What are your thoughts about cryptocurrency?

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As part of my philosophy I’ve thought a lot about money and wealth because they are an important part of understanding how the world works. I’ve tried to learn a bit about cryptocurrency but I must admit I haven’t gotten around to researching it deeply. Here’s some preliminary thoughts I have about it.

First we need to think a bit about money. Money is just a tool to help us exchange value. The reason we participate in society is because we all get to consume much more value than we could create for ourselves. This happens because everyone can specialize in a niche and create a lot more value and then exchange it for money and use money to buy every other type of value one needs or wants from other specialists in society.

There are many fundamental problems with money though which I’ll get to eventually as I develop my philosophy and get to this topic. But for now the problem we need to focus on is about who gets to create money.

If anyone could create money, then why would you create value to earn money, you’d just create money and use it to buy what you need. But if everyone does that then there will be nothing to buy except money. And because money is so separated from value creation, it contains value as soon as it is made. You don’t need someone to create something of real value for currency to store value. So the people who create money, already have stored value without participating in the economy.

This is why, historically, money creation has been linked with violence and power. Those who were the most powerful and violent, like kings, mined the precious metals and minted the coins. They also used violence or threat of violence to prevent anyone else from creating money.

In a democracy, we’ve voluntarily given the monopoly on violence to governments and governments now create money via central banks. But as we’ve seen when you give this power to politicians they keep increasing the national debt and create money to bail out already rich and powerful corporations. In our world, money is also created by private banks through issuing loans without having to maintain a 100% reserve ratio.

This is the problem that Bitcoin tried to solve. It basically solved this problem by saying that no one should have this power and a technological system can create money. Blockchain technology allows us to put our trust in how the system works, instead of central banks and politicians.

But once bitcoin was created, people quickly realized that they too can create their own cryptocurrency and the space got saturated by greedy people looking to make a quick buck. Most cryptocurrencies are just pump and dump schemes. The creators and promoters hold most of the currency and hype it up till the Initial Coin Offering. As people start buying the currency using real money, the price of each coin goes up and the creators sell their coins and make off with the money.

Some cryptocurrencies have tried to remain useful but one big issue for them is that being a decentralized unregulated currency means their biggest users are criminals and terrorists and sanctioned states.

Cryptocurrency tried to solve one problem of money but there are other problems that haven’t been solved. And new problems have been created. Blockchain technology is the most valuable part of cryptocurrency because it is basically a system that has solved the problem of trust. In any area where we depend on trust on some humans, blockchain technology can eliminate that need for trust.

This is what I understand so far, although, I’m happy for anyone who’d like to correct me on something. It’s something I’d like to learn more about.

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Cover Photo by Mathieu Turle on Unsplash