Bitcoin prices are increasing day-by-day and it has now initiated a conversation which focuses more on inflation and the value of currencies.
Bitcoin price rose 4.4 percent to a new high on Wednesday after a report showed that inflation in the United States hit a 31-year high and then lost all currencies during the day. They would argue that such volatile movements make it impossible for cryptocurrencies to serve the three functions of money described by traditional economics as the three functions of money:
- A medium of exchange
- A store of value
- A unit of account
The argument is that currency cannot play this role when its value moves so much without predictability.
Sounds almost undeniable, right? But what if the framework of the three functions is based on the wrong or too narrow definition of money? In "Money: The Unauthorized Biography," Felix Martin argues that throughout history, people have tended to see money as "something" (such as paper money or precious metals, such as gold) rather than what it is: a socially designed management system to track property transfers and transfers. debt settlement in a generally trustworthy manner. Because we view money as something to have and accumulate, we worship currency rather than treating it as a means to an end.
The currency of a country or generally recognized economy is important in Martin's construction. This is not money. Currency is simply a tool that facilitates the incredibly difficult task of recording, calculating and evaluating transactions in a suspicious community of strangers. In this way, cash can be seen as a decentralized peer-to-peer recorder - as if I were to give you $10, that amount will be debited to my anonymous dollar economy account and your account will be credited. When you deposit these funds in a bank, you move the account to a different accounting system, but end up doing the same job.
For centuries, this monetary model based on national currencies has prevailed because sovereign states shape it into a system of social organization and control. Whether fiat currency or gold backed currency, countries set the rules and create - with varying degrees of success - the basis of trust on which people use these recording devices. But that's not the only way to think about how money can be managed. Meanwhile, a new type of open, censorship-resistant and geographically independent value transfer system has emerged. Cryptocurrencies and their underlying blockchain protocols can provide consumers with a rule and framework of trust without obtaining their power from the government, even if their users remain bound by the laws of their country.
Many cryptocurrency proponents who share the same instinct to focus on things tend to think of Bitcoin as a substitute for the dollar, or at least offering a parallel alternative. However, it is possible to see a way in which blockchain and digital assets (a much better token descriptor for this purpose than "cryptocurrencies") completely eliminate the need for a universal common currency. We still have a long way to go, but if interoperability protocols and transaction processing can be decentralized properly so that buyers and sellers of digital assets can conduct atomic exchanges en masse without relying on intermediaries, a global system like this is possible for fractional digital exchanges. Score.
Do you need a car? You can't buy it for dollars but with some other properties, like your small share of this must-have Beeple token. Ironically, this vision looks like a new digital version of an ancient value-sharing system: barter. So, harnessing the power to divide digital properties into any size imaginable is at least part of the "wish-matching" problem that has rendered this system ineffective for civilization. Now I hear traditional economists laugh. How would you name this exchange? We need a common currency to overcome the impossible task of finding a fair price for any asset in various categories in real time.
And of course, to avoid using a single currency as a reference price, for example, we have to build something very complex. We needed an open, universally accessible pricing platform that received data from a global network of award-winning oracles connected to trillions of trusted devices worldwide. Based on a classification system for various assets, it will continue to provide an almost unlimited number of cross-reference values that are always changing in each asset relative to every other asset. That's rather unlikely, or at least until we reach the edge of the singularity.
But we don't need such a comprehensive country to break the dominance of the national currency. For example, dollars can remain a global reference price, but people don't need to get them through transactions. Indeed, we can eliminate dominant currencies from their medium of exchange and storage function while maintaining their role as units of account. Central banks in Singapore and the United Arab Emirates are already seeking interoperability solutions for their digital currencies with central banks, which will do just that. The effect on the dollar's investment status as the world's reserve currency is enormous.
And if we reduce our imagination to a much smaller scenario than the universal digital exchange system discussed above, the prospects for the fragmented area of exchanging goods through existing currencies or using them as reference prices are much greater. Consider how ether, viewed by many not as a currency but as the crypto wallet that powers the Ethereum network, is now widely used as a medium of exchange for buying and selling NFTs. And of course, despite all ignoring "Bitcoin can't be a currency", it has long acted together with ether as a means to raise money for token sales.
In this situation, the dollar is still in the background as an explicit or implicit reference price. Over time, more and more people think about Bitcoin, Ether or any other digital asset. There are lots of bitcoins out there that want to remind everyone that regardless of its price against the dollar, a bitcoin is still worth bitcoin. Many believe that Bitcoin, with its censorship-resistant, permanent delivery mechanism, can become the backbone of the global financial system by taking on a role similar to that of government bonds.
Whether the dollar disappears completely from the picture or remains the reference price in this world to come, the expansion of the crypto system shows that it could eventually become a universal unit of account. With the claim to two other functions that are considered money - a medium of exchange and a store of value - will the dollar cease to be money? The answer is that dollars - "things" - are never money. It is the money element, part, though dominant, of the social system of tracking property transfers and debt settlement. In the future, the role of the dollar in this system may be reduced, while the role of Bitcoin, Ether, NFT, and other digital assets may increase. Neither of them will be as money as we think.