The financial world, that most of western society lives in, is governed by central banks, reserve systems, strong monetary policy, and large commercial banks. These institutions handle a myriad of monetary and general financial services that enable traditional users of money, businesses and institutions to exchange goods and services. These stand to be unseated by the crypto financial world, which consists of digital currencies such as Bitcoin and Ethereum.
When examining the crypto financial world, it is important to understand that it uses technology — a host a processes, systems and software in order to facilitate the transfer of digital assets. In the purest of forms, the crypto financial world does not need sovereign nations or commercial banks to operate as gatekeepers of the monetary supply or provide the generalist financial services roles that they do today. What crypto financial systems do need is an army of talented, trustworthy software developers that have the ability and willingness to self-govern and deploy systems that function as designed.
For those who have been following along since 2009 and even those who are new to the game, Bitcoin and blockchain in general have been the genesis of the crypto revolution. These are not one and the same, but they do rely on each other. While Bitcoin has taken the limelight as the darling of cryptocurrency, it has also gained a lot of controversial attention in the press. Undoubtedly, it has been “the shot heard round the world.”
My intent here is not to inform you of what blockchain is or why you should believe in Bitcoin or any other cryptocurrency for that matter. My intent is to pull back the wool, that years of conditioning, has placed over many of our eyes. We have grown up, matured and received most of our financial teachings in a post-gold standard world, where fiat money reigns supreme. It has been and continues to work, but, do not for one moment believe the system of checks and balances is that much different than what has already begun to manifest in the crypto world. The general economic principles that we have all come to understand about how financial systems work exist in both financial worlds.
We are in the early stages of a hard conflict between the legacy financial world and the modern crypto financial world. For those that see it as otherwise are missing the larger point. This is not about speculation and a select few becoming very wealthy. This is not about hardware, software, or technology in general. This conflict is deeply rooted in systems control, order and stability, and overall prosperity and well-being of the masses.
Begging the Question
The question that many of us are asking is “What role do central governments and banks play if one day there was a diminished need for their presence or involvement in the global financial system?” and “How can a modern economy function if peoples’ assets are being held in cryptocurrency versus traditional fiat money?” We may never see a day where this occurs. And that is fine. I am not positing that this will occur. But the elephant in the room is that this is not outside the realm of possibility. And that possibility scares governments, regulators, and the banks alike.
The Coffee Test
What utility does a cryptocurrency have? Most of these digital assets do not pass the “Coffee Test.” I cannot go to my local coffee shop and purchase a cup of coffee with my Bitcoin or any other cryptocurrency. For the most part, this is completely true. The user adoption curve and supporting infrastructure has not matured enough overtake the convention of debit and credit card payments and the general usage of cash. Mark my words. This is changing, and the coffee shop around the corner will soon in fact be accepting your cryptocurrency. It will take time to get there.
One of the greatest problems with these two financial systems living side by side today is that in order to extract value from either of the ecosystems you have to use fiat money to acquire digital assets and consequently a crypto holder generally has to convert back to fiat if they want to realize value. This is an unfortunate state of affairs.
In today’s legacy world, you can exchange a myriad of goods and services for fiat money and in the crypto world, you generally cannot. As we go further into this transition period, there will be less and less reason for crypto holders to convert back to fiat.
Consideration for the Future
We are a long ways from that reality. I do not expect most people to be getting paid their wages in Bitcoin any time soon. But accept that some people are currently getting paid in digital assets, and more and more crypto will become part of our lives. The question then ensues, “What will the balance of power look like in the short run? and more importantly, in the long run?”
If I were a gambling man, I’d be holding some crypto, just by some off chance, I am right and we are on the brink of one of the largest financial revolutions in the history of mankind. Or it’s not and then it is just business as usual. This part of the story is yet to be written.