Our Economy Is Out of Date

sanneh_si
sanneh_si
Aug 12, 2019 · 6 min read

There’s this old economic principle, which is tied to credit, which is responsible for the expansion of an economy.

But we can’t keep going into debt forever, can we?

Expansion

Each time someone takes a loan, they’re using that money to spend it, perhaps to buy something. Anything.
The important part is that the money is added into circulation, hence the expansion. In an economy, people get paid that way, they find buyers for their products and services, they receive and they give. It’s a circle that goes both ways.

In economics, this is a measurable phenomenon that historically happens in cycles. For the past 10 years, we’ve seen an economic expansion of the greatest kind. And noticeably, people have been spending more as well. Consumerism is a driving force of an expanding economy. If nobody is participating, if money is not switching hands there would be no economy.

Contraction

If that spending can no longer continue, the expansion comes to a halt. In times of contraction, money is spent more diligently, the economic activity narrows and thus credits fall as well.

You had to have spent more than you have earned and suddenly your supply of money is getting thinner and thinner.

Credit issuance falls because of two reasons. There is little money to be lent at an affordable rate, and consequently borrowing money at a high-interest rate is risky in the sense that borrowers may not be able to pay it back, due to decreased income and profitable opportunities.

Central Banks

It can be argued that we’re nearing the end of the economic expansion. What is interesting, however, is that this time around Central Banks and Governments all over the world(FED, ECB, PBC) are enabling people to continue to take out loans at an affordable rate, to keep the proverbial wheel spinning.

Of course, this has some consequences. For this to be done, they(the Central Banks) had to loan money to banks at a negative interest rate. This simply means that they are willing to give the banks (who issue loans to people) $1000 today, for $990 tomorrow.

10 Year Treasury Bond yields reaching 0% or less.

This practice is only theoretically malevolent. The Central Banks are in control of the money supply. They can issue new units of their currency at practically zero expense to them.

They plan to simply keep shoving new money into the economy until certain economic measures become positive again. For example, the GDP measure is a good indication if the operating revenue of a nation is profitable or not, and by how much.

As new money gets added into the system though, its supply is increased and is more easily attained. For tomorrow, that means that the unit of currency will become less valuable and less desirable. This is an immutable rule of supply and demand. For today that means more money to play with and perhaps some hope.

A Flight To Safe-Haven

Increasing economic uncertainties and low yields of traditional assets warrant a flight to safe-haven assets, like gold, maybe even Bitcoin. In order for investors and people with savings to preserve their wealth, they need to store it somewhere, where it won’t lose value in the times to come.

Whenever traditional investment options like stocks, bonds, etc start falling, people usually sell them and sit on cash. With the printing of new money by the governments, the supply is increased and there is a good reason that your cash will lose value, too.

Storing your value in an independent asset class like gold or Bitcoin, hedges you against an economic downturn and minimize the amount of wealth you lose to negative interests, inflation, and stock price decline.

Price of Gold in USD

The price of gold has seen a sharp rise in the past months.

Meet The Ethereum Economy

While Bitcoin still remains a speculative asset and could capture 1% of an investment portfolio. Economic activity needs to shift from where the money is not only safe but provides a healthy ROI. Since government bonds are yielding negatively, and even 100y 1% bonds are blowing up — it is only a matter of time when they bring their money to Ethereum(a decentralized global settlement layer) and DeFi (P2P Finance), where APR can be had at upwards of 10% and risks remain only technical. 15 trillion USD is sitting in negative-yielding bonds. If only 1% of that was able to enter DeFi it would be game over.

Progress

There is a myriad of other opportunities to earn money in the Ethereum economy. For example, a German company was approved to sell tokenized shares of German real estate. Anyone in the world can buy a piece of that property from the comfort of their home.

“In other words, someone in, say, Indonesia will be able to buy 100 euros worth of Ethereum tokens and thereby indirectly invest in German commercial property.”

And that’s the beauty of it.”DeFi” literally means Composable Finance, or “Money Legos”. You can do lot’s of great stuff with it that may perhaps put an end to our economic turmoils. We’re going digital, what makes you think money won’t?

Money Legos

Another cool thing you can do is play “Ethereum’s Can’t Lose Lottery”. With the help of Ethereum’s secure decentralized layer and composability of finance protocols, you can buy lottery tickets that pool the funds to earn interest over a short period of time. The interest accrued is given to one lucky winner, everyone else gets their money back.

Programmed by people to work 100% efficiently for the rest of time. That’s Smart Contracts for you.

Game giants like Ubisoft are putting their in-game items on Ethereum as well. This enables gamers to take their hard-earned items, appearances, and characters with them into new worlds and trade them between each other.

The advantage of a global settlement layer is that people do not need to trust an intermediary with their property, yet it is stored in one global database that everyone has access to, but only they control.

While it is still in the adoption phase, much can be done already, and more than 300,000 people are using it on a monthly basis. In the coming months, users will be able to earn interest for securing the network in the Proof of Stake update, which circumvents the need for wasteful mining which consumes a lot of energy.

▶️Ethereum is cool. Start your journey at https://ethhub.io
📈Track the price at https://ethereumprice.org
📱Earn Interest with Argent’s Crypto Wallet
🐦Follow me on Twitter: https://twitter.com/sanneh_si
👉Keep Reading: 5 Things You Can Do on Ethereum Right Now

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sanneh_si

Written by

sanneh_si

A writer from Slovenia, cryptocurrency investor, web developer, and a big picture thinker. Can be found on Twitter, tidying up: https://twitter.com/sanneh_si

The Startup

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