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A small essay I wrote in support of Stable coin. I think its relevant now because of all the inflation. It was orginally written for an American audience but I think everything said is still applicable.
How Cryptocurrency Can be used to Solve the Problems of Fiat Currency
What would a person do if their life savings disappeared in an instant? What if all their money became devalued and worthless? Hyperinflation affects many people all over the world and no country is immune to it. No matter where a person lives, hyperinflation is a real threat and could affect them. This is because our currency has no real value behind it. All over the world, global trade, business deals and savings deposits are done with pieces of paper built solely on trust (Chen 11) in an entity which most people deem untrustworthy (“‘Americans’ Views of Government” 10). The problems with fiat money are numerous; however, they can be solved by using a new type of currency called cryptocurrency. Cryptocurrency is not only a viable alternative to fiat currency, it can also solve many of the problems of paper money such as inflation, corruption and instability.
To understand the problems of fiat currency we must first understand its history. The original purpose of paper money was to be a representation for gold. A person used to be able to take their paper money to the bank and it would be redeemed for them in gold. The advantage of paper money was that it was easier to make and carry around. This gold standard takes the control of money out of the hands of fallible human beings working for a central bank and rests it in the control of a stable commodity. However, in 1933, the United States dropped the gold standard. That same year, President Herbert Hoover made his famous statement that “We have gold because we cannot trust governments” (Lidious 1-3, 6).
The danger of fiat money is that it allows for inflation. While some may argue that low level inflation is good for the economy (Chen 14) because it encourages spending. What about our savings? Do we want the value of our money that we save to drop every year? The risk of hyperinflation is not worth the reward. Inflation is a real problem and many countries are suffering from it right now. Some people might think that they are immune from the effects of inflation. However, the reality is that inflation is already here. As of April 2021, 40% of all US dollars were printed in the last 12 months (“United States Money Supply”). Commodities such as Iron ore are up 114% (“Iron Ore PRICE Today”) while lumber prices are up 232% (Lambert). More money combined with less industrial output has driven the prices up. So far, this has only affected investment assets and commodities because consumers are not purchasing consumer items due to the pandemic. However, this will eventually catch up with the economy. The United States government has sought to offset the damage of the pandemic by printing more money rather than by doing proper budgeting or increasing taxes. This is the exact same scenario that has occurred in the Weimar republic, Yugoslavia, Venezuela and Zimbabwe (Hanke). For some reason, Americans believe that they are immune to the effects of inflation and live in a false sense of security about their lives and future. It seems that we have not learned our lesson from the 2008 financial crisis and still put our faith in the government and banking institutions.
Another problem with the dollar is that it is tied to the power of America. The dollar is worth its value because one of the most powerful countries on earth uses it therefore it is used as the standard for global trade, especially in the trade of oil. America’s global hegemony after World War Two and the fall of the Soviet Union is referred to as Pax Americana. However, As Russia and China rebuild their economies, the world order is switching from a unipolar one to a multipolar one (Layne 205). As American economic power declines so will the dollar because it is not based on a stable commodity such as gold. The first sign of the decline in US power was when the United States lost the Vietnam war. The United States left the country, abandoned their puppet state and objectives in the region. The same has happened again recently in Afghanistan when President Biden declared that US troops are going to leave Afghanistan by September 11th (“US Troops to Leave Afghanistan by 11 September”). This decline of US power combined with the rise of other regional powers such as China and Russia will inevitably devalue the dollar. While this will not affect the economy in the short term and the decline will be gradual, this is a problem for longterm savers and investors.
The founders of the United States did not like paper money. George Washington, in a letter to Thomas Jefferson on the first of August 1786 describes paper money as foolish and wicked.
