Blockchain and its narratives are changing at a fast pace. One of the most important ones doing the rounds these days is “Digital Currency Wars” These are new age currency wars, not the traditional “you devalue your currency, I devalue mine” rhetorics. Let me walk you through what has changed, what is leading this change and my take on this Paradigm Shift in New Age Digital Currency Wars. In my opinion, these will be shaped into something unfathomable and definitely something that we haven’t witnessed in the history of monetary policy.
The stablecoins were already there but what is happening for the last few months and weeks is quite ineffable and unimaginable. It all started with the introduction of Bitcoin ten years ago, and its gradual yet steep growth, with a huge fan base. The scarcity of Bitcoin and the decentralised leaderless movement initiated by it has obviously created a maximalist fan following.
Enter, summer of 2019, & LIBRA comes along. This is truly a catalyst because it has led to nervousness among governments and corporate alike. In this blog, I intend to briefly touch upon the contenders of this new crypto war by dividing them into 4 broad categories.
- Corporate Currencies for the first time in history
- Government backed Fiat currencies and their new Avatar
- Bitcoin the Maximalist saviour currency
- Influential Individuals and the Influential Currency
1. Corporate Currencies for the first time in history
For the first time in history, we have Corporate issuing their own currency vs the government. Remarkable if you think of this change, from thousands of years of history. It is quite fascinating to see that Blockchain has empowered corporations to introduce their own currencies which was unfathomable a few years ago.
First we have LIBRA and Facebook, one of the largest platforms in the world with approximately 2 Bn users. Not only the US, whom we saw expressing its concerns towards LIBRA in the senate hearings but also the Chinese, the Russians, and even the Venezuelans and the Swiss, everyone is concerned. LIBRA is indeed that catalyst, that can of worms that has all the currency ugliness crawling out.
My turn, jerk!!!
Secondly, how could other daredevils like Binance & Tether be left behind? While Libra has been making the rounds and there were some cold feet and developments in Switzerland, we suddenly saw an influx of some news last week when Binance announced its Venus platform & Tether the CNHT.
Binance is the largest exchange with a huge fan following and Venus, in my opinion, is a platform that they are building on their own BNB Blockchain. It will operate with local governments and fiat-backed projects where everybody including governments and larger institutions can issue their own currencies and their own stablecoins like BNB USD, BNB GBP, BNB INR, etc.
I would presume that Binance is already working with some African nations and countries like Malta where they are apparently registered. Knowing the pace of what CZ and BNB have been doing so far with the launch of one product after another, almost on a weekly basis, I wouldn’t be surprised if this turned out to be a huge success. However, we are yet to witness any such outcome since this is a complicated war, and it’s not going to be an easy ride.
Tether, on the other hand, has risen from its stable coin status towards a whole different purpose. Rumours are that Tether has introduced or is about to introduce CNHT which is apparently backed with offshore Yuan. I am not sure how the Chinese government is going to react to this news (I am expecting a huge reaction to be honest) but, on the corporate side, this is big news.
Thirdly we have already announced banking coins like JPM Coin and the Goldman backed USDC. Nothing new but many large banks must be planning similar. No one wants to be left behind and be the next Nokia. At least, let us put up a fight like Blackberry. Other corporations like Walmart, Amazon, Tesla, Google etc won’t be left behind and that is where we will see innovation, blame game, regulatory insights, and a whole new drama. Some are backed by the government; some are backed by the government-approved fiat and some are algorithmically driven. How this space spans out is no less than opening Pandora’s box.
2. Government backed Fiat currencies and their new Avatar
Firstly we have the Chinese central bank is apparently working on their own currency for the past two years. A digital native currency which is probably exaggerated by Libra’s introduction and Trump’s continuous rhetoric against the Chinese.
Then there are other nations which are gearing up to join the race with Russians and Rwanda in Africa working on cryptocurrencies of their own. Venezuela has already come out with Petro and the Swiss are also working on an E-Frank as we are to believe.
