During a recent interview, fintech entrepreneur and investor Micky Malka commented that when money gets better, people’s lives get better. The history of monetary systems confirms this. It is significantly easier to use Apple Pay than to pull out a clay tablet tracking your farm’s credit. Despite massive improvements in monetary systems over the past several millennia, modern money is difficult to exchange, insecure, and prone to inflation. Cryptocurrency is the next step in the evolution of money. It has the potential to be a superior currency because it possesses all the benefits of a fiat currency minus the drawbacks of a central authority controlling it. This allows cryptocurrencies to be secure and accessible while maintaining immunity to government manipulation.
We want the next monetary system to be easier to exchange, more secure, allow it to be universally accepted, and have a finite predictable supply.
On the first point, exchangeability:
Current financial systems present huge barriers to easy exchange. For American systems, the easiest is cash transfer apps like Venmo, however once we move to large sums of money (10k+) it becomes very difficult to make payments. They must be made through bank accounts, only go through on weekdays, take 1-3 days, and can have massive fees.
Cryptocurrency has near instant transactions which can be for any amount. Unlike the most popular cryptocurrency, Bitcoin, there are separate currencies like Ethereum which are capable of extremely low transaction fees.
On the second point, security:
Cryptocurrency’s ability to take advantage of decentralization gives it immunity to most forms of malicious intervention. To steal a person’s cryptocurrency an attacker must obtain access to their private key, meaning all the user needs to do is protect a singular piece of information to protect all their finances. This resolves many issues surrounding sensitive data being constantly compromised in the financial sector. Too often companies are hacked leading to leaking of financial information and banks fall victim to cyber attacks where users lose access to funds which can require government entities to recover.
On the third point, universal acceptance:
A key component to the history of financial systems is the discrimination they have facilitated. Just looking at examples in the modern day, there are payment processing companies, like Stripe, that prohibit legal businesses from using their service. This discrimination goes beyond ethical concerns to straight exploitation of vulnerable groups. Card networks like Visa and Mastercard charge a “foreign transaction fee,” costing merchants to accept payments from customers outside of their country. These fees are unnecessary and have only survived thanks to the duopoly Visa and Mastercard have created through excessive lobbying and regulatory capture.
Smart contracts which run on the Ethereum network allow the creation of systems similar to Stripe, Visa, and Mastercard to exist in the Ethereum network. These smart contracts are open source, meaning it would make conducting monopolistic practices, similar to those we see today, much more difficult.
On the fourth point, that money ought to have a finite predictable supply:
An interesting thought experiment is to view the Federal Government as a corporation. It collects revenue in the form of taxes, has maintenance costs, and then devotes the rest of its resources to better its shareholders (the citizens of the US). Unlike Amazon or Google, though, the Federal Government can print as much money as it wants. Imagine if Amazon or Google were allowed to print money to inflate their profits. What would happen to them?
They would stop innovating, become extremely inefficient, rapidly expand, and go into massive debt since they know they can always just print their way out. That is what has happened to the US Federal Government since it stopped backing the US dollar with gold in 1971.
Fiat currency systems are based entirely on trust, meaning that people only use the currency because they trust that the currency they are receiving will be acknowledged by other parties as valuable. Because it is hard to trust the entire world, centralized entities like governments regulate currency production so that people do not need to trust one other but can simply just trust the government.
Cryptocurrency, although it is legally defined as a commodity, is more practically a decentralized fiat currency. This means it operates just like a government fiat currency, but instead of a singular centralized authority controlling it–and being the sole source of trust–the whole world works in unison to control it, eliminating the need for trust. This type of monetary system is made possible by blockchain technology. In simple terms, a blockchain is where all participants in the system track everyone else’s transactions on their personal copy of a society’s ledger.
This allows the whole society to agree on who has what. If someone lies about the amount of money they have or fakes a transaction, anyone can look at their personal ledgers to confirm it is fraudulent. To prevent a bad actor from forging a transaction on someone else’s behalf, every transaction must be authenticated with the person’s unique “digital signature,” a cryptographic method that ensures the sender’s identity and transaction integrity. Furthermore, every time someone wants to add the ledger they must either do some form of work or burn currency, discouraging bad actors from over running the network with fraud.
A better system is needed:
Paper money, gold, and even credit card transactions fulfill some of these tenets, but are far from perfect. The only potential system that meets all four of these requirements is Ether, a cryptocurrency anyone can use with very low transaction fees and controlled volume. The Ethereum network is capable of employing advanced methods like Zk-Rollups and uses Proof of Stake allowing for low transaction fees, solving Bitcoin’s problem of high transaction fees. The biggest issues these currencies face is price fluctuation. Because Ether is not currently used as a global currency but instead traded like a commodity it experiences fluctuations in price contingent on the market. If we saw the mass adoption of Ethereum, it would behave similar to how currently mass adopted currencies like the USD.
It’s easy to sit around complacently accepting our imperfect yet satisfactory system, but most people in the world live within horrible monetary systems. For example, the Venezuelan economy was destroyed in the past five years by hyperinflation, caused by the government printing money to cover costs. The collapse of the Venezuelan monetary system led to massive amounts of suffering, with similar stories taking place in Egypt, Argentina, America, and Lebanon, just to name a few.
The stories of collapsed economies highlight one of the biggest flaws in current monetary systems: The government can print all the money it wants. We have all become accustomed to the government printing money, but further reflection is certainly required. The inflation the US government caused the past five years has made buying a home, paying for food, and saving for an emergency a lot tougher. One of the best things Americans could do for the world would be to create a secure, accessible, stable monetary system for the whole world to use, because when money gets better, life gets better.