Money printer go “brrr”. That’s an almost classic way of referring to the current financial system.
If you’re not familiar with this saying, it basically means that, for the last decades, a strong decoupling between currency and the value it represents is unfolding. Up until recently, there was a certain cap for the amount of money the world can print. Since the early seventies, this cap is becoming fuzzy. And during the last two years, under the pretext of a global pandemic, it went completely bonkers. There are literally trillions of dollars printed as debt, a debt that future generations should somehow pay, and this trend doesn’t seem to stop, on the contrary.
There are a ton of problems created by this situations. Some are easier to understand, some are more subtle. But the bottom line is that whenever the “money printer goes brrr”, without any underlying economic value to support this printing, the fabric of the world is becoming more fragile. It’s counterintuitive, I know, because the immediate presence and availability of money creates a sense of comfort, but as the rough quantity of money increases for no particular reason, this money becomes less and less valuable. Hyperinflation events like the ones in Zimbabwe or Central America are good examples of that.
Hence, the need for a financial reset.
There are many ways in which this can happen. It may be centralized, lead by the same actors playing the field today (governments and central banks) or it may be decentralized, fueled by the expansion of the cryptocurrencies phenomenon.
I just played a little with a scenario involving the latter. It’s just for fun, anyway.
So, let’s see how things could look like in 5-10 years from now, with a new global financial system based predominantly on cryptocurrencies.
The World Reserve – Bitcoin
There are a few indicators that Bitcoin is going to play well as a world reserve (and not necessarily as a means of payment, as per the initial design).
First of all, it has a fixed and controllable supply. Second, its proof of work generation ensures continuous competition for the network resources. Third, it already has a lot of exposure in the institutional world. And fourth, it does allow for layer 2 and layer 3 scaling, which may help with liquidity.
It is also the most widely known cryptocurrency at the moment.
In a sense, Bitcoin would be what gold “used to be” before the money printers went bonkers in the seventies.
The World Financial Apparatus – Ethereum
You can’t run the world on reserve, though, you will need some sort of financial “blood” flowing through the veins of it, and I guess this place will be occupied by Ethereum. Whatever the concept of “banking” would look like in 10 years, I think Ethereum will have a lot to do with it. I’m talking about synthetic assets, options, lending and pretty much every operation we are now delegating to banks and financial marketplaces. It is already showing a preview of this “future banking” with the DeFi phenomenon.
The advantages of Ethereum for this role would be related to its higher programmability level, its smart contract platform is way more flexible than Bitcoin, and also for the intelligence gathered during this wild period of DeFi. Every hack that we’re witnessing now, as hurtful as it is, will harden the network and the smart contracts. This is a very significant advantage and it seems Ethereum is well positioned here.
The Big Business Players – Interconnected Blockchains / DEXes (Cosmos, Polkadot, Thorchain)
These will be the equivalents of our current Apples, Amazons or Googles. The Behemots controlling business ecosystems, not only niches.
Their focus will be on fueling immediate value into measurable business processes, as opposed to creating and deploying financial constructs (the Ethereum realm). Creating a startup or deploying some business processes would be a question of being somehow part of these interconnected blockchains. It will be useful for raising liquidity (the eternal problem of the founders), and also for governance and user discovery.
Just looking at the Cosmos ecosystem, you get an open source Cloud (Akash), decentralized p2p marketplace (Sentinel), identity providers (Starname) and many more. All these verticals are built on the same infrastructure and their tokens are instantly swappable.
Every business will be tokenized by design. And it will inject its value proposition directly into the ecosystem, by using the interconnected blockchain infrastructure.
Decentralized Media / Social Media (Hive)
In all honesty, this is just a particular case of the above inter-blockchain ecosystem, but I thought it’s important to mention it.
Media, as we know it, will transition from a privately controlled algorithmic model, to a distributed, uncontrollable by a single entity, model. It will still be algorithmic, in the sense that attention will continue to be commoditized, but it will be way more flexible.
As it is now, media and social media algorithmic model is behind walled gardens, it’s private, leaving outside the vast majority of the participants in the system. In a way, social media exploits its main resource, which is people paying attention (like literally, paying with their attention) just like during the Middle Age aristocracy was exploiting peasants. In both cases, the amount of value that gets back to the owner of the asset (land and attention) is insignificant. It’s also true that the vast majority of people is not even aware they’re giving away for free something extremely valuable, so they’re satisfied with some ego boosters: likes, shares, comments.
In a decentralized model, the algorithm will work in such a way that it will spread the generated value towards all participants, rewarding contributions that participants deem valuable, without a middle man, and outside walled gardens.
A Mixed Bag
I’m well aware that this scenario is biased. There are still big parts of our world relying entirely on the current financial system, and, as broken as it is, it will still have to be there for these parts to continue existing.
So probably the “financial reset” will be some sort of combination between what we have now (which is “not ideal”, to say the least) and some very serious breakthroughs generated by the blockchain / cryptocurrencies disruption.
Photo by Brandon Jacoby on Unsplash
Initially published on my blog.
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It will be interesting to see how things pan out in the next few years. I was just trying to get some idea of how big crypto is. The Bitcoin market cap is about $1trillion whereas the world oil market is over $2trillion per year on its own. Bankers, companies and governments may not want to use something from a bunch of 'hackers' even if fiat currencies are in trouble. It may depend on what the people use, but I think only a tiny percentage are actually using crypto right now. It's largely driven by speculation rather than actual use, so of course the crypto community would love it to boom. At least Hive is usable with no transaction fees. I saw it is managing about 8 million transactions per day now, largely due to growth of Splinterlands.
I will admit I don't really understand how money 'works'. I know it's not based on big stores of gold any more. It just tends to be the poorest who suffer when the rich play with the markets.
I would hope that crypto can play a bigger part, but we are seeing more restrictions placed on using it. The crypto/fiat gateway is the tricky part, so we need more direct trading for goods in crypto. I have done some of that on Hive.
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You mean trillion right? Not billion?
Good breakdown and questions. I’d say more then “may not want to use” governments will try to Destroy bitcoin (and especially privacy chains) not just not use it. It’s a threat to them all especially USA and west. They look at it as a direct threat. Especially privacy tokens which unfortunately bitcoin seems to be moving away from. I’d like to see privacy be just as important as lightening but it’s clear to me many powerful figures in the space don’t care and would prefer pumping price over original mission. I hope I’m wrong and new privacy protocols are made priority.
Oops. Just not used to typing 'trillion' :)
I expect some people don't care as much about the privacy of their transactions, but governments really fear that. Expect scary stories about terrorists/paedophiles/drug dealers. They can't stop the technology being developed, but they can put up barriers around the edges. I haven't been able to send £ to by crypto debit card recently. Luckily I had alternate ways to buy some $HIVE.
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That's a nice way to look at things! I really believe what you described is possible.
I don't know if it's gonna be in 5-10 years but I think that's where we're headed.
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In future, cryptocurrency may be take place in terms of the fiat money, now a days technological support are used to maintain fiat money transactions, all the banks are computerised, accounts and transaction are based on computerised language. Few banks are allowed their application based financial service with blockchain based technology, so we can see that the acceptance of cryptocurrency roots are accepted by the financial regulatory. On the other hand, i can remember about amazon is acceptable btc for on line shopping and as far i know El Salvador is allowed legally btc transaction for any kind of payment. So, its not the question which coin take place instead of fiat momey but required exchange, purchase, payment with cryptocurrency is allowed and legal issue and in this race transaction smothness and fee less cryptocurrency is always advanced here.