However, the bombshell was Mark Carney, the Bank of England’s governor asking central bankers around the globe to come together and, ‘let’s make our own Libra’ moment. Ballsy, but a great solution IMO. He urged all governments to come together and create a massive network effect larger than the US Dollar. So, we have corporates on one side today, which wasn’t the case earlier, standing against governments that are coming up with their own stable cryptocurrencies. Then there is a third actor i.e. Bitcoin.
3. Bitcoin the Maximalist saviour currency
I love Bitcoin so I could be biased so read this with a pinch of BTC salt. Bitcoin is leaderless, decentralised and an algorithmically driven movement that has attracted millions of users already over the last 10 years.
Bitcoin was introduced following the Great Recession of 2008 which had shaken the trust of the world that they had placed in the centralised, government-issued currencies. The inflation of fiat currency due to its unregulated issue made the world realise the need for a decentralised currency that is not under the control of a single entity. Additionally, its value is determined by the market forces and its supply is limited.
Its monetary base is fixed at 21 million and once you own a certain fraction of Bitcoin’s total supply, you will always have at least that fraction of it. Also, the total Bitcoin mined with the mining of every Block also decreases in every four years (Bitcoin halving) making its supply scarce. This is in a scenario when Bitcoin forms 70% of the entire cryptocurrency market.
It is this decentralised and trustless nature of Bitcoin that contributes to its popularity and sets the benchmark for cryptocurrencies which they are yet to meet. A trust in a particular currency increases with the members of the community that are supporting the network. In the case of Bitcoin, since the number of such nodes is higher as compared to other cryptocurrencies, this increases an unsaid trustless nature of Bitcoin. To put it in a nutshell, the number of nodes validating a transaction implies increased decentralization and protection against fraudulent transactions.
4. Influential Individuals and the Influential Currency
Then there is a fourth possible digital currency which no one is talking about (yet) but I find it extremely crucial to touch upon this. It is small groups of individuals or just individuals who have a great fan following introducing a coin of their own. Imagine if Pump, Bezos, Vijay, Ari Paul, Tim Cook, Balaji (not including Zuck Bucks here :) etc. collectively form their own cryptocurrency. There will be a massive user base comprising of their respective fan following which will immediately attract, I am also hoping that they would keep the good of humanity in mind leading to economic freedom for all.
In the end, I think it will be a treat to witness these four contenders of currency wars, Corporates, Governments, Bitcoin, and groups of smaller recognised individuals fighting for a cause. The cause will build its credibility. That credibility will create usage. It’ll be interesting to know about how it plays out economically and politically, along with the issues it’ll bring with itself. Will it get massive? Which will get massive? The unfolding of it all will be very interesting. The base layer of money as we know it will drastically change.
But, the primary question is, what will all this lead to?
- I think, all this means that from the traditional trade wars of currencies i.e., devaluation of currencies as it is happening at the moment, we are moving towards a whole new currency war regime.
- What it means for BTC is that it’ll continue to grow and attract more users as it is the only decentralised player in the room. It has the maximum amount of following and it is the genesis block of the new currency wars.
- In the end, I believe that it is all about trust and credibility. It’ll majorly answer the question i.e., who do you trust? The corporates, the governments, the Bitcoin or these small group of recognised individuals who have already proven themselves.
- This will all lead to the acceleration of crypto adoption. All very bullish for BTC and some altcoins which have real users and use cases.
In the end, this war of digital currencies on one hand, and extreme control with corporate on other won’t be a pretty sight. On the other hand, there are government corporate puppets like JP Morgan and Goldman who stand against a leaderless movement led by Bitcoin. Then we have the Govts coming up with their own ammunition and the addition to this mix of this new breed of individuals led cryptocurrency. These currency plays would be extremely interesting but in the end, the crowd will speak. Credibility & trust will win, along with ease of use, cost, and efficiency. Winner takes all this time.