Some other States are, in my opinion, falling into very foolish and wicked plans of emitting paper money. I cannot however give up my hopes and expectations that we shall 'ere long adopt a more just and liberal system of policy. What circumstances will lead, or what misfortunes will compel us to it, is more than can be told without the spirit of prophecy (“George Washington to Thomas Jefferson, August 1, 1786.”) In his letter to Edward Carrington on May 27 1788, Thomas Jefferson said that “paper is poverty, that it is only the ghost of money, and not money itself”(“Founders Online” 2). The founding fathers were incredibly concerned about the effect of unbacked paper money on the economy. They even mentioned it in the constitution where it says that “No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts ....”(“Article I Section 10”). The founding fathers were incredibly foresighted and saw the dangers of this form of currency. This begs the question, why do we still use it?
All of this might sound terrible, however, there is a solution. Cryptocurrency can solve many of the problems of fiat currency. Cryptocurrency is a form of digital currency that is decentralized. An overly simplified explanation is that cryptocurrency works by having a network of computers keep a public ledger of all transactions that occur in that currency. Every computer in this network has a full copy of all crypto transactions made since the blockchain started so if someone tries to tamper with the transactions, all other nodes in the network can cross reference it with their own versions.
This public ledger system is called a blockchain because the data in it is stored in blocks of transactions which are then algorithmically chained to each other. Each block contains a hash. A hash is an algorithm that is used for cryptographically securing data. A hash is a one way algorithm so it is impossible to reverse the hash without knowing the original data that was put into it. The only way to figure out the original data that was put into the hash without already knowing the original data is to guess. In the blockchain, the hash is made up of a random number called a nonce along with some other data. Each node will then try to guess the hash incrementally, for example, a node will start at 0 and then hash it and check to see if it matches the hash of the block, if it does not then it will try 1 and then 2 and so on. The first node to correctly guess the hash will broadcast it and it will be verified by other nodes. Then that node will add the block of transactions to the blockchain and get a reward in the cryptocurrency that the blockchain uses. This is known as mining cryptocurrency. Because mining cryptocurrency requires resources such as computer power which requires electricity to power the graphics cards, processors and cooling fans to prevent the system from overheating. Miners will not sell for less than what they spent to get the currency. This gives it value.
With all things considered, how can cryptocurrency solve the problems of fiat money? Is not cryptocurrency unstable and volatile? Regular cryptocurrency such as Bitcoin and Ethereum are volatile. That is why a new kind of cryptocurrency was created called stablecoin. Unlike regular cryptocurrency which is mined, stablecoin is tied to another commodity such as USD or gold. Each stablecoin would be tied to a real world asset such as gold in a gold reserve. Stablecoin could even help stop inflation in countries such as Venezuela (Koffman 13).
It does not even have to be gold that is tied to a stablecoin. A person could tie real estate and sell or buy a house at the click of a button. In a cashless society, anything is possible. People could not have to go through tedious amounts of paperwork just to buy a house or a car. They could eliminate the middleman and not have to pay countless hidden fees at the dealership or bank. They would not have to worry about pickpockets or muggers when travelling abroad.
As a result, stablecoin is the future of currency. Governments should adopt it rather than try to actively stop people from using it (Sharma). Prominent Economist Tatiana Koffmen says “The main benefits that stablecoins strive to create are price stability, scalability, privacy, decentralization and redeemability”(5). Stablecoin can also stop corruption (Coinconnector 5). By getting rid of the opaque banking system we can see exactly how the government is spending money by looking at the blockchain. Decentralized banking could also help a person feel more at ease with their savings. If someone deposits money in a bank, they have no guarantee that the bank will not collapse the next day. However, if they keep it in cash or gold the money will not be safe. By keeping their savings in a crypto wallet with gold as a collateral, they are independent from the consequences of the choices of bankers and politicians and their money is safe because crypto wallets are extremely difficult to hack.
Despite this, cryptocurrency will take a while to become mainstream. The United States Government can help by instituting a crypto dollar stablecoin and by rewarding businesses who adopt it by lowering the sales tax on transactions made with it. But first we must take action at an individual level so that we can let our government know that we will not stand for worthless paper money. Individuals can help by diversifying their assets and putting their savings in gold, crypto, stocks and other commodities such as oil. The dollar should just be one of these assets. Do not put all the eggs in one basket. No matter how sturdy that basket is. Individuals can also send money abroad using crypto rather than dollars, it is easier and has no fees.
