On-chain Banking Part 2: The Right to Capital

Welcome to this multi-part series showcasing on-chain banking and its potential to transform the nature of finance globally.

This instalment explores a conceptual question: Is money the property of an individual or the country of issue?

Modern money, or fiat, is essentially a contract between a government and its citizens/users. Since fiat currency is no longer backed by gold or other assets, it represents a promise or agreement between the issuing government and the users of the fiat. Everyone agrees that this piece of paper is worth X. Technically and legally, the money a government prints is not the property of the users. They have the right to do anything they want with it, such as printing more, changing its value, or limiting its movement.

However, we all work for money; we go to jobs and work hard to be rewarded with money. In many countries, it’s actually illegal to compensate people with anything other than money. Therefore, if you have to earn in money, then it should be considered the property of the person who earned it, and as their property, they should be able to do whatever they want with it.

This is a sensitive subject and one of the core value propositions of cryptocurrency. Since you don’t own your US dollars or Euros, cryptocurrency offers an alternative that you do own. This concept is known as self-sovereign money, or having individual control over one’s own money.

Money has been used to control populations for hundreds of years. The prevailing idea was that a country or group needs to protect its economy, so it must manage its own money supply. This is a valid and real concern. Even today, you see countries (and forex traders) manipulating economies for their own gain to the detriment governments and citizens. But this system was built before the global economy allowed money to move anywhere in a split second. In the Soviet Union, if a person wanted to take their Russian rubles out from behind the Iron Curtain, they could, but at an exchange rate of 100 to 1, and of course, no one took them up on this ‘deal’. Likewise, the US has a limits on the amount of money you can take out of the country without declaring it, which is $10,000. This rule was set in the 1970s when $10,000 was worth $65,000 in today’s money. The rules have not changed, but the value has due to inflation; as a result, every year the limit effectively gets smaller. However, these rules only apply to normal citizens; if you are a high net-worth individual or a corporation, then you can move money globally with little difficulty through the use of private banking and internal account systems. While the idea behind the rule is sound, the application limits normal citizens and benefits the wealthy.

In a global, connected economy, the concept of country-specific money breaks down. In todays system, one currency dominates; the US dollar. If you use a national currency (like USD) in a global economy, it will always favor one country. We have seen this first with the British pound and now with the US dollar, and there have been reactions against this, such as the recent BRICS nations discussing a single currency to rival the dollar. Here’s an example: if the US is trading with China but the US can print money on demand, then it puts the US in an advantageous position. Now, before you accuse me of being anti-US, I’m not; the same unfair advantage would happen if trade were done in Chinese RMB or any national-based currency.

Both individuals and countries need a fair, independent currency to participate in a global economy. The currency must be permissionless and trustless (see part 1). People should have the exclusive right to the money they have worked hard for and should be able to convert it to national currencies when needed.

This is where on-chain banking comes into play. When a person or company holds their assets on-chain, they can transfer them freely anywhere in the world. A person can put their dollar based stablecoins into bonds to generate a yield and then convert it back to a stablecoin instantly.

For companies, the use of on-chain banking is even more powerful in global trade. Using a currency that both parties agree upon and neither party controls leads to fairer trade with predictable agreements and faster settlements. You can already see this in places like Nigeria, where more than 50% of SMEs use Bitcoin for international trade settlements because it’s more trustworthy than the local currency and settlement is much faster.

While the idea of crypto as a complete replacement is appealing, the reality is that traditional banks and national currencies still have roles to play. On-chain banking acknowledges this and aims to bring them together to harness the best of both worlds. When all people and businesses have access to on-chain banking and the tools that today are reserved for high-net-worth individuals and corporations, we will see a surge in productivity and opportunities available to everyone, not just the few.

I’m the founder of MELD, and my team and I have been building an on-chain banking system for the past three years. Part of the reason for this series is to share our experiences and discuss how it will shape the future of finance in the next decade and beyond.