Cryptocurrency Success: The Inverse Of Our Present System

taskmaster4450 (85)in LeoFinance • 3 years ago

There is a lot of discussion surrounding what is wrong with our present financial system. We can point to a lot of things, most of which factored into the extreme wealth distribution we are currently experiencing.

Cryptocurrency was born out of the last major financial crisis. The bankers lack of responsibility (or greed) obliterated the entire global market. For this reason, Satoshi developed Bitcoin. This was a revolutionary concept that completely altered the future outlook of humanity.

In doing so, Satoshi solved two of the largest problems that are plaguing the existing financial system.

In fact, he basically inverted the foundation upon which things are built.

Source

Double-Spend Problem

The Bitcoin system solved the double spend problem. This was something that hindered many other concepts before this. With Bitcoin, the mining system was constructed in such a way that people could only spend the money once. Even though it operated in digital form, there was no way to send duplicate payments to two different wallets. The system would reject one of those transactions.

This is crucial but not for the reason that people think. While it logically addressed a core issue, since we do not want people to spend money they do not have, it goes much deeper than that.

Our present system operates based upon the fractional reserve system. Thus, banks are able to do much more than double spend. They can take the same money and produce debt off it multiple times.

So while the average person can take $10,000 and spend it once, banks can effectively do it a great many more time. Therefore, they are able to take $10,000 and turn it into $25,000. Or $35,000. Or more. Since they are only required to keep 10% on hand, they can keep loaning out the money over and over.

As time passes, the more money that comes back to the bank means more available for them to loan. Again, they could realize a 10x in the later since they only have to keep 10% in reserve.

It is easy to see why they are in the express lane in a high powered sports car when it comes to building wealth while everyone else is limping along on a sprained ankle.

Money Is Debt

The other challenge inherent in the existing financial system is the fact that money is really debt. If we look at a US Dollar, we see it is actually a note. For those who are unfamiliar with that term in the financial sense, a note is what one signs when getting a loan. Examples are when we purchase a car or a house. We sign a note which details the term of the deal.

When printing new money, this does not just magically happen. There is debt associated with each unit of currency in circulation. This means that interest is being paid.

The problem with this is there is never enough money to pay back what is owed. Whatever the total is, there is 100% of the money in circulation. Even if all the money was taken back, there would be an outstanding balance. The reason for this is the original money PLUS the interest is owed back. We are now in a situation where more than 100% of the in existence is owed.

That is why bankruptcies have to take place. Companies and individuals are required to fail since there is not enough money to cover the debt outstanding. The monetary unit itself is debt upon which more debt is piled.

It is a never ending cycle.

Cryptocurrency Is An Asset

How does cryptocurrency answer this?

Simply, it is an asset as opposed to debt. Using Bitcoin as an example, nothing is owed on the Bitcoin. When it is mined, it is a new unit added to the money supply. There is no note associated with it. Hence, the value is absent any obligations on the currency.

This means that whatever is built on top of cryptocurrency is doing so on a foundation of assets. What those assets are worth varies based upon market outlook. However, there are no bonds associated with the creation of the currency.

Now, coupling this with the double spend solution, we see how the entire lending system is altered. Unlike the fractional reserve system, Bitcoin can only go to one wallet at a time. Certainly, a similar system could be set up to mirror the present one if people so desired. However, it also opens the door to other possibilities.

One of the roles of money is that it is a tool for collaboration. The exchange of value is what allows us to interact. As we progress, both in numbers and in our advancement due to technology, more money is required. This is where the present system can excel. It is very good at getting more money produced.

However, it is not money, it is really debt. Ultimately, taxpayers are on the hook for that obligation.

Bitcoin is finite. This is one of the areas where it has extreme value. That eventually could cause problems when there are times where more liquidity is required.

Here is where cryptocurrency also excels. Bitcoin is not the only cryptocurrency out there. We presently have over 5,000 of them listed on Coingecko. This means that many tokens can operate in the manner of providing liquidity to areas where it is needed.

With the network effect, people provide the value to these tokenized networks through their activities. If a network is heavily used, with lots of transactions taking place, that will have value. Those without that will suffer.

Here we can see why cryptocurrency success is really an inversion of the present financial system. Thus, the flow of wealth will have to head in the opposite direction. Whereas the present system favors those closest to the central banks, this one does not care where one is located. New money is "minted" as an asset. It does not travel through a banking system but, instead, is distributed to private wallets.

When viewed through this lens, it is easy to see how the results should be remarkably different from what we are enduring right now.

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