In conclusion, fiat money is an irresponsible use of currency that the founding fathers feared and objected to. Despite this fact the United States government regrettably dropped the gold standard anyways. We can, however, solve this problem by adopting a new cryptocurrency known as stablecoin which is backed by real world collateral such as gold. The only way we can implement this change is by changing our fiscal habits to adopt easy and common sense methods of saving and sending money. When people get together enormous change can happen. Just look at when a few people on Reddit crashed the biggest hedge funds in America. People of all backgrounds and political parties came together to destroy their oppressors. Change must come from the people. This is what the founding fathers intended. That is why this country was created.
Works Cited
“Americans' Views of Government: Low Trust, but Some Positive Performance Ratings.” Pew Research Center - U.S. Politics & Policy, Pew Research Center, 7 Dec. 2020, www.pewresearch.org/politics/2020/09/14/americans-views-of-government-low-trust-but-some-positive-performance-ratings/.
“Article I Section 10: Constitution Annotated: Congress.gov: Library of Congress.” Constitution Annotated, constitution.congress.gov/browse/article-1/section-10/#:~:text=No State shall enter into,Contracts, or grant any Title.
Chen, James. “Fiat Money.” Investopedia, Investopedia, 20 Apr. 2021, www.investopedia.com/terms/f/fiatmoney.asp.
“Founders Online: From Thomas Jefferson to Edward Carrington, 27 May 1788.” National Archives and Records Administration, National Archives and Records Administration, founders.archives.gov/documents/Jefferson/01-13-02-0120.
“George Washington to Thomas Jefferson, August 1, 1786.” The Library of Congress, www.loc.gov/resource/mgw2.013/?sp=142&st=text.
Hanke, Steve H., et al. “The World's Greatest Unreported Hyperinflation.” Cato Institute, 22 Jan. 2021, www.cato.org/commentary/worlds-greatest-unreported-hyperinflation.
“Iron Ore PRICE Today | Iron Ore Spot Price Chart | Live Price of Iron Ore per Ounce | Markets Insider.” Business Insider, Business Insider, markets.businessinsider.com/commodities/iron-ore-price?op=1.
Koffman, Tatiana. “Stablecoins: The Next Generation Of Digital Money.” Forbes, Forbes Magazine, 11 Mar. 2019, www.forbes.com/sites/tatianakoffman/2019/03/08/stablecoins-the-next-generation-of-digital-money/?sh=40dbd2c823f3.
Lambert, Lance. “Lumber Prices Are up 232% and 'It Could Spiral out of Control in the next Few Months'.” Fortune, Fortune, 27 Apr. 2021, fortune.com/2021/04/27/lumber-prices-are-up-232-and-it-could-spiral-out-of-control-in-the-next-few-months/.
Layne, Christopher. “This Time It’s Real: The End of Unipolarity and the Pax Americana.” International Studies Quarterly, vol. 56, no. 1, 2012, pp. 203–213., doi:10.1111/j.1468-2478.2011.00704.x.
Lioudis, Nick. “What Is the Gold Standard?” Investopedia, Investopedia, 27 Apr. 2021, www.investopedia.com/ask/answers/09/gold-standard.asp#:~:text=Britain stopped using the gold,must be accepted as a.
Sharma, Rakesh. “New Stablecoin Bill Raises Concerns Among the Crypto Community.” Investopedia, Investopedia, 7 Dec. 2020, www.investopedia.com/new-stablecoin-bill-raises-hackles-of-crypto-community-5090337.
“US Says Troops to Leave Afghanistan by 11 September.” BBC News, BBC, 14 Apr. 2021, www.bbc.com/news/world-us-canada-56737563.
“United States Money Supply M11959-2021 Data: 2022-2023 Forecast: Historical.” United States Money Supply M1 | 1959-2021 Data | 2022-2023 Forecast | Historical, tradingeconomics.com/united-states/money-supply-m1.
