Can the system as we know it survive cryptocurrency?
A couple of weeks ago I was commissioned to write a piece on banks and cryptocurrency. I intentionally kept it relatively light and didn't dig too deep. The subject is a rabbit hole and I've been mulling it over ever since.
People simply take our financial system for granted and most people never think about the nature of currency, how it is created, what it is backed by and the level of trust that is required for the system to work.
Cryptocurrency represents a significant threat to the way the system is run. As such, it deserves to be given much more airtime in mainstream (legacy) media. Of course, the media has long since removed itself from informing people of anything and contents itself with bolstering flagging ratings by stoking fear, division and hatred however it can. This week it's Russia. Next week we'll be back to coronavirus. The week after probably Novak Djokovic. Anything but real analysis and real debate.
If there were such things, the world would be a much more interesting and dynamic place. It was Henry Ford who was quoted as saying
https://www.brainyquote.com/quotes/henry\_ford\_136294
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
What in God's name did he mean?
There has been much conjecture about what Ford really meant, but there is no doubt that he was alluding to the fractional central banking system that dominates the world today. Essentially, what this allows an institution with a banking licence to do is "to create money out of thin air."
No one (aside from those of us crazies on the edge) ever questions this. When we borrow money, we assume that the bank has the money to lend us. They don't. In this country, the banks are required to stay within LGS (Liquid government securities) and SRD (Statutory reserve deposits) ratios which are only a fraction of the loans that they make. So let's be clear when you borrow money from a bank, they make a book entry and the money appears in your account. Then, they'll charge you interest on it.
Think about it.
The banking system controls the modern world
So where does cryptocurrency fit?
Bitcoin was created as a reaction to the GFC in 2008 and one of its stated aims was to reduce the reliance of the world on the banking system. Most people paid it little attention. Most people were wrong. Today, a single Bitcoin is worth over $61000 Australian dollars. In many circles, it is regarded as virtual gold.
Most of the news on mainstream media paints Bitcoin as risky and volatile. So is the Australian dollar or investing in commodities, but they don't tell you that. Bitcoin is portrayed as scary and dubious. And as long as it is portrayed in that way, most people will steer clear of it.
But cryptocurrencies are getting bigger by the day
There are now over 10000 cryptocurrencies available. Bitcoin is not the only game in town and the system is trying desperately to keep up. Many governments are trying to regulate the use of cryptocurrency and imposing taxation rules that don't really fit.
Banks are scrambling to get a piece of the action, while simultaneously calling for more legislation. government-backed "stable coins" are being promoted by many of the financial establishments as the "responsible course of action." Of course, they do, because an uncontrolled and decentralised cryptocurrency network threatens the financial institution's position at the core of the financial system. Why?
Because it decentralises the creation of money. This can be best summed up in a tweet that I stumbled across the other day viewable here.
The implications of this are endless and perhaps unfathomable.
What happens when people realise that the emperor isn't wearing any clothes? I don't have any idea, but what we are witnessing right now in this age is perhaps the most important development since the industrial revolution. If a central authority gains control of the cryptocurrency market, it will rule the world with an iron-fisted grip. On the other hand, if cryptocurrencies continue to evolve and thrive in a parallel world to the financial system, it will only be a matter of time before the crypto economy overtakes and overwhelms the FIAT system that we know so well.
Nothing lasts forever. Every empire falls. Are we there yet?
We live in interesting times
Photo by David McBee from Pexels
Posted from my blog with Exxp : https://markhodgetts.com/can-the-system-as-we-know-it-survive-cryptocurrency/
Electronic-terrorism, voice to skull and neuro monitoring on Hive and Steem. You can ignore this, but your going to wish you didnt soon. This is happening whether you believe it or not. https://ecency.com/fyrstikken/@fairandbalanced/i-am-the-only-motherfucker-on-the-internet-pointing-to-a-direct-source-for-voice-to-skull-electronic-terrorism
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Please keep writing about this. I think the truth is they cant control decentralized Crypto.
That is scary for a government that wants complete control
I think you're probably right and I suspect that much of the market volatility is designed to scare people off, but I have no proof of that
There's a lot of personal responsibility with this stuff....Less centralization means we have to become our own banks.
I'm a fan of that approach lol
Interesting times ahead for sure.
You and me both Jon. The more personal responsibility the better
I'd like that too!
Crypto currency for me, is here to stay and is virtually taking over the whole world, all big tech companies or countries, will either find a way to plug in, or suffer a bitter financial consequence in time to come.
Yes, I agree to a point. The question for me is will they try to control it or will they bend with the wind? I think they'll try to own it an dI suspect that that is where they may came unstuck.
Excellent post Mark. I would love to see more of this. While I am not ready to walk away from fiat, I definitely see the advantage of adding crypto to my financial portfolio.
Yep. I'm not walking away from FIAT either, but I'm not blindly following the prognostications of banking executives either. One of the things that really worries me is bank bail-in legislation introduced in Australia. What this basically means is that if things start to go belly up, your money would be eaten up by the bank. It's not reported on and people don't know about it at all. But the legislation has been passed, so I prefer to keep my eyes wide open and consider all possibilities.
Crypto is definitely here to stay. The United States has a lot of catching up to do. We have a lot of roadblocks here that are slowing crypto growth down in my opinion.
I'm in furious agreement with you. Crypto represents a real challenge to the financial gatekeepers. At first I think they thought it would go away, now they're starting to adapt by trying to bend it to their will. It's a fascinating watch.
Well I think everything ends up being depending on collateral in the current fractional reserve banking system. I agree that things can go out of hand if you have bad collateral but I think it's fine if the collateral is good. After all, you can always liquidate the collateral to get what you need.
Point taken. FWIW I think the two systems will operate parallel to each other for some time to come. we live in an amazing and enthralling time.
I would have to agree with Mr. Ford most people myself included do not really know the monetary and banking systems running the world. We all have a sense that something is very broken and has been for a long time.
Hopefully, the system as we know it gets a much-needed upgrade from the introduction of cryptocurrencies.
Hopefully. I think we're at a critical juncture right now.
👍