Problems of cryptocurrency — the history of money, ReMoneta, and the future
Currency has evolved throughout the centuries in line with changes in technology and society. As technology developed, currency changed and evolved into more advanced forms, strengthening its role as medium of exchange, unit of account and store of value. Now we are at the doorstep of the next major shift driven again by advances in technology and society.
To better understand the potential ahead of us, let’s look back at the origins first. Why do people need currency? It’s all about efficiency, enabling trade and specialization. Under the barter system, people exchange goods and services for others. For instance, one person has excess butter while the other one has excess wool. They exchange butter for wool in a mutually beneficial trade. Things, of course, start to get much more complicated if you start trading commodities that are hardly divisible, like living animals, or those which are desired by few, and especially as diversity of products and their number increases.
To avoid the complexity, people figured out that some commodities, generally desirable by most people, may serve as a trade intermediary. Grain was one example but there were many others — tools, weapons, materials, clothing, gold, etc. The best means of exchange were easy to carry around, limited in potential supply, had some inherent value and were certainly desirable and easy to store (i.e., did not depreciate in value fast — a store of value).
During the wars and times of turbulence in the 20th century it was not uncommon to see that alcohol, cigarettes, sugar, oil and bread were used as medium of exchange as people lost trust in paper money. This was exacerbated due to the risk of inflation as governments were printing too much money to settle military bills, and also due to political risks of regime and currency system changes.
The former Soviet Union was famous for its barter trade where the most desirable goods (so called “deficit”) served as typical barter items. People held on to all “deficit” goods irrespective of the need for them, to exchange them into other “deficit” goods, e.g. toilet paper into soap, soap into perfume, perfume into furniture and so on. This happened due to a significantly flawed economic and monetary system, excess issuance of currency not backed by a sufficient number of desirable goods, and the general “planned” economy approach where supply and demand often did not match because prices were fixed.
So, the barter system has historically played a major role in the development of the currency system and even today, as soon as the general public starts to see significant cracks in the existing economic and political establishment, people start to hoard goods, the barter system ramps back up and there is a desire to replace the currency with an alternative. The state typically tries to restrict this change which often gives rise to back market activity.
After barter systems, the next major shift came by accepting commodities as a medium of exchange, which had limited intrinsic value on its own, however, fulfilled a superior role as a currency. Cowrie shells is one historical example. As long as everyone accepts them, and their natural supply is limited, such system works sufficiently well.
Metals, of course, are the best known examples of such systems that have served well for many centuries. Today, the gold price tends to increase during times of turbulence, and it acts as a safe haven because the public perception is that gold is a solid store of value, which has been engraved in the minds of people since childhood.
In practice, however, gold and silver prices have been very volatile and were often significantly affected by supply/demand factors. One famous example is the increase in gold and silver supply after discovery of America, causing a significant increase in inflation. Counterfeiting has been an issue ever since the widespread use of gold and other precious metals began and, of course, the content of gold in the actual metal has been a source of manipulation by people and authorities for centuries.
It is important to note that gold, for instance, has limited intrinsic value on its own, compared to barter goods used as medium of exchange, and its value is largely based on the trust and public perception of gold or any other metal being a secure store of value. The fact that gold has been around for so long is, perhaps, the single most important aspect supporting its use. Today most central banks still hold gold in their books to provide comfort to their citizens even though there is little practical reason to do so, given that gold has low interest rates and significant storage costs.
The next development phase took place when metal coins were introduced with specific weight and value characteristics serving as a standardized measure of value and unit of account. After coins came the introduction of paper money — first in China and later also in Europe, often through promissory notes. The ability to move from coins to paper money was, again, driven by technology, starting with paper production in China. Paper money represented a more convenient and lighter way to carry value around and enable trade on a wider territory. It was also influenced by social set-up, authorities, laws and their implementation. However, risks of counterfeiting also increased.
As soon as paper currency became widely established, currency issuers had the temptation to issue it more than necessary since the cost of banknote production was just a small fraction of its value as a medium of exchange (e.g., the cost of production of a USD 100 bill is 13.2 cents). Initially paper currency was typically tied to gold or silver, then with time the connection was gradually softened and later removed completely, leading to an increase in inflation and sometimes to hyperinflation.
The issuance of currency also brings financial benefits to the issuer. Depending on the structure and the system, central banks make profit and these profits are partially distributed back to the shareholders. Seigniorage is the term describing profit made by a government by issuing currency, especially the difference between the face value of coins and banknotes and their production cost. Seigniorage profits are typically part of central bank’s and government revenues and are used according to the needs and budget plan. People can influence profit distribution only indirectly, if at all. Even in democratic countries central bank independence limits the governments’ abilities to influence central bank finances.
