The tricky second post about crypto!
So, I wanted to explore the idea of Cryptocurrency and what impact it has on the concept of fairness. They seem like two totally separate concepts to the newcomer, but that isn't exactly the case. I explored a little bit about the concept of tolerance and fairness in my previous non-crypto post (part of my Life, the Universe and Everything Blog). Now, I'd like to continue on that theme, but I wanted to discuss the role that cryptocurrency plays currently and what it could potentially do in the future.
Now, as with all my posts, I'm a newbie to the crypto scene - so please don't take any financial advice based on my posts!
When I first heard about cryptocurrency, via conventional media streams, I must admit that my first impression was one of a dark and shady industry. Computer hackers and criminals sat in badly lit apartments stealing money and embezzling it through illegal channels. How wrong I was!
It’s almost funny, if it wasn’t so true, that we were led to believe this by institutions that didn’t want us to know about the opportunity that cryptocurrency held for the ordinary folk. The online information about cryptocurrency was always linked to a website that looked dodgy, and by clicking it you'd be making yourself complicit with the bad guys. For me it was portrayed as the next Napster. Another company making a fortune from stealing from others. As mentioned in my other post - it's the fear that controls you.
When I started looking into cryptocurrency, I didn’t know whether the myths and legends were true. All I knew was that Elon Musk seemed to think it was a good idea, and he’s IronMan, right? Tony Stark knows what he’s doing! So I went down the rabbit hole and I’m glad I did.
Before I started to look at crypto, I looked at what I already thought I knew about. Fiat currency. I’m British, so for me that meant the good old Pound Sterling. To look at the history of that currency is fascinating. It’s the oldest fiat currency in use and has its origins dating back 1,200 years; with the Bank of England running the show since 1694- making it one of the oldest central banks in history. We’ve therefore got a lot of data on what happens to fiat currencies over time. At its beginning it was valued against silver. 240 silver coins or sterlings were equal in value to a 'pound'. Now, I’ve always been told that Sterling is a strong currency, to the extent that it’s bad news for exporting goods. Yet, when compared to the value of the pound back in the beginning (c800AD) where £1 would get you approximated 350g of silver; now (in 2022), £1 would only afford you somewhere in the region of 1g. It is now worth 1/350th of its original value. That means it’s lost roughly 99.7% of its value over time. No one tells you about that do they!
Why is this? Well there’s tonnes of reasons, and I’m certainly not an economist. But a large reason why a currency devalues is because of inflation. And what is a cause of inflation?, printing more money. Again I won’t go in to the finer mechanisms of why it happens. All we need to know is it does. So over the last 1200 years the Pound has continually decreased its value. The important questions is what does this have to do with fairness.
Alas, we’re finally getting to the point! When currency devalues or whilst inflation occurs, it means your money is worth less, whilst the cost of everything goes up. It’s a vicious cycle. In very basic terms, the poorest in a society have less money, but higher living costs, which ultimately makes them poorer. Becoming poorer makes living costs continue to grow relative to the amount of money they have to spend month on month. The poorest will frequently rely on payday loans with incredibly high interest rates, which locks them in to poverty.
On the other hand, generally speaking, even though the rich too would lose money due to the devaluation of the currency, it has far less of an impact on them. They have more disposable income so can offset the increased prices for day-to-day living. What’s more when inflation happens the rich have already stored their wealth in assets/stocks/shares etc, which they can hold on to and wait until the value returns to a profitable margin. Their money isn’t as exposed when compared to the poorer people’s money. The rich also tend to be the landlords, lenders etc that the poor rely on. It’s an unfair system and we’ve only briefly explored one aspect of fiat currency - devaluation. The rich also have other tricks; an important one is that they educate their children at the finest schools and universities, which in turn give them access to the best jobs. The best jobs in government and in major corporations that strive to maintain the status quo. It’s very difficult to fix the system when the ones running the system have no incentive ti do so. Many of the rich have been involved with government officials in exchanging donations of money for titles and peerages in exchange. (Google the UK cash for honours scandal). This keeps the politicians in their pocket and gives them a fancy title to go with it. It allows them access to the inner circle of the policy makers and the network of fellow rich folk. Why on Earth would they want the status quo to change?!
Where does cryptocurrency come in and could it make society fairer? Well it’s a tough one because take Bitcoin for example, it’s only been around for 14 years; compared to Sterling, it’s still very much in its infancy and without taking the plunge with it on a global scale we can only suppose what the social impacts could be. However, logic would suggest that cryptocurrency could make society fairer. Why? Well Bitcoin, like most cryptocurrencies has a finite supply. You can’t print more bank notes. This helps to prevent devaluation. Which would prevent the social inequalities we’ve seen earlier. Due to its secure blockchain containing all the transactions it also makes it more difficult for the more unscrupulous deals being made without it being seen by all. Including law authorities.
The other thing to consider is the decentralised nature to cryptocurrencies. They can’t be manipulated by governments. They offer everyone an equal chance. Now, I’m not naive enough to think that even with mass market adoption of cryptocurrencies that bad-intentioned folk won’t try in some way to tip the balance in their favour, it’s what humans do. However, it will certainly be more difficult to.
In closing, cryptocurrencies definitely look promising. There are some areas it’ll need to improve on, but in fairness, there’s more areas that fiat currency need to improve on. And they’ve had hundreds of years to figure it out. We’ve only given Bitcoin 14 years. And even then, the future continues to remain a little brighter.
Going back to my opening gambit about cryptocurrency being a seedy, distrustful arena. That was all make-believe, nightmares drawn from the fear that keeps us in line. What’s worse is, even if the myths about Crypto were true; I truly believe compared to the way fiat currency is run, Crypto would look like an angel.
All of this is conjecture at this stage. Crypto could completely fail or it could dominate the financial world. Or most likely it’ll live side by side with fiat currencies. Again, time will tell. All we can hope for is tha my brighter future, and hopefully a much fairer future.
Thanks for reading, feel free to correct any of my errors in the comments section - but please be constructive! If there are any requests for topics please let me know.
All the best,