How do digital currencies become money? Imagine a world dominated by digital economics

Bitcoin hit a new record high of 4.4 percent last Wednesday after a report showed that inflation in the United States had reached its highest level in 31 years; However, the price continued to undergo a deep correction and fell to lower levels. Bitcoin played into the hands of economists who ignored its potential as an official currency.

Economists who question the ability of digital currencies as an official currency argue that sharp price fluctuations prevent digital currencies from having the three main functions of money that have been proposed in the traditional economy. These three functions are the exchange tool, the value store, and the unit of calculation. If the value of a currency cannot be predicted and the price is constantly fluctuating, that currency can no longer play these three roles.

This seems almost undeniable, but what if the frameworks associated with these three functions are based on an incomplete or very limited definition of money? Based on that Note According to the Quin Desk website, we intend to move a little away from the framework and definitions of the traditional financial system and examine a theory in which digital currencies are used independently of common currencies, such as the dollar, as money in large and small exchanges. .

In his book Money: An Illegal Biography, Felix Martin argues that people throughout history have tended to mistakenly think of money as something like a banknote or a piece of precious metal like gold; Not what actually exists as a reliable social governance system for tracking asset transfers and debt settlement. When, instead of using money as a tool to achieve our goals, we see that we have to own it and raise as much money as possible, we have become their slaves.

In the Martin structure, the currency of a country or an internationally accepted economic system is an independent concept and is different from money. Currency is simply a tool that makes it easier to record, count, and evaluate transactions, which can be very difficult, in a society of untrustworthy people.

Therefore, cash can be considered as a tool for recording decentralized and peer-to-peer transaction records; A simple example is when a person deposits $ 10 into another account, his anonymous account owes the same amount in a dollar-based economy, and another account is credited. If you deposit these funds in the bank, you have transferred your account to a different accounting system, but this system ultimately has the same function.

Over the centuries, the monetary model based on national currencies has become the mainstream, as powerful governments have designed it as a system for social organization and control of the people. Governments have set rules for Fiat as well as gold-backed currencies, and by rating success levels, they have provided the basis for trust so that people can use the record-keeping tool. But this is not the only way to think about how to organize money.

Also read: The destruction of the world economy with government money: Ancient Roman hyperinflation and its similarity to today

How can traditional currencies be removed from the exchange cycle?

Now a new kind of open value transfer systems, resistant to censorship and transgender, has emerged. The digital currencies and blockchain-based protocols that underlie them can provide users with rules and frameworks of trust without the need for legal authority from governments; Even if their users have to obey the laws of their country.

Many digital currency enthusiasts, with the same “focus on physical nature” instinct, tend to think that bitcoin replaces the dollar or offers at least one equal option. But there is a way in which Chinese blockchain networks and digital assets eliminate the need for common international currencies.

We have a long way to go, but if interoperable protocols and transaction processing can be scaled up in a decentralized way, so that buyers and sellers of digital assets can make extensive use of atomic swaps without the need to trust intermediaries. , Something like a global system of categorized digital value exchanges would be conceivable.

If you are looking for a new car, you can buy it not with dollars, but with a portion of your other assets, such as a small portion of the famous Beeple token (NFT) token. Interestingly, this view seems to be a new and digital version of the old value exchange system, the exchange of goods for goods. Thus, the use of the divisibility of digital property, as small as it can be imagined, solves at least part of the problem of “synchronization of demands” in the market, which made the system of commodity-to-commodity exchange inefficient for civilizations.

The synchronicity of demands refers to a situation in which both parties to an exchange have both goods that the other party demands. In such cases, the parties can exchange without using money.

Now that this has been discussed, the laughter of traditional economists can be heard. They will probably ask what unit do you want to use in these exchanges to determine the price? We need a common currency so that we can offer a fair price for assets in different groups at the moment.

Of course, if we do not want to use a reference currency to set prices, we must create something that is unimaginably complex. We need an open and universally available pricing platform that receives data from an international network of price oracles. Oracles are software intermediaries connected to thousands of trillions of trusted and verified devices around the world. Based on a classification system for asset types, the platform continuously calculates and provides applicants with an almost unlimited number of changing reference values ​​in each asset relative to other assets. This is impossible in any way, or at least it will not be possible until we realize that we are on the verge of a unique situation.

But we do not necessarily need such a comprehensive situation to break the dominance of national currencies. The dollar can remain a global price reference, but people do not need to engage in it in their transactions. In fact, the use of common currencies as a means of exchanging and storing value can be discarded while maintaining their role as a unit of account.

Also read: The future of bitcoin; 12 scenarios from replacement with gold to destruction

Central banks in Singapore and the United Arab Emirates are currently looking for a way to interact with their national digital currencies. This will have a profound effect on investing in the dollar as a global reserve currency.

If we reduce our view to a scenario much smaller than the global commodity exchange system discussed, the prospect of similarly divided assets that somehow circumvent existing currencies or use them only as a price reference would be much broader. .

Think about how many people use Atrium not as a currency, but as a digital commodity that empowers the Atrium network. This digital currency is also used as an exchange tool to buy and sell unique tokens. Some people think that Bitcoin can not be an official currency, and despite all these negligence, this digital currency has long been used alongside Atrium as a way to raise capital to pre-sell tokens. In such circumstances, the dollar has always been present in the background as a transparent or, in some cases, relatively transparent price reference.

On the other hand, the more this situation continues, the more people think about Bitcoin, Atrium or other digital currencies. There are a lot of Bitcoin fans who like to remind everyone that the price of Bitcoin against the dollar does not matter and that one bitcoin is still worth “one bitcoin”. Many believe that Bitcoin, with its anti-censorship mechanism and limited supply, can become a basic collateral for the global financial system and play a role similar to treasury securities.

In the world to come, whether the dollar disappears completely or remains a price reference, the development of digital currencies shows that this system can ultimately be a global unit of account. Considering the other two functions of money, the means of exchanging and storing value, will the dollar still be money?

The answer is that the dollar has never been money, but an element of money and a dominant part of society’s system for tracking asset transfers and debt settlement. In the future, the role of the dollar in this system may be less important, while the role of bitcoin, atrium, counterfeit tokens and other digital assets may be more prominent. However, none of them will be money as we previously thought.