By Alex Lightman,
Alex Lightman is the chairman of CoinField, a regulated exchange operating in 186 countries, which is currently offering the Coinfield coin at Coinfieldcoin.com. He is a director on the board of Tingo, Inc. (OTCBB: IWBB), Africa’s leading Afro-fintech with 10 million. Lightman is the author or co-author of five books, most recently the Amazon bestseller Augmented: Life In The Smart Lane. He attended MIT and Harvard.
Having money is good. But having to deal with money is a completely different matter. Ever since its inception as a means of value transfer and exchange, money has been a less-than-convenient commodity in terms of storage, transportation, management and — most importantly — control.
Managing money supply through monetary policy is the sole instrument at the disposal of a central bank — governing the interest rates that banks set for credit lines, which, in turn, affect the amount of money people and businesses will be willing to deposit or take out and inject into the economy. The fiscal policy applied by the state is no more effective because it does not stem inflation either, and naturally results in social discontent. Central banks and the states are unable to control inflation — the bane of economies, forcing central banks to continue printing money to satisfy growing prices.
Fiat currencies are currently entering a stage of outright crisis in both their evolution and application as a means of exchange. Though convenience has been added to the usage of money via the introduction of contactless payments through bank cards, and cash payments are on the decline, the predatory commissions that have been applied by financial gateways for such added convenience are eroding the benefits of their use.
More importantly, the Covid-19 pandemic has finally ignited the spark of an all-out global economic and financial crisis. Spurred by lockdowns and the virtual standstill of the global economy, inflation rates have skyrocketed across the world as scarcity has suddenly become a real and frightening factor in an economic environment of globalization that was supposed to have been one of plenty. The predacious behavior of some states in their unwillingness to share resources has caused the collapse of the global supply chain system that could not withstand the sudden increase in gas prices and tariffs. The result is the bankruptcy of thousands of businesses worldwide, rampant unemployment, general socioeconomic misery, and increased disparity between the classes. And the underlying asset of all these critical events is fiat money.
It is fiat money that measures the prices for goods and services that have been growing at catastrophic rates over the past two years. Food and real estate prices around the world have increased by 20% to 30%, which is higher than the officially targeted inflation of the US Dollar and other fiat currencies. In fact, inflation rates are approaching double-digit figures in many countries, which in themselves are approaching double-digit unemployment rates. The combination of these factors results in a dead-end loop of social tension and economic standstill that governments are unable to break with traditional stimulus instruments.
Dumping wads of cash onto populations that have been deprived of incomes is a very short-term measure that reinvests the dropped amounts back into the economy as a very temporary boost for consumer goods sectors. The fundamental reasons for the mounting inflation are not being assessed or addressed because they are concentrated in the institutions governing fiat circulation and storage.
The financial system and fiat as a means of exchange are outliving themselves, as evidenced by their inability to control the economic crisis and the persistence of the disadvantages of fiat. As such, new means of exchange are needed that would not rely on centralized authorities for governance and would be designed with their users in mind, rather than the issuing parties.
Fiat money is less than perfect as a means of exchange for many reasons. First and foremost, every bill can be traced back to its owner, meaning that the anonymity of fiat holders and their privacy are automatically removed from the equation.
Second, fiat money is subject to inflation and that is a process which cannot be altered by conventional economic means without having to resort to unpopular measures that could result in social unrest.
Third, fiat is fully centralized, meaning that all the finances of individuals are controlled by the state and can be used as leverage against them. The freezing of funds on accounts to deprive individuals of the means of transacting for goods and services is an instrument that has been used repeatedly by some states in recent times to influence either behavior or political standpoints. Some states even block the gold and currency reserves of other nations that they hold in their bank accounts, proving that trust is a major factor to consider when delegating fiat to a third party. In addition, traditional finances are monitored and personal privacy in transactions is nonexistent.
