Is Crypto Really Money From Nothing?
A simplified example for exploring crypto’s impact on our economy
One thing I’ve gone back and forth on over the past few years is the monetary and economic impact of cryptocurrencies. Because it really is like money from nothing. Today, the aggregate crypto market has a market cap of more than $1.6 trillion. 15 years ago that market cap was $0. So over the past decade or so, we basically added Australia’s entire economy in terms of wealth via the crypto boom. So what are the economic consequences?
Simplifying with a thought exercise
Let’s try to make it easier to think about with a thought exercise. Pretend that we live in a small town whose economy consists primarily of just two things — dollars and bread. People work to earn dollars and use those dollars to buy bread. Each day, the 100 people of the town buy 2 loaves of bread each from the town baker for $10 per loaf. So the transactional portion of the town’s economy adds up to 100*10*2 = $2000 a day. Given that there is only a single baker, the baker is quite the rich man compared to his peers. the townspeople on the other hand earn very modest incomes — $20 a day, all of which they spend on bread (they also have the option to eat less and save but most don’t).
