Traditional cryptocurrencies are inherently unstable and therefore volatile. Few are backed by any valuable asset or State. Backing with a fiat currency like dollars means they are guaranteed to fall in value, since traditional currencies always fall in value in the long term. Backing with gold does not increase in value in the long term and means the currency will still be volatile. Backing with real estate offices, houses, shopping centres brings along risk, since tenants may leave, unexpected repairs may occur or laws may change.
There is no buyer of last resort for crypto. There is no legal reason to use cryptos (like paying taxes, for instance) or hold it. The fact that it is scarce and in limited supply does not guarantee stability as its clients are mainly driven by expectations and expectations of expectations. Especially when the system is new and lacks a track record. That increases the volatility of the system.
Is there a way out? Yes, but we must get back to basics. In the past, currency stability was specifically designed by backing it with precious metals — an established measure of value for hundreds and thousands of years. However, precious metals have little intrinsic value on their own, aside for being used for making shiny accessories. Their strengths are their limited supply, visual appeal and general acceptance. In terms of intrinsic value, the barter system is better since items bartered had value of their own. However, barter currencies often lack liquidity, general global acceptance and often are poor stores of value.
By backing cryptocurrencies with assets that have strong and generally acceptable intrinsic values we can improve the cryptocurrency features and the market perception from something inherently unstable and speculative to something which is solid and desirable. The traditional benefits of crypto currencies are thereby complemented with the stability and value of assets underlying them.
In the world of finance, there are at least 3 distinct asset classes:
- Fixed income assets like government bonds, corporate bonds, inflation linked bonds etc;
- Real estate investments, including land and buildings;
- Equity investments including stock exchange quoted stocks, and unquoted investments like private equity and venture capital.
One may also distinguish commodities, precious metals, works of art, hedge funds and other types of alternative investments, however, these 3 basic asset classes and their potential combinations cover most of the global investable universe.
Which one would be best suited for currency backing? Should it be liquid, stable or should it have the best possible store of value preserving the real value of the currency? If it’s about liquidity, then government bonds will top the list. However, traditional government bonds will not protect from inflation unless they are inflation linked. Inflation linked is therefore better, however, few countries have them, they are less liquid, and similar to government bonds, therefore one would still have to rely on the TRUST in State.
If it is about preserving real value or multiplying it over the long term, then our key focus should be on equities. Their long-term track record, at least in developed countries, has been strong, although an Oxford University study (see www.ReMoneta.com Philosophy paper for more on this) shows their long term value increase over a 200 year timeline is less than that of land. Also, they can be very volatile over the short to medium term. Companies are a risky bet, they may go bankrupt. In addition, buying many companies reduces risk but it also reduces return. Very few companies listed 100 years ago are still quoted on the stock exchanges today.
There is only one asset that is comparable to gold in its perception of value and stability throughout the centuries (and note that it is only perception and not reality that gold increases in value in the long term). There is only one asset that has its own intrinsic value — you can live on it, grow crops on it, keep animals on it. It produces income or has potential to do so and is increasing in value — land. Land is unique and no wonder so many wars have been fought to get it and preserve it. Land is a local asset with a clear global meaning. Land may have different forms — agricultural land, timberland, land for development, etc. The land portfolio may be diversified across different segments, countries and legal systems.
Land is not liquid but in combination with a cryptocurrency, where the underlying system is backed by land, it becomes liquid. Land value may be volatile over the short term but its long-term trend throughout the centuries has been clearly positive. Land as an asset is uniquely positioned to serve as the best backing for a cryptocurrency system.
Land funds, REITs and other structures which try to make land liquid are still highly regulated, have transaction costs, many are only available to sophisticated investors and do not have the liquidity, flexibility and low risk of a currency.
ReMoneta combines liquid land with zero transaction costs, micropayments with up to 12 million consolidated transactions per second, real world values creating a positive impact on the world and rewards for community members and retailers who drive the currency.
With all its features, ReMoneta totally re-engineers money and global commerce. In fact, ReMoneta is the first smart currency.
Hadley Barrett and Harijs Svarcs — founders of ReMoneta
ReMoneta is a strongly capitalised ReFinTech company based in the EU which combines Real Estate (RE), Finance (Fin) and Technology (Tech). Visit ReMoneta.com for more information.
