To be truly free, an individual must be able to spend their time in a manner that they choose. To live a free lifestyle, like backpacking affords, a person must have some semblance of economic independence. In my obsession of backpacking and the outdoors, I stumbled upon a form of value that shares my core beliefs; cryptocurrency.
What is Cryptocurrency?
“Cryptocurrency” is a blanket term for digital currency, the first and most popular being called Bitcoin. It is a peer-to-peer trading system where the digital tokens being used cannot be copied or double spent.
The value comes from each individual participating in the transactions. Every human involved is giving the currency value. Objects, services, and even other currencies, can be bought with it. This is exactly the same principle that money operates on. When enough people collectively decide there is value in, for example, the US dollar, then it can be used to buy things and services.
Why is Cryptocurrency More Valuable Than Fiat Currency?
We are living in the era of information and cryptocurrency is the currency of information. Think about how fast it is to send emails, pictures, and even videos. Compare the efficiency of digital mediums with that of fiat currency.
What is fiat currency?
Fiat currency describes money that is created by and given value from a central authority, in most cases, government. The most valuable fiat in circulation is the American dollar.
Its value comes from the US federal government. Bonds issued never fail and the economy of the United States, coupled with her military prowess, ensure the US dollar maintains its value. The US dollar is worth what its worth because the federal centralized banking system tells us that it is.
Most of the world’s debts, think mortgages, are valued in dollars. Fiat currency is the current method used for creating an economy based on spending and consuming.
Fixing the Efficiency Issue of Fiat
Fiat currency is great, for certain styles of trade. Cash is tangible and easy to understand. It is great for purchasing commodities such as lumber and food. It makes small transactions easy, like buying gas and dog food. For these small purchases, cryptocurrency will not replace it, at least not for some time.
Just because it’s not practical to buy a stick of gum with your bitcoin or altcoin (altcoin referring to a cryptocurrency that is not bitcoin), that does not mean it has no value.
The Problem of Inflation
Large purchases, such as a house or a car requires a large amount of fiat currency. Saving this amount of money is not practical, and there is one over reaching reason as to why.
Inflation. Because fiat, specifically the US dollar, has no limits, there is an unlimited supply constantly being printed and introduced into the economy. This causes the dollar to gradually retain less and less value over time. Saving money to make a big purchase can prove to be an exercise in futility as the dollars held become worth less and less. Compare this to the house you are saving for, its value only continues to rise.
To combat inflation, many consumers choose to take out loans from financial institutions. The idea, is that the initial lump of cash is used to purchase the commodity, generally property of some type. A successful investment means the payments made are less than the increase of value the commodity accrues.
This system works generally well, albeit not without its crashes. But the most discriminatory part of inflation is that is punishes individuals who save their money. It disincentivizes saving money and this makes it harder for people to make large purchases without taking on massive amounts of debt.
Cryptocurrency is Deflationary
While there are examples of certain altcoins being infinite, in general, most are limited in supply. Only a certain amount of tokens will ever be created and this produces value in the same way that gold has value. Because it is a finite resource, the value will generally rise overtime.
Like all markets, there will be speculation, booms and busts, but there will never be more bitcoins made. The same principle goes for nearly all other forms of cryptocurrency. This unique property of crypto makes it more practical to save than to spend. It creates a deflationary currency, perfect for those people who prefer to spend their money on limited things of value.
While it might not make sense to buy a pack of gum with bitcoin, it is practical to buy a house or even a car with it.
Speed of transactions
Cash transactions in person, are fast, about as fast as humanly possible. However, when an individual wants to send a large sum of money across the country, or even across the globe, problems occur.
Using services like wire transfers can be expensive and time consuming. Even bank transfers are long and arduous, with some taking a week. And don’t forget, these financial institutions are closed on weekends and holidays.
Cryptocurrency Transactions are Fast
If a person wanted to send 1,000 bitcoins, or altcoins, across the world, they could, and it would take under 30 minutes for the transaction to go through. The fees on the transfer are a fraction of the total amount moved, much cheaper than any fiat service currently in existence. There is also no time limits or geographic limitations. Sending 200 altcoins on Saturday night or Monday morning, whether you are in New York or Dodoma, it doesn’t matter.
For exchanging large amounts of value, quickly, and worldwide, fiat currency is the dinosaur to the tesla-like abilities of cryptocurrency.
Lack of Centralized Authority
Perhaps the greatest reason cryptocurrency has value is because it is decentralized. World governments have no ability to regulate it or hamper its movement. This characteristic alone is why many in the crypto community consider it valuable. If government ever did find a way to prohibit certain alt-coins, their value would drop to zero, instantly.
Fiat’s Problem with Authority
US currency is valuable because of the federal government. There is only one entity propping up, basically, the whole world economy, any failure or glitch in this authority could potentially be catastrophic for the entire globe.
This is a bottleneck to our current economic system and it is what drives the fear of fiat losing all its value. On top of the fear, there is also the inherent problem with centralized authority. It makes the entire system dependant on a handful of people, fallible individuals. Is this a system you would be willing to bet your life savings on?
Cryptocurrency is Decentralized
Every individual who engages with cryptocurrency is also simultaneously supporting the network. This creates a system of transactions that rely on every other transaction that has ever taken place. If, for example, the Chinese government shuts down the internet and all Chinese citizens lose access to the cryptocurrency market, it will still exist.
Every individual is their own bank and nobody is beholden to bureaucratic institutions.
This creates a robust and virtually indestructible form of currency. Without a central hub of weakness, there is less risk for a worldwide meltdown or failure. This makes crypto superior to fiat currency and a safer investment, as far as many are concerned.
Core Values of Cryptocurrency:
Freedom is Possible With Cryptocurrency
While learning a new method of currency may have a steep learning curve, if freedom is your ultimate goal, embrace the new technology. Cryptocurrency can free you from government constraints and needless monetary headaches.
I make no claims that cryptocurrency is the silver bullet to financial independence but it will prove to be an important asset, especially as it rapidly gains mainstream acceptance.