Nick Hubble – Capital and Conflict (United Kingdom) –
Ever found yourself with a Scottish banknote south of the border? Or a Northern Irish one on the wrong side of the water?
Britain still has ten note-issuing banks. These are banks who issue their own pound banknotes. They look different to the Bank of England ones most of us are used to. But they’re legal tender just the same. Not that everyone abides by that law…
Competing currencies is the path to success
Did you know the history of money is largely private? Especially in the UK.
Private as in non-government. Banks used to issue their own money. Until governments became powerful enough to steal the right off them.
Well, cryptocurrencies represent the first reversal of this government theft in hundreds of years. Suddenly, anyone can issue a currency. And the value of that currency will be determined by its merits, not fiat. Fiat means government decree.
If money is valued on its merits, that completely changes the currency game. New questions start to matter. Is it easy to use? Easy to keep? Safe? Stable? Does it have value derived from something else?
Combined with open competition, these are questions that encourage money to be the best it can be for the user – you. They encourage innovation, trust, reputation, stability, and many more good traits.
Compare that to money by fiat, meaning government declaration, and you can see how the motivations lead to different results. Governments abuse their currencies terribly. And we’re stuck using them.
Cryptocurrency chaos is just the beginning
There are thousands of ways to design a cryptocurrency. And thousands are already in existence, or being designed. Anyone who dismisses all of these is naïve. Their characteristics will make them succeed or fail. And they’re too different to be judged together.
Take, for example, gold backed cryptocurrencies. There’s a variety of these alone. Each is slightly different.
It was just the same during the free banking eras of the past. Free as in free from government. Gold and silver were cash. Banks issued banknotes which could be redeemed for gold and silver at the bank. But people stopped bothering to redeem them, making the notes themselves money. Today we call them cash.
Entire currencies rose and fell on the merits of the bank’s policies of lending and keeping gold and silver reserves. It sounds chaotic. And it sometimes was. But government currencies have been pretty messy since, too. A debate still rages between historians and economists over which option protects depositors best.
The same process is under way with cryptocurrencies. The duds are being separated from the currencies with potential. Failures are purges of bad cryptos. They strengthen the system, not signal its weakness.
What cryptocurrencies enable is a new free banking era. One where the powerful forces which made private money successful operate. Innovation, competition and freedom.
Only this time around, governments will struggle to stop the world’s new moneys.
Currently, the most popular use for cryptos like bitcoin is to escape government restrictions. And to speculate, but that’s not an actual use.
The return of free banking
Sure, bitcoin is imperfect when it comes to escaping the government. But some of its competitors are looking rather robust.
If governments can’t shut down these new currencies properly, then their monopoly on money is under threat.
Hence the response. Governments around the world are cracking down on cryptocurrencies. In most cases they can’t, so they’re cracking down on cryptocurrency exchanges instead.
But that’s been working well enough. The latest crackdown in the US has bitcoin below $10,000. But that’s barely a blip in the history of crypto so far.
If you have any faith in the ability of free markets and competition to deliver the best result over time, and once you realise the same applies to money, you have to believe in cryptocurrencies.
Until next time,