RE: Crypto or Fiat Currency: It's All About Trust
What an excellent article! Thanks for this.
Basically, it has always been a dance between trust and mistrust when it comes to currency. One could also say that it is about the human currency. I assume that there will always be another specific view on one particular view. This always remains the same.
What has changed, however, is the method and the order of magnitude in which trust or distrust can express itself. Virtual currencies - whether they are called Fiat or crypto money, they are basically the same - can nowadays be traded virtually outside the manifest physical world due to the speed of the Internet. Nevertheless, these movements have effects on the physical world, i.e. the lives of organic creatures, including humans. Entire economies are currently feeling this. Even though I don't like the word very much, I use it in this context.
The difficulty is that virtual money has no relation to matter, i.e. much more money circulates around the globe than there is material value in return. How do you create material value when everything physical is already labelled, evaluated and in someone's possession?
As I see it, an equivalent to material goods must be created: Virtual goods in a virtual world. So that all the money that came out of nowhere can continue to be used. Perhaps nothing critical about this would be to say if it weren't for the topic of power consumption - gigantic server rooms that make room for 24/7 online life, as you have quite rightly integrated here. Finally someone who seriously puts it into a scientific article! And virtual money is only fun (at least present and predominant) if it can be spent in the real world: What matters here is whether we want to spend it on unrestrained superficial consumption. Which is kind of weird when you think about it.
I therefore take the view that crypto currency should not basically be a global dominant currency, but should only exist in coexistence with a variety of currencies - something quite different than propagated by some who would like an earth dollar (I read here somewhere on the blockchain). I don't see much difference between Fiat and crypto currencies in principle.
Crypto currencies can be viewed like all objects. As soon as one reaches dominance over all others, diversity is endangered. As with bio-diversity: in humans, animals and plants, good mixing is needed to maintain a reasonably stable balance.
This is truly a matter that people find very difficult to control. They over- or understeer and the mechanism of balance could almost be described as mystical.
What is said about decentralization I understand in the context of localization. Actually, a good life concept would be to maintain one part virtual currency, one part subsistence economy, one part sharing economy and one part self-sufficiency. World trade would remain, but no longer in the monstrance of today.
One point I would like to add and which is critical. You said:
Nakamoto's solution, Bitcoin2, addressed all of these issues. He devised a cryptography-based currency, one in which the transparency of proof would impart trust, and one in which the design would make transactions virtually irreversible. The essential design of this new cryptocurrency would be to time-stamp each computation in each step of a transaction so that reversing the steps would be "impractical".
As we are in the beginning phase of cryptocurrencies being in use and this will increase there is still the question of anonymity. You might have heard of criminal elements who use blockchain-technology and bitcoins for tax evasions and other acts against law. Darknet & Darkweb-related stuff...
And a question of trust again: Do people believe in the finite amount of the cryptocurrencies? As there is still laying ahead the event when the pool is declared to be finished, no? Maybe some of the pros can shed some light on this question.
You address just about every question that arose in my mind as I researched this article. The idea of currency, once you get past bartering, becomes increasingly abstract, removed from the commodity. I think economics is a nebulous "science" precisely because so much of its theory is premised on how people act--and that is never a certainty. The more intellectual and abstract the discussion becomes, the less "real" it is and the less likely to be reliable. I am more a student of history than of science, so I tend to take the long view on currencies. They have never held up over time. They are a matter of faith, mostly. Even gold and silver have fluctuated wildly in value. So I view virtual currencies as I do all others--with a certain amount of wonder, apprehension and hope. I think I have more hope in the crypto than in the fiat because there's more chaos and therefore less predictable malfeasance. But that's just a guess. Very nice comment. Thank you.
I am happy you came up with this kind of topic in the way you did!
I'd say I do have hope in the variety of things, no matter how the currencies are named and traded. I like to bet on complementaries as well as on coexistence.
As a history student you know of the rise and fall of things.
We can only ever approach controllable conditions and methods/technologies, but never really produce them completely. Nakamoto's dream, like that of many individuals, to create something that is highly waterproof and makes distrust unnecessary, could also be understood as an effort born of distrust itself - I am curious if it was. What matters now is what the rest of us make of it. Everyone is involved in sowing trust or mistrust.
I really appreciate to be in touch with you.
It is a pleasure :)