Is Cryptocurrency the Future of Money? Let’s Take a Look
2,194October 17, 2019
Is Cryptocurrency the Future of Money?
If you listen to the financial news, then it doesn’t paint a pretty picture of the state of the global economy. Trade wars, ballooning government debt, overvalued markets, and record-low bond yields all add up to an economy that’s teetering on the brink of disaster.
Many obscure economists think that we could be approaching the end of the financial system as we know it. These analysts cite that if there were another liquidity or credit crisis like back in 2008, the global economy would not be able to sustain the hit.
As a result, the entire global financial system would collapse, leaving your bank account worthless as currencies evaporate their buying power. Sure, this is a worst-case scenario, but it’s a possibility. If something like this situation were to transpire, then what would we use as money?
Some analysts believe that the advent of cryptocurrency signals an end to the fiat system.
They expect crypto to be the new reserve currency to replace the dollar in times of a currency crisis and collapse.
Let’s examine the case for cryptocurrency as the future of money.
A Brief History of Money
To predict the future, we need to look at the past. The first recorded money system began in ancient China some 2,500+ years ago. The Chinese stopped using tools for trading and adopted the world’s first coins, known as “cash,” which is where we get the term today.
King Croesus of Lydia was the first government authority to mint gold coins in 561 B.C., ushering in a new way to pay for goods and services instead of bartering. Gold coins were the preferred choice for money around the world, right up until the 1930s, when President Theodore Roosevelt decided to withdraw gold coins from circulation at the start of the Second World War.
The End of the Gold Standard
Throughout history, countries and governments relied on gold as the preferred medium of exchange. However, history has plenty of examples of governments that debase their currency, leading to the collapse of society.
The world traded using gold coins until the early thirties. Then-president FDR announced that the public turn in all its gold holdings to the federal government in support of American war efforts. The Federal Reserve later issued the first notes or paper dollars, which we use today.
However, back during the first confiscation off gold by FDR, gold still had some relationship to paper money. Each banknote represented a physical quantity of gold, which was supposedly redeemable. However, after FDR suspended gold exchange rights in the broader economy, people moved away from coins and into paper money.
On August 15th, 1971, President Richard Nixon put an end to the gold standard, ushering a new “fiat” money standard that no longer had any ties to gold. Fiat money describes a currency system with no collateral backing the assets.
Unlike the era of the gold standard, where every note was a check deposit for physical gold, the new fiat dollars issued by the Federal Reserve had nothing backing them.
As a result of being the world’s superpower and the leading reserve currency, America’s economy grew leaps and bounds over the next four decades. The fiat money system allowed for the expansion of global credit without the need for collateral to back the world’s monetary reserves.
Today, dollars are eligible for the payment of public and private debts, and settlement of taxes. It’s the taxes part of this equation that gives the dollar its credibility in the eyes of consumers. As long as the American public only accepts dollars for payment of taxes, the dollar will have a use as legal tender.