12 January 2022: As numerous other philosophers, scholars, economists, & academics have noted, the ongoing debate surrounding the shortcomings of money have lasted for hundreds of years. Defining the term has proven problematic as has defining its uses. What has been agreed upon is that this system as a medium of exchange is inherently flawed.
Bitcoin was originally created in response to the 'Great Recession'- a global financial collapse spurred by greed in the banking industry. Since then, Ethereum and other alternative cryptocurrencies have also been created, helping to birth a brand new financial system and subsequent economy.
Crypto is attempting to provide a solution by eliminating the state from the equation - something that has been argued to be the catalyst for inequality, economic volatility, and conflict.
The Philosophy of Money
According to classical Aristotelian metaphysics, money serves as a form of commodity, taking on vital functions that allow for the establishment and growth of a civilization's economy.
Per Aristotle, to be considered money, it must fulfill the following three functions:
- Medium of exchange
- Unit of account
- Store of value
As a medium of exchange, this means the money can be utilized effectively and efficiently through transactions. For these transactions to be widely utilizable & transparent, the money should also serve as a unit of account - allowing for easy calculations and inclusive understanding. The final function is to serve as an durable store of value, providing a stable means in which to build upon.
It is also important to note that money is a social construct. Value is not determined by scarcity alone but by the belief that the money holds value. Where there is belief in the value of something, demand can be found.
The Money Problem
"Money" being a medium of exchange has been accredited as the main source of power for the substantial economic growth in which humanity has experienced over the past few centuries. While this growth is acknowledged, the ongoing debate as to the net gain being made from state-operated currencies raises the concept of the "money problem".
Control over the supply of money is an immense power that grants the issuing governor nearly god-like abilities. For example, in today's economy many western governments have been able to avoid default by simply printing trillions of dollars - despite their reckless ability to manage money.
Abusing control over the money supply that serves as the backbone for the global economy can have substantial consequences - most often affecting common people the hardest.
Some examples of these consequences include:
- Inflationary or deflationary economic collapses
- Accelerating inequality
- Widespread corruption
- Declining standard of living
- Socio-political unrest
- General totalitarian or authoritarian rule
Being able to perpetually control the supply and issuance of money without consequence for the issuer inherently establishes a path towards failure, corruption, and collapse. This is a common argument for the creation and adoption of the alternative economy growing in the cryptocurrency market.
The Cryptocurrency Solution
Systems that have a power structure in place will always strive toward misuse, abuse, and corruption. Thus, cryptocurrencies were born as an alternative to the traditional fiat, state-controlled monetary system.
Decentralization in this alternative system is fundamentally crucial. Without a centralized body controlling it, state abuse cannot occur. The forces of the market determine the volatility, value, and longevity of cryptocurrencies.
Cryptocurrencies as Money
When considering the Aristotelian definition of money, many cryptocurrencies can already be classified as money. Bitcoin (BTC), despite its challenges as a unit of account (though sats are helping with this), is still a type of decentralized money.
The cryptocurrency economy is set to have multiple layers of money all of which are interdependent but decentralized. For example, Ether (ETH) may one day serve as the gas money for the inner-workings on the internet of blockchains. This would power the potentially tens of thousands of layer 2 solutions, dApps, marketplaces, exchanges, and more that are built ontop of the Ethereum blockchain.
Subsequently, something like Ampleforth (AMPL) could serve as a more surface-level money, powering DeFi protocols and serving as a well-established unit of account similar to the USD, USDC, or Tether.
It is still so early in the cryptocurrency economy, much of which is still in development and inherently subject to speculation & volatility. Though, as the functionality of the space continues to grow, the belief in the system will continue to expand - leading to more value and higher demand.
Do cryptocurrencies provide a sufficient solution to the money problem? So far - it appears on track to do so. It is impossible to speculate how stable the cryptocurrency market will become over time, but with a high enough rate of adoption, it seems reasonable that forces of volatility will diminish with higher rates of volume.
It remains to be seen how truly decentralized much of the space is. This will directly factor into the rate of abuse & corruption the crypto space faces versus the state-controlled fiat system. Should the space prove to be decentralized, it could become a powerful, globally-established, alternative economy that the entire world can share & build on top of.
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