In a capitalist society it’s hard for monopolies to exist. There are a few monopolies here and there, but they are the exception and not the norm.
There’s one aspect of the economy that has been a monopoly for centuries and that is currency.
Currency came into existence to bring order to a disorderly world that was desperate for some order. So why was currency so important?
Currency created a benchmark of value. Before currency people compared Apples to Oranges, literally. They would barter (exchange goods) based on no fundamental value.
How much Sheep’s fur would you trade for Potatoes?
Nobody had any idea. They would do it based on how much of the other quantity they wanted.
Currency came about and created a fundamental base price for all goods.
The next benefit of currency was to ‘Store value’ or what we call ‘Saved Effort’. If you were a potato farmer and if you planned to work extra hard this year and have a chill-pill, the next, you couldn’t. Even if you managed to grow extra potatoes and by hustling, got rid of them all. You needed to get other items in exchange.
With money, the extra you made, could be saved and used later to buy other things. It preserved effort. So if you worked extra hard this year and saved more money, there is a possibility that you could take a chill-pill the next year.
Over centuries, the value of products became clear. Processes became more open, and people knew what it would take to produce a product and they’d assign a monetary value to it. They’d negotiated based on that value.
Read also: Best Cryptos to INVEST in 2018
Say Hello to Crypto
After centuries of monopoly, the fiat currency has a challenger. A challenger that has grown leaps and bounds in just a matter of few years.
Crypto has become a contender and is knocking on the doors of the world’s decisions makers. So how will Crypto affect Fiat currencies?
The crypto-currency market is a sizable parallel market with a few businesses dealing with it exclusively. If some reports are to be believed, the market is worth $300 Billion.
Normal currency is highly regulated. Governments make sure to keep in check the supply and demand of money. They do it for various reasons such as, keeping inflation in check, keeping the import and export of goods steady.
So as and when required they control the flow of money depending on the circumstance.
With crypto, there’s no fundamental value. Nobody knows what 1 Bitcoin can get. They only trade it as a commodity.
But if you ask a person what $1 can get, they will list out items that they can purchase with that amount.
So there isn’t a value for crypto, but having said that. People are trading and getting paid in bitcoin depending on what the value in the market is.
Only recently, the crypto market crashed because of speculation and the price of crypto plummeted. With normal currency there wouldn’t be such drastic change because they are highly regulated. And regulation is good. It keeps the world and the world of business sane and to a certain extent predictable.
The Birth of a New Paradigm
Crypto is a big market by itself and it’s in parallels with the traditional financial world. It’s almost an alternative market run in an alternative world.
The banks cannot ignore crypto currencies because of the impact they have in the economy. Although, to actually get paid, people have to liquidate their bitcoin currency and get actual currencies.
Due to this surge in popularity and a large minority dealing with cryptocurrency it’s time for central banks to put policies in place to accommodate crypto.
The Case Against Crypto
Crypto has gained conquered the ‘Early Adopters’ segment and has spilled over to the mainstream. You have everyday joe’s looking to Invest in crypto. But there are still glaring issues with the crypto market. If laws are not passed to make them a genuine currency, they might not see a strong future.
A lot of pundits have called crypto a sham or a fad or a trend that is ought to die. The main case against crypto is the lack of fundamental attached to it. It doesn’t have an underlying and it isn’t a currency that is allowed by the governments of the world.
A lot of crypto experts have suggested that crypto currencies aren’t all that safe and there are major technological loopholes that can be exploited.
A solid analysis by writer Roman Semko lists our various reasons why Crypto is seeing its end. The main point he makes is
“Cryptocurrency is a new version of the older system – With a centralized system controlling the currencies”
Whether the current form of crypto currencies die, you can be sure that more will arise and will stake a claim amongst the mainstream and that is sure to affect the central economy and fiat currencies.
Central banks and governments cannot do anything except incorporate them and include them in the economic policies without affecting the economy and markets in a negative way.