Why Cryptocurrencies Are Such A Big Deal
All of a sudden, the world began to pay attention. Here was an otherwise intangible asset that seemed to be worth a fortune, creating dozens of millionaires in the process.
Since those heady days several years ago, there’s been some pullback, but there’s no denying the trajectory that we’re on. Bitcoin and other currencies have retained their value, and look as if they might take over the world someday.
Cryptocurrencies are a controversial topic. They don’t work like traditional money. In the conventional fiat system, governments print money, and people must transact through trusted third parties, like banks. It’s a top-down system and an absolute nightmare for human freedom.
Cryptocurrencies, by contrast, are a very different animal. There is no centralized authority deciding how much money should be in circulation from on high. Instead, intelligent algorithms and computer networks limit the number of coins in existence, preventing anyone from artificially manipulating the value.
You can imagine how this development might cause some consternation among the powers that be. Warren Buffett’s investment partner, Charlie Munger, called bitcoin outright immoral and wants governments to crack down on it. Others see it as a threat to the banking sector and a way for money launderers to hide their activities.
But there’s no doubt that the technology has massive potential. It could completely upend the traditional financial system one day and overturn financial institutions that have been around for hundreds of years. It could provide people with a level of freedom to trade across borders that they’ve never experienced before, ushering in a new era of liberty.
Here are some of the reasons why cryptocurrencies are such a big deal.
The Technology Is Robust
Over the last century, we’ve seen how precarious the centralised financial and monetary system can be. In 2008, for instance, all it took was a few thousand bad loans in the subprime mortgage sector to bring the whole global economy to its knees. When systems depend on a few core players, they’re fragile.Decentralised systems are slightly better. Here you have a series of nodes that each support multiple other nodes in the network. If one of the larger nodes fails, another can take over. The number of interconnections between the nodes, however, is low, meaning that it can still fall foul of crises.
Cryptocurrencies, however, are a “distributed” means of exchange. In other words, there are no central authorities at all. Instead, the system depends on the connections between each of the players - in this case, people like you and I. There are no middlemen - no pesky banks that might fail at any moment - just people with their own financial circumstances.
Distributed technology offers some massive advantages. It’s not just about financial stability, but also the ability for people to conduct their financial affairs in private. Right now, customers trust their banks to keep their financial details private. Institutions, however, can’t resist the force of the state, and so there’s always a risk for people.
Decentralised systems, however, can provide people with perfect anonymity. While some cryptocurrencies don’t yet do this, it might be something that people just demand. They don’t want government agencies rifling through their financial records and then sending them threatening tax letters in the post. They want freedom.
It Bypasses The Government
Trust in government is at an all-time low right now - and that’s not an exaggeration. Data from the Pew Research agency suggests that only around 19 percent of people trust the government, down from over 70 percent in the 1960s. Many people consider the government to be evil - something that they need to resist.Cryptocurrency is a critical technology that may enable the general population to pull the rug out from underneath the feet of government. Without control of the financial and money-printing apparatus, governments have far less power to operate. Cryptocurrency gives the power of money squarely back to the people, and there’s nothing that they can do about it, other than enact draconian, violent policies, further undermining their authority.
In the future, we could see a world in which governments are powerless to print their way out of an economic crisis. Policy tools like those won’t be available. They won’t be able to run up debts for fiscal stimulus or print new money if people only accept cryptocurrencies.
Of course, a world that looks like this is a long way off. It isn’t going to happen tomorrow. But it just makes a point of what might happen, if the technology continues to develop and gain in popularity.
It Could Lead To A Reduction In The Dominance Of Corporations
The world is full of corporations - Google, Apple, Microsoft and Facebook. And worse still, they control our lives just as much as governments, if not more so. Google and Facebook, for instance, engage in rampant censorship, especially of content that doesn’t conform to their ideological narratives.The fundamental purpose of the corporation is to serve as a trusted central party that mediates transactions. If more people use crypto exchanges like Swyftx, however, that role could come to an end.
The fundamental technology here is the blockchain. It is a tool that parties can use to carry out trustless transactions. You can sell something to a person you’ve never met overseas, and you know that you’re good for the money with blockchain. It’s incredibly effective.
Corporations, therefore, aren’t as essential as they were in the past. Blockchain takes the risk of fraud out of the equation undermining the fundamental reason for having corporate structures in the first place. In the future, we could see an open-source version of Facebook not controlled by anyone other than the people who use it. There will be no more top-down censorship of alleged “fake news” from the information authorities and more freedom to say, distribute and think what you like.
It’ll Create Massive Wealth
Finally, there’s the wealth equation for this whole story. Cryptocurrencies are a brand new asset class, right at the start of their journey. Right now, nobody knows how many people will become millionaires off the back of them, but suffice to say; the number is likely to be a lot.The distribution of wealth throughout the economy could change rapidly. Those who get into crypto early could see the value of their stakes increase radically compared to regular fiat currency, while those who hold other asset classes could get a strong case of FOMO.
People in developing countries could also see a massive shift in economic conditions in their favour. Individuals using bitcoin and other currencies could see the dollar value of their holdings rise rapidly as more people pile into space.
Bitcoin could also be a kind of insurance policy against rampant money printed by central banks in the event of a debt crisis. With something like bitcoin in existence, monetary authorities know that they can’t just print like mad. People will switch to bitcoin for their cash transactions, undermining the entire edifice of government money. Thus, we could see much better behaviour from the authorities.
Cryptocurrencies and blockchain will likely be one of the most important inventions of the 21st century. Over the coming two decades, they will dominate more of the financial and economic system, sweeping away the power structures of the past and creating a new world.