How Cryptocurrency Can be used to Solve the Problems of Fiat Currency
What would a person do if their life savings disappeared in an instant? What if all their money became devalued and worthless? Hyperinflation affects many people all over the world and no country is immune to it. No matter where a person lives, hyperinflation is a real threat and could affect them. This is because our currency has no real value behind it. All over the world, global trade, business deals and savings deposits are done with pieces of paper built solely on trust (Chen 11) in an entity which most people deem untrustworthy (“‘Americans’ Views of Government” 10). The problems with fiat money are numerous; however, they can be solved by using a new type of currency called cryptocurrency. Cryptocurrency is not only a viable alternative to fiat currency, it can also solve many of the problems of paper money such as inflation, corruption and instability.
To understand the problems of fiat currency we must first understand its history. The original purpose of paper money was to be a representation for gold. A person used to be able to take their paper money to the bank and it would be redeemed for them in gold. The advantage of paper money was that it was easier to make and carry around. This gold standard takes the control of money out of the hands of fallible human beings working for a central bank and rests it in the control of a stable commodity. However, in 1933, the United States dropped the gold standard. That same year, President Herbert Hoover made his famous statement that “We have gold because we cannot trust governments” (Lidious 1-3, 6).
The danger of fiat money is that it allows for inflation. While some may argue that low level inflation is good for the economy (Chen 14) because it encourages spending. What about our savings? Do we want the value of our money that we save to drop every year? The risk of hyperinflation is not worth the reward. Inflation is a real problem and many countries are suffering from it right now. Some people might think that they are immune from the effects of inflation. However, the reality is that inflation is already here. As of April 2021, 40% of all US dollars were printed in the last 12 months (“United States Money Supply”). Commodities such as Iron ore are up 114% (“Iron Ore PRICE Today”) while lumber prices are up 232% (Lambert). More money combined with less industrial output has driven the prices up. So far, this has only affected investment assets and commodities because consumers are not purchasing consumer items due to the pandemic. However, this will eventually catch up with the economy. The United States government has sought to offset the damage of the pandemic by printing more money rather than by doing proper budgeting or increasing taxes. This is the exact same scenario that has occurred in the Weimar republic, Yugoslavia, Venezuela and Zimbabwe (Hanke). For some reason, Americans believe that they are immune to the effects of inflation and live in a false sense of security about their lives and future. It seems that we have not learned our lesson from the 2008 financial crisis and still put our faith in the government and banking institutions.
Another problem with the dollar is that it is tied to the power of America. The dollar is worth its value because one of the most powerful countries on earth uses it therefore it is used as the standard for global trade, especially in the trade of oil. America’s global hegemony after World War Two and the fall of the Soviet Union is referred to as Pax Americana. However, As Russia and China rebuild their economies, the world order is switching from a unipolar one to a multipolar one (Layne 205). As American economic power declines so will the dollar because it is not based on a stable commodity such as gold. The first sign of the decline in US power was when the United States lost the Vietnam war. The United States left the country, abandoned their puppet state and objectives in the region. The same has happened again recently in Afghanistan when President Biden declared that US troops are going to leave Afghanistan by September 11th (“US Troops to Leave Afghanistan by 11 September”). This decline of US power combined with the rise of other regional powers such as China and Russia will inevitably devalue the dollar. While this will not affect the economy in the short term and the decline will be gradual, this is a problem for longterm savers and investors.
The founders of the United States did not like paper money. George Washington, in a letter to Thomas Jefferson on the first of August 1786 describes paper money as foolish and wicked.