Fourth, available financial gateways are slow, centralized, bureaucratic, and charge commissions for their services. This makes them inconvenient for transferring funds across borders.
Not the least of the reasons undermining the dominance of fiat is the inconvenience of having to deal with physical cash, which is no longer viable in an economy that is rapidly transitioning into the digital age.
But an answer to the dominance of fiat over people’s personal finances and the global economy was introduced over a decade ago when Satoshi Nakamoto released the Bitcoin White Paper. The document and the underlying Bitcoin cryptocurrency became the prototypes for a form of digital currency that was no longer controlled by a centralized authority, bore value, could be used to make transactions, had an automatic economic system based on supply and demand, and was private — all the key concepts defining a perfect means of exchange.
Cryptocurrencies are a type of digital asset based on the new digital economy that offer effective solutions for its scaling and the introduction of business processes into its structures. As value carriers and highly versatile, flexible digital instruments, cryptocurrencies are perfect for bridging the gap between the real and virtual worlds, giving individuals financial freedom, and providing businesses with the opportunity to make new frontier discoveries in digital space.
But like all disruptive technologies, cryptocurrencies are being domesticated as regulators tighten the rules on their use. Frightened by the prospect of the development of a parallel digital economy, financial overseers and institutions are jumping on the bandwagon in an attempt to piggyback on the success of cryptocurrencies and to remain relevant for an increasingly disenchanted population that is migrating online.
Central banks were among the first in line to start adopting digital currencies in an effort to maintain control over financial flows, while giving users the confidence they needed in the stability of digital assets and their freedom from the rampant volatility that constitutes a significant drawback of all major cryptocurrencies in terms of price predictability. Many central banks are looking to launch their own centralized, digital currencies, called CBDCs, or Central Bank Digital Currencies, that would leverage the value of national currencies.
But from a strategic standpoint of economics, cryptocurrencies are becoming value-storage assets acting against inflation. This primarily applies to Bitcoin — the main cryptocurrency on the market, which sports a very high degree of reliability and a relatively low degree of risk. Given the fact that Bitcoin is not subject to inflation, but has its price regulated solely by the relations of supply and demand, it may well be used for international settlements.
If considered from a point of view of financial application and general economic feasibility, Bitcoin is the financial instrument for online settlements that the world needs.
Cryptocurrencies alone are rather useless in an online economic environment, without the proper supporting derivatives that would allow them to effectively operate across various business scenarios, a fact that has resulted in the development of several sub-sectors of the decentralized economy.
The DAO, or Decentralized Autonomous Organization, is one such effective tool for joint and equal management of a company or fund that would rely on blockchain principles of governance. The decentralized nature of DAOs means that all participants have a say in management via voting, doing away with the corruption potential of delegated authority.
NFTs, or Non-Fungible Tokens, are the main instrument of tokenization of real-world and digital assets for their use in online business and other environments. NFTs bear value through their scarcity and the fact that they can be tethered to virtually any asset with immutable and verifiable ownership rights.
DeFi, or Decentralized Finance, is a digital sector of financial services that acts as an alternative to bank deposits and credit lines. The sector offers a wide range of financial solutions for passive income generation, peer-to-peer lending, credit for institutions and investors, staking, liquidity mining, and much more.
The Metaverse is the latest addition to the digital industry, allowing entire online worlds to be built around a mind-boggling variety of use case scenarios, mechanics, and settings. Metaverses are the ultimate embodiment of Web 3.0 as a frontier for the digitization of real-world environments using a combination of virtual reality, cryptocurrencies, economic process gamification, and asset management.
Rising inflation will continue to erode global markets, until the adoption of cryptocurrencies reaches a tipping point and results in the ousting of fiat from its seat of dominance. Digital assets are not only people-oriented, but are also a means of exchange that is free of centralization, surveillance, and external control. This, and the fact that they bridge the gap between the real and digital worlds through the tokenization of assets, makes them ideal value carriers for the digital economy of the future based on Web 3.0.
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