Crypto: 8th wonder of the world

The traditional finance system consists of you putting your money in a bank at a guarantee of getting a fixed rate of income and that bank using your money to loan out investments in the hopes of returning greater than what it promised to give you. This system is well and good and accepted for a few hundred years but some constraints are clear. These may be

1. A central authority controls what rate of return you may earn

2. A central authority determines how much money the banking system can release

3. The fact that there exists a central authority

This is where the internet kicks in, it ushered in an era of connectivity and a trend of not sticking to tradition, people have more power than ever in history at the palm of their hands, information is widely available and skillsets are widely decentralized, and the lack of public trust in authority figures have never been lower. Through this culture came an idea of creating a digitized currency, a currency that no authority has monopoly over, a currency that isn’t backed by any tangible assets, a currency that truly exists in the realm of free market capitalism.

These Clarifications are needed,

What is free market capitalism?

Who is this authority?

Let us start with that last one, an authority for controlling traditional finance is known as the central bank in Bangladesh and the Federal Reserve in the US. Contrary to popular belief these are not government controlled, they are independent institutions just like the courts responsible for keeping the economy afloat. And this is where the contradiction happens, in a free market capitalist society where there is freedom of investing and choices, is this responsibility of controlling the market actually needed? Or can it be used as a tool for not regulating but for manipulating the system and keeping certain institutions in power all the time.

In 2008 the people in the US saw how the banking system is flawed and big banks were bailed out by the government for failing to manage the money of the taxpayers. Cryptocurrencies look to solve the problem by shipping the slate clean. The concept claims to have no central authority, meaning no one can control how many bitcoins you can own or sell, but there is still a question of mining bitcoins and who holds resources of super computers to invest that level of computational power, aside from that people are led to believe that these currencies will be limited thereby more valuable, and as there is no central authority it has the luxury to be used in any form conceding to the general laws of any country. Meaning you can trade, sell, exchange, invest using these currencies, and the market depending on these values can determine its worth.

The concept is not a new one, we operate paper money using the same principle, but the significant difference is you can not just print money, because the Fed won’t let you, this means money is a valuable commodity and there needs to be considerable tangible assets behind money. Before 1920 money was measured against gold, but the gold standards were dropped in favor of the Feds making sure that the dollar keeps its value based on the market and soon most of the world pegged their currencies against the dollar. This means the world, regardless of whether individual central banks of individual countries depend on the dollar, the condition of the dollar can determine how much an economy can sustain its progress and vice versa. Crypto breaks that mold by saying we as a commodity have our own intrinsic value and therefore we don’t need to be pegged against the dollar or any other regulations related to maintaining a sustainable value of the dollar.

And here lies the confusion and supposition people still have with digitized currencies, that complexities of blockchain technology etc. are well and good and secure, everyone gets that, but the question still remains, if I as an individual don’t find value in bitcoin tomorrow what is a tangible asset that would make me wanna trade in your system in the first place? This individual belief system and human psychology is very important to understand properly. Money buys you bread, that is why you give value to that pieces of paper, you can’t buy bread with a gold coin regardless of the fact that probably it holds far greater value.

Cryptocurrencies by distancing themselves from the established institutions are banking on the fact that people will remain in the belief system of finding value in digitized currencies regardless of market fluctuations. If you believe that trading 2 coins won’t make you that much money and probably isn’t worth your time then you’ll cash it out and not invest and that makes the market go down even more and thus creates a trend of creating a few more non-believers like yourself. And thus this is the great risk, if a mass collective doesn’t remain loyal to the fact that they find value in it no matter what, then inevitably it will be disastrous.