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How Will Cryptocurrencies Create Freer, Wealthier, and Less Corrupt Societies?

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As this piece is written (April, 2021), it seems as it had been yesterday when Bitcoin traded for just three thousand dollars. Today, acquiring one entire Bitcoin a $60,000 investment, and there are many who wonder why this happened, when, and how.

The revolution for a decentralized economy has happened in front of everyone’s noses. However, many prefer to ignore it. The same happened in the past with transgressive products such as Facebook, Twitter, the internet itself: at the beginning most of the population was skeptical about them, yet, they ended up transforming humanity and becoming part of our lives.

The first thing to clarify is that cryptocurrencies are not a pyramid business, nor are they a casino where people bet to get the winning number -although some people may take it this way-. The real essence of cryptocurrencies is to serve as a mechanism of value between parties and help to promote freer, less bureaucratic and also more efficient economies.

It is common to hear at this point still people with great influence in the world economy, those who manage the U.S. Federal Reserve, and the big bureaucrats of the Central Banks talking about bitcoin as a scam and other pejorative adjectives, and of course, the reason behind this continuous smear attack is because cryptocurrencies are putting at risk the monetary monopoly that governments and big bankers have had for decades.

The Bretton Woods agreement and its influence on humanity

To summarize this history a little, suffice it to say that after the signing of the Bretton Woods agreement in 1944, following World War II, the dollar became the world’s reference currency, under the condition that it would remain attached to the gold standard. However, the various wars and the enormous public spending of the U.S. government made it impossible to remain tied to gold reserves.

During the Vietnam War, as the Federal Reserve printed money to finance war spending, the country ran a trade deficit and Richard Nixon finally determined that the dollar would no longer be tied to gold, and since then, what has prevailed in world economies are fiat currencies, which are managed by central banks, without any backing, and completely manipulable by the government of the day.

Richard Nixon (Image: Flickr)

Keynesian economic theories together with fiat currencies were the perfect cocktail for collectivist and irresponsible governments, who began to take advantage of the situation to promote harmful monetary policies and resulted in excessive public spending, while liquefying the national debt with the savings of citizens by devaluing their currencies and generating inflation.

All this has allowed, at least in countries such as Venezuela or Argentina, governments to print money without any kind of backing in order to promote socialist economic agendas without generating any kind of wealth, and to delay misery until societies simply collapse.

Although it is true that in first world countries, as is the case of the United States, monetary policies have not led to hyperinflationary processes as has occurred in Latin American, European or African countries, it cannot be said that their currency hasn’t been seriously manipulated for political purposes.

One thousand U.S. dollars in 1969 -the year in which Nixon took office- today would be 7,166.59 dollars, since the currency has presented an accumulated inflation of 616.7 %. This means that although the United States has managed to maintain certain stability and economic momentum, its currency has been devalued time and time again, and the citizens are the ones who pay the price by losing the purchasing power of their money, and also their ability to save. After all, inflation is another form of tax on citizens.

The United States, the once leading nation of world capitalism, has been progressively veering towards leftist and collectivist policies, with a Democratic Party hosting socialist representatives, and completely irresponsible public spending (in which the Republicans have also participated), which has meant that the dollar is no longer the reliable currency it once was.

By the year 1990, when the Republican George H. W. Bush governed, the U.S. public debt was $3.2 trillion dollars; by the year 2000 with the Democrat Bill Clinton it rose to $5.6 trillion. In the year 2010, after a couple of terms of Bush Jr., and already with the Democrat Barack Obama in power, the debt reached $13. 5 trillion; and finally in 2021, after the Trump administration and with the arrival of Joe Biden to power, who in his first days has pushed through some large debt packages, the debt has reached a staggering $27.9 trillion. American debt is already larger than the size of its economy.

American dollars (Archive)

Why do cryptocurrencies discourage corruption and foster richer and freer societies?

Fiduciary money has the characteristic of being managed by central agencies that have the ability to manipulate its value at will. In that sense, the stability of the currency will depend on the decisions made by the political group in power. This, in turn, creates a vicious circle in which the rulers decide to indebt the state’s coffers to finance populist packages in order to win over the electorate, and this same trend will cause a rebound effect in which, in order to maintain or reach power, the candidates will have to be increasingly irresponsible with public spending, charge higher and higher taxes, and devalue the currency more and more, with the purpose of being able to fill the fiscal gaps and survive in day-to-day politics.

Cryptocurrencies, on the other hand, being completely decentralized, eliminate the incentives of the political class to manipulate national currencies at will, while transferring to individuals absolute control over their money.

If most people within a nation decide to start trading cryptocurrencies, they will take away the rulers’ monopoly over money and this would completely change the political and economic structures of societies.

The moment the government loses autonomy over the national currency, it would force politicians to have to make realistic proposals for public action, as they will no longer be able to count on printing inorganic money, modifying interest rates or other gimmicks to manipulate the economy and finance their spending packages. This, in turn, would avoid large devaluations and alter the current economic system that encourages borrowing rather than saving.

“Buy bitcoins” (Image: Archive)

Cryptocurrencies, unlike fiat money, cannot be managed by the banking companies or digital wallets where the assets are housed. It is currently common practice for banks to use the money of savers to grant loans to third parties, which in turn generates interest, and creates an entire business infrastructure for the bank; if all people decided to withdraw their savings at the same time from a certain bank, the bank would go bankrupt, because the money does not remain sealed in the beneficiary’s account.

Instead, with cryptocurrencies only the holder of the digital wallet where the asset is stored can access it, no third party can use or manipulate that money for their benefit, and this would ultimately correct and prevent major economic crises, such as the corralito in Argentina in 2001, or the last major global crisis of 2008.

The future is decentralized banking

The numbers on the advance of cryptocurrencies are irrefutable, they recently reached a market cap of more than two trillion dollars (bitcoin has traded above $60,000 per unit) and companies that bet on decentralized banking have emerged and received large investments, in addition to tremendous support from consumers.

Recently, Business Insider revealed that Coinbase obtained a growth of 840 % in the first quarter of 2021, compared to the same period of 2020, reaching $1.8 billion, so now the company is raising its IPO; in the past Coinbase had traded in private auctions its shares at $350, and had a valuation of $90 billion.

Another major crypto company is Binance. However, its CEO, Changpen Zhao, said in an interview with Bloomberg, that he did not plan to go public because he had enough capital to continue growing without external financing. Last year, it had revenues of over $800 million, and Zhao trusts the decentralized economy so much that he said he has no assets in fiat currency, 100% of his assets are in cryptocurrencies, and even does not own property or real estate, because he says he prefers the liquidity and mobility that cryptocurrency provides.

Behind these two giants of the crypto world follow other digital wallets and decentralized banks that are betting on the new economy, and would also have among their plans an IPO or raising private capital to push more and more people to use cryptocurrencies: Kraken, Fireblocks, Curv, FTX, Bitpanda, Mercury Cash, Anchorage, BitGo, are some of the companies betting on helping to liberate the world’s economies by breaking through the bureaucratic shackles of traditional banking, and giving people the ability to transfer value in less time and at a much lower price.

Whatever the bureaucratic agents of banks and central agencies say, the market is massively backing the new crypto-economy, it is only a matter of time before people continue to take an interest and understand how cryptocurrencies can change the world, bring them greater economic freedom and improve the political interactions of nations, creating fairer and less corrupt societies.

Emmanuel Rincón is a lawyer, writer, novelist and essayist. He has won several international literary awards. He is Editor-at-large at El American // Emmanuel Rincón es abogado, escritor, novelista y ensayista. Ganador de diversos premios literarios internacionales. Es editor-at-large en El American

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