Cryptocurrency vs. Unstable Economies
Hyper-inflation, government mismanagement, or even government incompetence robs citizens of their wealth. Governments like Robert Mugabe’s Zimbabwe have destroyed the wealth of their country. Hyper-inflation in Venezuela has done the same to their population’s stores of value. The world now watches as Brazil goes to vote on October 7. Will a new government bring back prosperity?
These are real humanitarian crises that impact hundreds of millions of people. While it is sad and tragic when hundreds of people are killed by tsunamis or earthquakes, it is devastating for me to watch as millions go without basic necessities because their economies and markets don’t function. What can be done to help? Can bitcoin and other digital assets really be the answer to the world’s problems? I’m not convinced that, in its current form, bitcoin is a panacea. There are still too many barriers to adoption despite its inexorable rise in status as a global currency. However, there are still ways that bitcoin can and will solve some of the problems faced by individuals confronting the problems of unstable economies and inflation.
I’m a firm believer that the ownership of personal property is a fundamental human right. And where governments cannot or will not respect that right, I believe that individuals should be allowed to take actions to preserve their ownership rights. Bitcoin, crypto-currencies, digital assets, and tokens secured by cryptography with ownership recorded on a distributed and decentralized ledger are a good way for individuals to own assets that cannot be easily confiscated by their government.
There are solutions to this problem that do not involve blockchains. Many people keep physical currency either in their own personal safes or in safety deposit boxes at banks. The US Federal Reserve now reports that there are more 100 dollar bills than 1 dollar bills. Is this a good store of value? You could argue that it is better than holding local currency and so is sub-optimal — the best option given a certain set of restrictions. However, it is not globally optimal, most investors would be better off having their money in a dollar denominated interest bearing account at an FDIC insured institution than held as pieces of paper.
Is bitcoin better than paper money held in a safety deposit box? Despite being a big proponent of bitcoin, I’m not sure that it is strictly better than cash. Physical USD is much more likely to be accepted as a payment currency than bitcoin. It is also much more stable in value. Bitcoin does have the advantages of being digitally transmittable and therefore transactions can take place without having to physically hand over piles of paper currency. I think bitcoin should be a portion of everyone’s investment portfolio, and perhaps more heavily weighted if asset security is a priority.
There are many problems with crypto-currency and digital assets in emerging markets. The primary problem is that it is hard to buy. Exchanges have a spotty record stability. The markets are not deep or particularly liquid. As a result, even if someone manages to convert their local currency into crypto, they may find themselves holding on to something that is difficult to convert back into the necessities of living.
My company, Athena Bitcoin, is trying to make it easier for everyone to access decentralized financial markets. Specifically, we help our clients buy and sell digital currencies, like Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Our primary business is operating Bitcoin ATM in the US, Colombia, Argentina, and Mexico. Anyone can use our machines. The process to exchange between digital and physical currency is pretty simple and straight-forward, as long as you have a smartphone and an ID. We are planning to have 30-ATM deployed in Argentina by the end of 2018 and many more in 2019 if we can secure funding.
I’m not the only person thinking that crypto can help people facing unstable economies or inflation. In fact it is very au courant in the world of crypto-people. The recent Crypto Springs conference highlighted this with an informal poll. I’m not convinced if this will translate into good allocations of resources, or as Travis Kling says, “crypto over-capitalizes attractive areas of investment so much they become bad investments”.