Not since the world came off the Gold Standard has there been such an opportunity of prime significance; the opportunity to come off the Fiat Standard. All it took was COVID-19 to start the transition that cryptocurrency needed.
To the general public, cryptocurrency is seen a bit like an experimental vaccine; they think it could be a great idea but no one really wants to mess around with it until they’re confident it could benefit their lives.
Sure, you can donate to Wikipedia using Bitcoin or even get some KFC (at selected restaurants), but no one takes crypto seriously enough to buy their groceries, receive their salary or pay their rent with it. The only reason most people are interested in cryptocurrency nowadays is for speculation.
But COVID-19 changes everything.
The economic impact of the virus has accelerated three particular trends of decentralization occurring across the world today.
Prioritising economic resilience over openness
Quarantine makes for bad business. COVID-19 has proven that our global economy with its international supply chains, high leverage and sensitivity to foreign relations (it just takes one person to start a trade war) is extremely fragile. By keeping our economies open, we have sacrificed their resilience. So, if one country shuts down, the whole world does.
Crypto (in a decentralized context) takes the power out of a single country and spreads it across the whole system. With cryptocurrency, no centralized authority calls the shots. If someone does something stupid, there may be a ripple effect throughout the system, but it will be largely isolated. Noone’s in complete control; so shocks to the system are isolated.
But governments and central banks love being in control. It all started when the the Gold Standard was lifted due to the Great Depression. The reasoning was that lifting it would allow governments greater control in the event of economic crises. Back then, money literally represented gold. So you couldn’t really print more money without also finding more gold. This meant governments couldn’t spend a ton and print money without any consequences.
It was ‘honest money’. But honesty didn’t work very well for governments. If your economy was doing horribly, you couldn’t really spend any money or do anything to improve the situation. So they changed to the current system; fiat.
With fiat currency, money represents… nothing? It’s just paper that the government says is worth something. Keyword: government. You need a trustworthy central authority controlling everything for the whole thing to work.
The thing is, if this central authority does something stupid, the problem isn’t isolated to a few sectors; it affects everyone. So, for example, if a particular central bank printed off $2 trillion to stave off an economic crisis that they probably caused in the first place, everyone would lose their purchasing power.
And when people realise their cash isn’t safe from stupid politicians; mass migration to crypto (where everyone’s in charge) will occur. All it takes is a lengthy lockdown and massive government spending.
A multi-polar world
The economic crisis has allowed more resilient economies to take charge and accelerate this decentralization trend. As Western economies show their fragility, other minor players see perfect opportunities to move into separate systems independent of the US.
This virus has shown everyone that the US is no longer the only major player in the global economy that everyone must bow down to. China is here. So is the EU. And Russia. And India will too at some point.
Because of this increased bargaining power, the world will soon start collectively making its own rules and one of them will eventually be the end of the US dollar as the world’s reserve currency.
There won’t be just one financial capital of the world anymore as there has been in the past. New York will have to share its position with London, Hong Kong, Tokyo, Singapore, and Mumbai (among many others). And then maybe these cities will have to share their positions with minor cities as decentralization trends continue (as outlined in the next section).
What a multi-polar system needs is a financial system backed by no one and everyone. No one should have to sacrifice power to any one country. And that’s exactly what crypto is good for.
As a global store of value, crypto doesn’t depend on the US market or the Chinese market; it depends on the world market.
Fiat currencies will no longer have to convert to the USD before converting into something else. They can switch to a common cryptocurrency, pay no transaction fees, lose no value and complete the transaction in minutes independent of any other country.
It’s possible the US dollar may not be replaced by the Yuan or the Euro; it might just be replaced by crypto.
The reason cities work so well is that they offer us greater access to better education and work. All we have to do is buy a house nearby or alternatively sit in traffic for a couple of hours to get to these opportunities. However, lockdown has proven that we don’t need cities for much of these opportunities anymore.
We no longer need to show up to class; we can just watch our lectures and complete our exams online. We don’t have to sit in traffic to get to our office; we can just do our work online. So why even buy a house near the city unless your job explicitly requires you too (perhaps if you’re a plumber)?
Therefore, what we will see is a drastic reduction in the people living in cities. Why live in a cramped studio apartment in the middle of a loud city centre when you could literally live on a farm and have the same access to education, work and opportunities?
So where will everyone go? They’ll go wherever maximises their income and opportunities. People will go where rent is cheapest and industry connections are still abundant. They will effectively spread out into local communities.
The population of a state will be distributed into diverse zones of similar industries. It’ll be like business parks for every industry spread across the whole country instead of packed into a city and its suburbs. And all these communities will no doubt be different culturally in their own way.
Due to this diversity, a central monetary authority that’s basically a giant middleman to all these communities would be far less preferable than a decentralized network of currencies (perhaps even one for each community). With no transfer fees, access to the global economy and no reliance on interest rates to determine value, each community can individually set the value of their goods and collaborate with others. Almost like mini-states.
Now I’m not saying you should go out and buy Bitcoin or that crypto is going to explode immediately in value after this crisis. I’m saying that cryptocurrency adoption is inevitable, and COVID-19 has simply accelerated its rise.
Header photos composed of photos by Tedward Quinn on Unsplash, and David McBee from Pexels
This article was originally posted on Medium on April 10, 2020