Paper vs crypto: who really owns the money?

In the age of negative rates and high transaction fees, the slogan is “Cash is the king!”

This is true both in Europe and in Japan where citizens have met similar problems: their savings are not safe in bank accounts. Value is melting down with negative rates policy. Banks enforce transaction fees high enough to affect the end price of goods and services. Sometimes rules are so unnecessarily complicated and illogical that customers prefer not to interact with them at all. People prefer to keep paper cash in their safes or under mattresses, rather than to trust their money to banks.

It may sound a bit odd, but at the beginning of the XXI century, a thick wad of cash sometimes looks more attractive than a platinum card. Despite all the troubles that physical money brings with it (size, weight, change aspects, etc.) and overall rather poor UX, “my money stays mine” outweighs all the deficiencies.

Paper money also has another big advantage: its spending data can not be sold to third parties. Many analysts name spending data as the banks’ biggest asset. Privacy is attacked from all sides in the age of targeted ads and search data analysis. Paper money gives users a much higher level of privacy than any other means of payment or value storage, controlled by banks.

However, there are several big disadvantages. Paper money deficiencies are directly connected to the nature of this medium of exchange: paper fiat money.

First of all, there is hyperinflation. The government can start printing money and this will rapidly devalue already existing. Zimbabwe is often quoted as an example of hyperinflation — billion-dollar notes with less value than the paper itself. However, the “printing machine” scenario can be much closer and affect even a relatively well-to-do economy. Following the financial crisis of 2008, the Bank of England created £375bn of new money, thus devaluating the savings of many British citizens. Venezuela is a more recent case of the unstable economy and hyperinflation, where prices double every two months and the country’s government prints paper bills with six-digit nominals nearly worthless for the population.

Stashing paper bills becomes meaningless if there’s a risk that they can become just paper. The only difference, in this case, is the speed — it can happen gradually or nearly instantly.

Another threat is the government proclaiming certain series or banknotes obsolete. While it can be beneficial for the economy (lowering money mass, fighting corruption, introducing new measures of protection, making things harder for criminals, money launderers, etc.), it can annihilate people’s savings. It can also be coupled with the limited exchange of old notes. In most cases, it affects larger bills that people tend to use for saving their money. A historical example can be found in the 1990s in Soviet Union/Russia, with several consequent reforms removing high-value notes from circulation along with people’s savings. A more recent example is India’s Prime Minister Narendra Modi’s move. In November 2016, 500 and 1000-rupee notes were declared worthless. In both cases, it caused mass panic and took away savings and the purchasing power from the hands of millions of people.

Then comes the physical nature of paper fiat money. Paper money can be stolen and used by criminals. It also can be damaged or destroyed by fire. This is the case when 100% of savings can disappear in a single moment.

Yet another problem is that sometimes the local currency locks its owners inside their local economy. Unfavourable exchange rates, prohibitive tariffs, and other things lower the purchasing ability. Since most international payments are cashless, the way from savings in paper cash to purchase at, e.g., Amazon or its analogues could be unnecessarily complex, with money, losing a part of its value in the process.

Digital assets can help to mitigate to a certain degree all the mentioned risks connected with storing paper cash.

  • The system is bankless and disintermediated. There’s no middleman between the customer and the merchant, which means much lower (if any) fees and safety of private data. Here crypto competes with cash.
  • Crypto is protected from inflation in different ways. E.g. there’s a finite number of minable bitcoins. In many cases there’s no possibility to start a “printing machine” and such measures will not be supported by the currency’s community.
  • Since digital currencies are not government-regulated, they are much less susceptible to governments printing cash, cancelling some denominations, or mismanaging the country’s economy. Crypto value is regulated by the market alone, and it looks like the amplitude of price swings grows smaller and crypto loses its attraction as a speculative asset. In cases of hyperinflation, digital assets with their ups and downs are still more stable and provide a better value storage function than paper cash. Analysts note that the growing number of owners and users of crypto tend to stabilize the crypto value, making it more feasible as a storage of value.
  • As long as your keys or cold storage are secure, your crypto money is very unlikely to be stolen or suffer damage from fire.

Cyclebit provides a simple and affordable solution for accepting and paying with crypto. It connects businessmen and crypto owners. We work to give the majority capability to save, buy with, or accept crypto. Cold storage, based on Tangem technology, provides sufficient security for digital assets.

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