Modern currencies, developed after the 1970s, were not backed by any single asset. Major currencies did not have any physical backing while other countries often linked their currencies against major industrial currencies that became so called “reserve” currencies. This led to a situation where central banks and their governing councils became key economic authorities, globally bringing new importance to the general role of central banks and its independence from the government.
With the change in central bank focus and the development of IT technology, the way currency was “produced” changed. The role of physical currency has been diminishing and the role of digital currency has increased. Digital currency dominates the physical currency several times and has the ability to eliminate physical currency completely, thereby reducing friction in the economy. Physical currency is more a habit than a need in modern economies with developed infrastructure and technology. At the same time, the cost of production for digital currencies is even lower than that of the physical currency thereby exaggerating the temptation to issue it in excess of what is required — and, of course, it is very hard to tell what is required.
Quantitative easing pursued by major global central banks after the great recession, was one example how central banks issued electronic currency in huge quantities by buying up government and corporate debt. It was equivalent to printing money without actually “printing” it and, of course, without any backing. It was all about trust.
This journey of the development of modern day currency systems leads to number of interesting observations and conclusions:
· Modern currencies are essentially based on “trust” in state authorities. People have to trust that their actions will be sufficiently reasonable not to erode the value of the currencies and that other people will also think the same. Trust can be lost because of direct government action, like devaluation, war, taxation, excess spending, or irrespective of government action if people, based on objective or subjective reasons, start dumping the currency, very often related to the expectations of government action, rumors or actions of other governments and authorities.
· The barter systems, instead, are based on the intrinsic value of particular goods used as a medium of exchange which is very much opposite to the system based on pure “trust”. As trust in the currency, country and monetary system erodes, people often turn to barter systems until a new credible replacement is found.
· Evolution of currency systems was enabled by the development of technology, skillset and social set-up. A move from metals to regular shaped coins with different denominations required new minting technology and skills. A move from coins to paper currency again was possible due to superior technology and materials to produce it. A move to digital currency was enabled by advances in technology and reduced economic costs for society. Most of these moves happened gradually, with parallel systems — coins, banknotes, digital currency, gold coins — functioning alongside each other for extended periods of time.
· Modern day currencies are rarely both — a medium of exchange and store of value. A store of value function holds only over short periods of time, since the very function of modern day central bank is to produce small inflation (2–3% per annum), i.e. to gradually erode the value of the currency to encourage consumption and economic activity.
· Thus, it is fair to assume that currency systems will continue to evolve in the future. It is not a question whether or not it will change, it is a question how and over what period of time it will change. Each time a major change happens, it addresses some of the existing weakness of the system that have become relevant for particular society.
How ReMoneta represents the future
Remoneta is a unique blend of new technology and sound economics allowing its users to address some of the major shortcoming of the existing currency systems.
· Remoneta technology is based on an improved distributed ledger technology that ensures superior security and removes single country or authority risk thereby enabling widespread cross border use. At the same time, Remoneta does not require “mining” that uses huge energy and environmental resources, but instead uses community mining, leading to the integration and promotion of positive real values in global commerce, a large and important step forward.
· Transaction costs for Remoneta tokens are zero. People can freely transfer tokens across the globe free of charge.
· Remoneta tokens are divisible. 1 Remoneta is equal to 1/10.000th of a dollar, that together with zero transaction costs enables the whole new segment of micropayments to be introduced, increases economic flexibility and eases trade.
· The ReMoneta currency is stable, it is not falling and not volatile like cryptos or fiat.
· The Remoneta group is backed by a physical commodity — a globally diversified land portfolio. Historically, land has been the single most sought after asset a person could have, exceeding even gold in importance and perception. Land is a symbol of wellbeing and wealth. Throughout the centuries, productive land has not only preserved its real value but also increased it due to population growth and technological advances. Land is a non-depreciating asset — it does not lose value due to physical or moral depreciation as other goods used in barter trading typically do, it increases in value. Land has intrinsic value of its own.
· Remoneta introduces the whole new concept of community mining where the community or society using the currency, including customers and retailers, reaps the benefits of its own actions and directs the profits (seignorage) for the causes it cares about — positive global values.
· Remoneta is designed to be global, distributed and managed by the community. It is not subject to any specific interests or country-based political policies.
· ReMoneta integrates a payment system, a network and platform, and allows retailers, community members and others to develop their own businesses, programs and offers on the network, using ReMoneta, expanding the economic benefit for community members and its own value to global commerce.
These are just a few of the changes brought about by ReMoneta, which replaces existing problems in both fiat and cryptocurrencies with solutions. Hence our title, ReMoneta and the future.
ReMoneta is a strongly capitalised ReFinTech company based in the EU. We have combined real estate (Re), finance (Fin), and technology (Tech) to re-engineer global commerce. At the centre of ReMoneta is our community. Together we have designed the safest and most stable integrated online currency system in the market. Visit ReMoneta.com or t.me/ReMoneta for more information.
