By Stephen Flanders '22
Invented only 13 years ago with the release of Bitcoin by the anonymous Satoshi Nakamoto, cryptocurrency, defined as a decentralized digital medium of exchange built on blockchain technology and secured by cryptography, is on what appears to be an unstoppable rise. With a total market cap of $2.44T, making it the world’s fourth most valuable asset, 300 million users worldwide, and adoption as legal tender in El Salvador, the sky seems like the limit for cryptocurrency. However, states, El Salvador excluded, are not particularly enthusiastic about cryptocurrency. China, India, and Russia are just a few of the states that have recently cracked down on cryptocurrency within their borders. The reasons why this is the case reveal deeper truths about states, the power they gain through money, and why it’s so important for us to secure the future of cryptocurrency.
A Brief History of Money
To understand why states are so afraid of crypto, you first need to understand how money as we know it today came to be. Thousands of years ago, people paid for things through bartering, or trading one item for another. In a bartering money system, if I have apples and need eggs, my neighbor has eggs and needs apples, we would simply trade the apples and eggs. The problem with bartering, however, is that it can be difficult to work out exactly what equal value is. To fix this, humans next moved to commodity money, or trading items that have basic intrinsic value, such as seeds, salt, or precious metals. Unfortunately, commodity money came with its own set of issues, mainly that it was difficult to lug around bars of gold with you at all times. The solution was representative money.
Representative money is exactly what it sounds like: money that a government promises is backed by a commodity, most often gold or silver. The paper the money is printed on has no intrinsic value itself; it’s just a piece of paper. Instead, what gives it its value is the gold in the bank that it represents. This gold standard representative money system would prove successful until the early 1970s, when the U.S. formally ended the gold standard.
Taking the place of representative money was fiat money, which is still dominant today. Fiat money has both no intrinsic value or representative value. The paper it’s printed on isn’t worth anything, and you can’t go to the bank and cash it in for a commodity. Instead, what gives fiat money its value is the state’s backing. In essence, it’s worth something because the state tells us it’s worth something.
Fiat money provides states with the ability to manage their economies in ways that the other forms of money did not. Because fiat money is not backed by a commodity, there is no limit to how much or how little the state can make of it. Theoretically, because the state is able to pump the economy with money during a downturn and pull some money out of the economy during an upswing, the state should be able to keep the economy safe from the worst negatives of both scenarios. It’s a massive power that did not exist before the advent of fiat money, and one that states naturally enjoy having.
How Cryptocurrency Disrupts the Order
Why are states unenthusiastic about cryptocurrency? The answer is because cryptocurrency throws a major wrench into a state’s monopoly on the money supply. It achieves this through decentralization.
Decentralization is one of, if not the, defining aspects of cryptocurrency. Unlike fiat money, which is centralized and controlled by a state’s bank, no one person or group of people controls cryptocurrency. There is no central cryptocurrency bank that can print more at will. No chairman. No president. It is money that is controlled by the people and the people alone.
Why is this so concerning to the state? It’s because a decentralized currency means that for the first time in a long time a state can not directly control the money supply. In the case of cryptocurrency, because of its digital nature, this is especially true, as anyone with an internet connection can now access financial services, notwithstanding their standing with the state. A decentralized, digital, widely accessible, censorship resistant currency that is free from state control is a scary situation for a state.
Decentralized Finance (DeFI) allows anyone with an internet connection to access financial services outside of legacy institutions like banks. With DeFi, political dissidents can receive funding that would otherwise be impossible. With DeFi, people are able to send remittances back home without the normal, extremely high fees, With DeFi, people can get around draconian laws on capital. With DeFi, financial deplatforming will no longer be available for states to use as punishment. With DeFi, financial freedom can truly be possible for everybody
Implications and The Future of Money
Cryptocurrency, decentralized finance, and blockchain technology are potentially game changing inventions for finance and banking. It has opened the door to a world where power over the money supply is transferred from the state back to the people. States, both large and small and authoritarian and democratic, have taken note of this possibility, and have accordingly taken steps to combat this. These actions span the spectrum from outright bans, to restrictions, to and, most concerningly, the release of state controlled cryptocurrencies.
We, the people, must not let states smother this technology in the cradle. Even leaving aside the potential for freedom from state financial oppression that DeFi opens, recent history has made clear that states are not very good at controlling the economy. Since the world has adopted fiat money, there have still been multiple economic crashes, just like there have been throughout history. Only this time, because of the state’s ability to limitlessly print money, there have also been more instances of intense inflation, which we are seeing right now.
It is time for us to take back control of our financial sovereignty. Cryptocurrency can be a pivotal tool on the road to this goal, and we must work to secure its future from the states that want to kill it in its infancy and keep their power. Still not convinced? Think about it this way, if we all got
together and decided how to best manage the money supply, what are the odds that we decide to have about a dozen unelected people more or less manage it? It probably doesn’t sound very likely to you. Well, that is the current system in the United States.
Now is the time to change this. Commit yourself to learning about this technology. Push back against states that want to see the cryptocurrency experiment die. Get some skin in the game and start exploring DeFi. Our generation has been blessed with the opportunity to change our archaic monetary policy for the better. It’d be a shame if we didn’t seize that opportunity.