Some other States are, in my opinion, falling into very foolish and wicked plans of emitting paper money. I cannot however give up my hopes and expectations that we shall 'ere long adopt a more just and liberal system of policy. What circumstances will lead, or what misfortunes will compel us to it, is more than can be told without the spirit of prophecy (“George Washington to Thomas Jefferson, August 1, 1786.”) In his letter to Edward Carrington on May 27 1788, Thomas Jefferson said that “paper is poverty, that it is only the ghost of money, and not money itself”(“Founders Online” 2). The founding fathers were incredibly concerned about the effect of unbacked paper money on the economy. They even mentioned it in the constitution where it says that “No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts ....”(“Article I Section 10”). The founding fathers were incredibly foresighted and saw the dangers of this form of currency. This begs the question, why do we still use it?
All of this might sound terrible, however, there is a solution. Cryptocurrency can solve many of the problems of fiat currency. Cryptocurrency is a form of digital currency that is decentralized. An overly simplified explanation is that cryptocurrency works by having a network of computers keep a public ledger of all transactions that occur in that currency. Every computer in this network has a full copy of all crypto transactions made since the blockchain started so if someone tries to tamper with the transactions, all other nodes in the network can cross reference it with their own versions.
This public ledger system is called a blockchain because the data in it is stored in blocks of transactions which are then algorithmically chained to each other. Each block contains a hash. A hash is an algorithm that is used for cryptographically securing data. A hash is a one way algorithm so it is impossible to reverse the hash without knowing the original data that was put into it. The only way to figure out the original data that was put into the hash without already knowing the original data is to guess. In the blockchain, the hash is made up of a random number called a nonce along with some other data. Each node will then try to guess the hash incrementally, for example, a node will start at 0 and then hash it and check to see if it matches the hash of the block, if it does not then it will try 1 and then 2 and so on. The first node to correctly guess the hash will broadcast it and it will be verified by other nodes. Then that node will add the block of transactions to the blockchain and get a reward in the cryptocurrency that the blockchain uses. This is known as mining cryptocurrency. Because mining cryptocurrency requires resources such as computer power which requires electricity to power the graphics cards, processors and cooling fans to prevent the system from overheating. Miners will not sell for less than what they spent to get the currency. This gives it value.
With all things considered, how can cryptocurrency solve the problems of fiat money? Is not cryptocurrency unstable and volatile? Regular cryptocurrency such as Bitcoin and Ethereum are volatile. That is why a new kind of cryptocurrency was created called stablecoin. Unlike regular cryptocurrency which is mined, stablecoin is tied to another commodity such as USD or gold. Each stablecoin would be tied to a real world asset such as gold in a gold reserve. Stablecoin could even help stop inflation in countries such as Venezuela (Koffman 13).
It does not even have to be gold that is tied to a stablecoin. A person could tie real estate and sell or buy a house at the click of a button. In a cashless society, anything is possible. People could not have to go through tedious amounts of paperwork just to buy a house or a car. They could eliminate the middleman and not have to pay countless hidden fees at the dealership or bank. They would not have to worry about pickpockets or muggers when travelling abroad.
As a result, stablecoin is the future of currency. Governments should adopt it rather than try to actively stop people from using it (Sharma). Prominent Economist Tatiana Koffmen says “The main benefits that stablecoins strive to create are price stability, scalability, privacy, decentralization and redeemability”(5). Stablecoin can also stop corruption (Coinconnector 5). By getting rid of the opaque banking system we can see exactly how the government is spending money by looking at the blockchain. Decentralized banking could also help a person feel more at ease with their savings. If someone deposits money in a bank, they have no guarantee that the bank will not collapse the next day. However, if they keep it in cash or gold the money will not be safe. By keeping their savings in a crypto wallet with gold as a collateral, they are independent from the consequences of the choices of bankers and politicians and their money is safe because crypto wallets are extremely difficult to hack.
Despite this, cryptocurrency will take a while to become mainstream. The United States Government can help by instituting a crypto dollar stablecoin and by rewarding businesses who adopt it by lowering the sales tax on transactions made with it. But first we must take action at an individual level so that we can let our government know that we will not stand for worthless paper money. Individuals can help by diversifying their assets and putting their savings in gold, crypto, stocks and other commodities such as oil. The dollar should just be one of these assets. Do not put all the eggs in one basket. No matter how sturdy that basket is. Individuals can also send money abroad using crypto rather than dollars, it is easier and has no fees.
