Cryptocurrency Era: The New Currency Rush Is Coming, Built on Blockchain Distributed Ledger Technology
Historical currency and other value-store spurts have centered on the establishment or discovery of a new perceived value. People trust to new ways if they see the benefits, and have picked up and shipped across oceans for the chance of betterment or wealth. In 2018, the same prospects await in the arena of cryptocurrency.
A Money Snapshot
When a commodity is in short supply, alongside high demand, it results in a hike in the price. Axiomatically, when something is oversupplied, the price falls – as in a situation where there is no uptake or demand for the item. Consequently, while supply and demand typically keep business healthy and prices stable, it can often result in heavy losses.
In either case, however, the item’s value is what fluctuates, not the money paid for it. Whether a shopper parts with one or two dollars to purchase it, the money value remains the same. It is the value of the item that is dipping or rising in price.
This is an important point of distinction in understanding currency and economic models. Cryptocurrencies operate in the real world and are subject to the same human dictates and dynamics that built fiat currencies. Note again that the value of the money doesn’t fluctuate in this hypothetical scenario, merely the value of the goods.
Money has taken various forms throughout history. After the Mesopotamians established a ratio of 160 grams of barley to one shekel in 3000 BC, it became possible to talk about commodity money. Commodities became an acceptable means of payment, alongside precious gems and a wide array of other barter items – also essentially commodities. From the outset, this “money” was only understood in terms of commodities. It was “pegged” to a commodity like silver, gold, wheat or barley.
Commodity money means that the money’s value is generated from commodities that carry that value. And – to be clear – there were no coins or notes made. Commodity money is the commodity itself.
Representative money is similar but simply one step removed. Representative money became commodity money that transports its value around with it. Even though commodities were “carried” by people out of the marketplace, anyone could accept it anywhere as they knew it could buy so many bushels or another item back at the market. The value was known.
Representative money was typically a letter or certificate of ownership, and took the place of a bushel of barley in hand. Rather, the paper forms presented as title to goods. It was, in essence, a valid token representation of the commodities’ value.
Representative money depended on the supply of the commodities that it was still inextricably linked to. It wasn’t feasible to buy a coffee at a downtown cafe with it, for example. It was possible but completely impractical, and as a result, it wasn’t done. Money remained agricultural and mining products.
Representative money evolved and grew in familiarity, mostly from practical human needs. When a merchant stored goods at the “bank” or wholesale storage warehouse, the bank issued a token (letter/receipt/note) that validated their “deposit.” This secured the merchant’s interests and made storing goods the bank’s problem.
Since the bank wanted a cut of the merchant’s dealings, they offered their storage against their token system to secure the interests of all parties, and banking was born.
Money Becomes A Genuine Means Of Exchange
A modern scenario where people exchanged representative money with others to buy any service and all goods or to settle debts became normalized in 17th century Europe. As gold and silver reserves grew and remained universally valued, it became logical to mint coins out of the metals, and weight was a good metric to determine value. Gold and silver were the typical commodities referenced in this new means of barter.
Problems arose with wear and tear, and coins were often lost or simply worn down. The resulting loss of weight meant a loss of value. Coins were physically measured at the time, being weighed for value. Also, gold and silver are heavy, something that made it impractical to travel as a wealthy person!
People opted instead to deposit their assets with the bank, and engaged the world on the back of the bank receipt. Parting with a receipt literally transferred ownership, as there were no verification protocols or a sense of personal ownership beyond the receipt.
The New Gold Of Cryptocurrency
Then, after World World II and as a direct result of America’s standing at the time, representative money became something else. This is the most noteworthy historical snapshot that allows us to come to terms with cryptocurrencies. Many nations across the globe decided to peg their currencies to the USD, at that time still backed by gold reserves.
This strange movement took a decade or two to impact the world, but essentially allowed for next-level representative currency. It was the birthplace of fiat currencies, currencies that were not backed directly but rather backed, separated by a degree from America’s gold reserves, supporting as those reserves were the USD value.
This allowed money to remain acceptable as representative money, but in an entirely new way. It took a few decades for humans to concur that, even if a currency lacked its own gold reserves, it was still valuable currency. In that statement echos the essence of Bitcoin and all other altcoins. Fiat currencies didn’t fluctuate because of this, but rather became entrenched in global society. They were “backed” by the USD-cum-gold-reserves and reinforced by government legislation.
In truth, fiat currencies (that now include the USD as America abandoned the gold standard in 1971) have no intrinsic value whatsoever. They are neither gold nor silver, nor precious stones or a bushel of wheat. Fiat money maintains its value through government ruling and because two parties agree that a particular currency can be used for exchange in their transaction. Fiat currencies – including the USD – have no intrinsic value. Their value is a human convention.
So what? What does the whole historical ramble above mean for the value to be had in cryptocurrencies? Firstly, evolution never stops and currency is not immune to it, very much like anything else on earth. Secondly, evolution implies keeping apace with modern life, at least for money purposes. In the highly digitized modern world, where android-enhanced reality looms and the pace of messaging and transacting grows ever faster, why is it that so many people are hesitant to swap their intrinsically worthless fiat tokens for other digital tokens?
The answer is the same one that informed people in the 17th century – it takes time for a currency shift to happen. No one wants to lose value. That said, are cryptocurrencies valuable as a tokenized means of digital exchange? The short and only answer is: yes.
Seen purely from the point of view of the current system, where we all exchange paper or already-digitized credit for goods and services, how are cryptocurrencies not a vast improvement on this? That is the real question and the key insight to glimpsing the wealth to be made from cryptocurrencies.
Quite apart from buying and holding, treating digital coins as investment tools or assets, the fact remains that virtual currencies are a better way for people to employ currency. Every time a fundamental human advance or improvement arrived, the landscape changed forever. Millionaires were made and trading dynamics changed forever more.
Adoption is key. Consensus. Agreement across a country or the world that we all accept this token of wealth as holding the value it represents. We are free of gold, free of paper, free of mining precious metals, if we want to be. Those things have no intrinsic value anymore. They haven’t for the longest time.
Cryptocurrency also technically conforms to the definition of fiat currency. All we really have opposing a better token system is vested interests and, unfortunately, they rule the world. With that said, a massive store of human wealth is locked inside the authoritarian system as we know it. Digital money will do away with that, and therein lies the value.
Cryptocurrency has in fact two principal values that are set to rise. Firstly, it’s a better way of doing things. No one in 1925 used the word “dollar” if they weren’t American. Although it’s hard to imagine now, the USD was a wannabe without even knowing it, very much like detractors position Bitcoin and others now.
The way that the USD came to dominate is the same route virtual currencies will follow. The USD-dominion came about for the sake of convenience. Shrewd creatures that we are, humans streamline processes and anything that doesn’t result in lost status or wealth. Today, who wouldn’t want to own a few million American dollars?
Furthermore, the huge savings and liberation that stem from cryptocurrency employment – eliminating central authority and several trillion dollars worth of annual costs – make Bitcoin something of a floodgate.
In the adoption of digital currencies, a massive amount of money is freed on a global scale, money that will look for opportunities. When the greatest shift of the moment is that which is enabling the reduction of costs and a greater ease of living, it becomes a no-brainer that the arena has to pay handsome dividends to all participants. No matter what their involvement or extent of digital asset holdings might be.