportional changes in their respective values.  The Zimbabwe dollar languishes as an abandoned currency relegated to a novelty item sold on eBay.  Bitcoin struggles for viability.  Originally authored from pure imagination within a nebulous cybersphere, it labors to find portals into a concrete reality, as a tangible, sustainable commodity for universal trade.

Together, Z$ and BTC, could make an interesting pair, bolstering up the others’ weaknesses.  In theory, this unlikely synergism could be both powerful and profitable.   In addition, as an established standard, the pair could also provide legitimacy and liquidity to other current and future forms of cryptocurrency.

ZimCoin - a new cryptocurrency backed by Zimbabwe DollarsWe also intend to create a new, unifying form of e-currency, called ZimCoin.  It is not inconceivable that ZimCoin could eventually supersede all other forms of cryptocurrency.   At this point, such a proposal may appear grandiose to the point of absurdity.  However, is it any more of an unlikely scenario than either Bitcoin’s dazzling success and rise in valuation or Zimbabwe dollar’s catastrophic decline and inflationary devaluation?

Thus, we propose the marriage between the Zimbabwe dollar and the Bitcoin.  This strategic union will later be reflected in the birth of ZimCoin.  Thereafter, we hope to produce other progeny of various types and forms as ZimCoin gains increasing acceptance throughout the world:  ZimCoin based credit cards, ZimStocks, ZimBonds, ZimLoans, as well as other goods and services commonly associated with banks and financial institutions but with the relative strengths inherent in cryptocurrency left intact.

return-on-investment1No one owns an idea.  If this provocative business concept hits a tipping point and goes viral, it will escalate demand, competition and, hence, price for high denomination Zimbabwe dollars.  Prices could increase exponentially.  One of our current U.S. suppliers, a 24-year-old entrepreneur, scooped up significant quantities of Zimbabwe currency in 2011.  At that time, he was able to acquire bricks of uncirculated $100 trillion dollar bank notes for $800 to $1,000.  Within months after his purchase, in the wake of a single Wall Street Journal article, he saw demand dramatically increase, wherein he sold those same bricks for $4,000 each.

THE key ingredient to making any new venture successful is first the understanding, then adoption, then enthusiasm of the key influencers, as well as the purchasing public.  One must get buy-in, both literally and figuratively.   In the process, selling the vision is usually the toughest part, especially if the idea, product or service is novel or unusual.

ZimCoin Development, #7: Initial ZimCoin Marketing Strategy

Current Development Strategy – Marketing and Promotion

With the introduction of ZimCoin into the matrix, we hope to establish a new, unique form of virtual money, one that maintains all the strengths of its virtual predecessors, while simultaneously possessing the qualities inherent in a real currency.

Zimbabwe high denomination currency and Bitcoin are both greatly increasing in value as a matter of course.  We aspire to be a pioneer and leader in the development and evolution of a new cryptocurrency and associated financial services.  If our strategy is successful, we could win in four synergistic and interrelated ways:

  1. Increased value of our portfolio of Bitcoin and other cryptocurrencies
  2. Increased value of our repository of high denomination Zimbabwe banknotes
  3. Escalating value of ZimCoins, as it gains market awareness and acceptance
  4. Business value of owning multiple gateways and offering related financial services

Social Media Marketing is an Essential Element for Any Effective Marketing StrategyWe envision a host of integrated marketing activities.  One of the most effective ones, we think, will be a promotional campaign focusing on the peg between Bitcoin and the Zimbabwe dollar.  We currently own a trinity of renowned virtual banking establishments who will, in unison, generate the initial announcement and subsequent coverage.  These banks consist of Swiss Bank (www.SwissBank.org), Reserve Bank of Zimbabwe (ReserveBankOfZimbabwe.com) and Bitcoin Bank & Trust (BitcoinBankAndTrust.org).    

How will it work? Our Swiss Bank (historically known for anonymous, secure and reputable banking) establishes the peg.  Zimbabwe Reserve Bank pledges to maintain the necessary currency reserves.  Bitcoin Bank and Trust, in league with handfuls of affiliated virtual banks and financial institutions with names (and corresponding domains) like Internet Central Bank, BC Central Bank, Cyber Central Bank, Central Bank of Bitcoin, and Cyber Money Exchange, will serve as the active agents of exchange.

Interrelated Network of Websites and Social Marketing VenuesWe also intend to utilize all possible ways and means at our disposal–from a marketing communications point of view–to reach our objectives.

Other marketing methods we will employ include:

  • Seeding blog discussions with referential links to affiliate banks and agents
  • Ongoing publication within social media venues such as You Tube, Twitter, Facebook and LinkedIn
  • Advertising through Google, Facebook, Amazon
  • Engaging, educational content on multiple websites
  • Branding campaign and high graphic content
  • Developing an eBay store and corresponding listings
  • Link and ad exchange with relevant, popular websites
  • Development and promotion of newsworthy articles in traditional and virtual media
  • Personal networking among “centers of influence”
  • Visibility at trade shows and other applicable venues
  • Responsive, professional customer service
  • Cooperative promotion with kindred entities

Successful websites (and traditional storefronts as well) begin with a great name.  We have registered over three dozen dynamic domain names for this project.  We plan to create an elaborate interconnected system of sites that will reinforce and complement each other.

If you would like additional information and have interest in helping us develop this unique cryptocurrency, please don’t hesitate to contact us.