In conclusion, fiat money is an irresponsible use of currency that the founding fathers feared and objected to. Despite this fact the United States government regrettably dropped the gold standard anyways. We can, however, solve this problem by adopting a new cryptocurrency known as stablecoin which is backed by real world collateral such as gold. The only way we can implement this change is by changing our fiscal habits to adopt easy and common sense methods of saving and sending money. When people get together enormous change can happen. Just look at when a few people on Reddit crashed the biggest hedge funds in America. People of all backgrounds and political parties came together to destroy their oppressors. Change must come from the people. This is what the founding fathers intended. That is why this country was created.
Works Cited
“Americans' Views of Government: Low Trust, but Some Positive Performance Ratings.” Pew Research Center - U.S. Politics & Policy, Pew Research Center, 7 Dec. 2020, www.pewresearch.org/politics/2020/09/14/americans-views-of-government-low-trust-but-some-positive-performance-ratings/.
“Article I Section 10: Constitution Annotated: Congress.gov: Library of Congress.” Constitution Annotated, constitution.congress.gov/browse/article-1/section-10/#:~:text=No State shall enter into,Contracts, or grant any Title.
Chen, James. “Fiat Money.” Investopedia, Investopedia, 20 Apr. 2021, www.investopedia.com/terms/f/fiatmoney.asp.
“Founders Online: From Thomas Jefferson to Edward Carrington, 27 May 1788.” National Archives and Records Administration, National Archives and Records Administration, founders.archives.gov/documents/Jefferson/01-13-02-0120.
“George Washington to Thomas Jefferson, August 1, 1786.” The Library of Congress, www.loc.gov/resource/mgw2.013/?sp=142&st=text.
Hanke, Steve H., et al. “The World's Greatest Unreported Hyperinflation.” Cato Institute, 22 Jan. 2021, www.cato.org/commentary/worlds-greatest-unreported-hyperinflation.
“Iron Ore PRICE Today | Iron Ore Spot Price Chart | Live Price of Iron Ore per Ounce | Markets Insider.” Business Insider, Business Insider, markets.businessinsider.com/commodities/iron-ore-price?op=1.
Koffman, Tatiana. “Stablecoins: The Next Generation Of Digital Money.” Forbes, Forbes Magazine, 11 Mar. 2019, www.forbes.com/sites/tatianakoffman/2019/03/08/stablecoins-the-next-generation-of-digital-money/?sh=40dbd2c823f3.
Lambert, Lance. “Lumber Prices Are up 232% and 'It Could Spiral out of Control in the next Few Months'.” Fortune, Fortune, 27 Apr. 2021, fortune.com/2021/04/27/lumber-prices-are-up-232-and-it-could-spiral-out-of-control-in-the-next-few-months/.
Layne, Christopher. “This Time It’s Real: The End of Unipolarity and the Pax Americana.” International Studies Quarterly, vol. 56, no. 1, 2012, pp. 203–213., doi:10.1111/j.1468-2478.2011.00704.x.
Lioudis, Nick. “What Is the Gold Standard?” Investopedia, Investopedia, 27 Apr. 2021, www.investopedia.com/ask/answers/09/gold-standard.asp#:~:text=Britain stopped using the gold,must be accepted as a.
Sharma, Rakesh. “New Stablecoin Bill Raises Concerns Among the Crypto Community.” Investopedia, Investopedia, 7 Dec. 2020, www.investopedia.com/new-stablecoin-bill-raises-hackles-of-crypto-community-5090337.
“US Says Troops to Leave Afghanistan by 11 September.” BBC News, BBC, 14 Apr. 2021, www.bbc.com/news/world-us-canada-56737563.
“United States Money Supply M11959-2021 Data: 2022-2023 Forecast: Historical.” United States Money Supply M1 | 1959-2021 Data | 2022-2023 Forecast | Historical, tradingeconomics.com/united-states/money-supply-m1.
