Digital currency and its place in history
It is interesting to look at the history of currency to gain an understanding of the position cryptocurrency has in the present financial environment.
I analysed historical stores of value to try and pinpoint what had made them so successful. Though there are many facets required for any store of value to be considered acceptable, undoubtedly the most prominent feature that is very difficult to achieve is a position of universal acceptance. A famous example is the Spanish ‘pieces of eight’ which was a prime example of a ‘world currency’. I found the parallels between the worldwide adoption of the pieces of eight and that of bitcoin very interesting. In both instances, it was the natural trust and value assumed by the everyday person that legitimised its economic position.
Obviously, a single nation-state having such a powerful currency was at odds with global sovereign interests. In general, a store of value that loses the least value over a period of time becomes the accepted standard. Therefore, a natural progression to rare metals was adopted, including gold and silver standards. Again the cryptographic ‘mining’ process has parallels with the ‘gold rush’ and evolution of wealth. Early gold miners pushed into new territories and were able to make small fortunes relatively quickly before the masses came through and eventually big business. This occurred with bitcoin, early adopters being rewarded early, with corporations taking over later in the game. What doesn’t line up in this analogy, is the stability of bitcoin compared to gold or silver. Detractors often point out bitcoin fluctuation as a negative point.
As financial markets developed, nation-state currencies (usually backed by a rare metal standard) became the norm, eventually evolving into the fiat currencies we know today. The greatest change in world monetary policy came to the United States in 1971. This change was the float of the United States Dollar. There are obviously advocates and critics for the float system of currency. One point not to be overlooked is by floating a currency, the Government allowed itself much greater control over the currency supply. Ideally, politicians believed this would help stabilise currency supply and inflation. However, as has been witnessed on occasion, the world has witnessed severe mismanagement of nation-state currency and this has given rise to thoughts of an alternative or ‘world currency’ that is not tied to a particular nation-state.
This is where cryptocurrency enters the story; in particular bitcoin. The adoption has been driven by the mistrust of existing systems, the appeal of decentralisation and a pinch of social rebellion. At present cryptocurrency is at the crossroads of its future. Many Governments have embraced the evolving technology however not without strings.
Governments are rightly concerned about the use of a relatively hard to track digital currency being a hotbed for terrorism financing or money laundering. I believe these concerns are entirely warranted; the issue is how do we tackle the problem without eroding the benefits of the cryptocurrency system. If this question can be answered, bitcoin (or possibly an alternative cryptocurrency) may become the first true world currency with no borders.
Time is riddled with failed attempts in naturally creating a truly global currency. How cryptocurrency tackles the regulation issue will cement its place as either a revolutionary monetary technology or a virtual doubloon; consigned to history.
