Why Cryptocurrency Should Terrify Governments

Each generation or thus, money is going through an evolutionary change, and in 10 years the fiat currencies currently in use will be considered relics of a bygone era, much like the fax machine.

Artificial Intelligence (AI)-backed cryptocurrencies are about to invade the world of money, bringing with them a level of stability that central banks promised and never delivered. A whole new architecture of the global financial system, including investment, is about to unfold.

In the investment world, the days of the brilliant stock picker may be numbered. AI and predictive technology will swallow them whole.

All currencies suffer from a critical deficiency: their values ​​are unstable. Much depends on the central bank’s control over the issuance of new money and the resulting inflation that eats away at the value of currencies. This complicates the world of trading since all trade relies on a floating barge of varying monetary value.

South Africans understand what this means. The rand is the most traded emerging market currency in the world.

This might be an extreme case, but all currencies in a free float system suffer from the same problem.

Bitcoin attempted to change all of that by removing money from the control of all central banks. There will never be more than 21 million bitcoins in circulation. Since its launch in 2009, bitcoin has grown from nothing to over US$12,000, making it the best performing currency in the world over the past decade.

wild swings

The crypto universe has been defined by bitcoin and a few lesser coins fueled by speculative interests and wild swings in value.

But as a payment system, none has been able to replicate the speed and convenience of a Visa card system with payment executed in seconds. This will change as technology and transaction speeds improve.

Lars Holst, founder of London-based crypto exchange GCEX, has studied the future of money for years and believes Africa is ripe for a crypto currency revolution.

“I don’t think we are far from replicating the Visa and Mastercard payment systems in terms of speed. The whole forex settlement system is inefficient,” says Holst, who previously worked in forex at Denmark-based Saxo Bank.

“The fiat money system has been corrupted by central banks printing excessive amounts of money and depreciating currencies. Many of the new cryptocurrencies coming into the world are taking that power out of the hands of central banks. It is clear that the future is in crypto rather than fiat currencies.

Bitcoin founder Satoshi Nakamoto and others have pondered the question of a future monetary system using blockchain technology to verify and validate payments between two people transacting anywhere in the world.

In 2009, Satoshi explained the problem with the current fiat money system that inspired bitcoin: “The fundamental problem with conventional money is all the trust needed to make it work. You have to trust the central bank not to depreciate the currency, but the history of fiat currencies is full of breaches of that trust. Banks have to be trusted to hold our money and move it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

The current monetary system that Satoshi complains about is a relatively modern confection. As David Birch points out in his book Identity is the New Money, we entered the world of fiat money when Richard Nixon ended the convertibility of the US dollar into gold in 1971. As such, fiat is relatively new. The next evolution is now about to sweep it away.

“Just as the mechanical, uniform, mechanized currency introduced by Isaac Newton in 1696 was a better fit for Industrial Revolution commerce, we can expect some form of digital currency to be a better fit for trade in the age of the information,” Birch writes.

Holst argues that fiat currencies, if they exist 10 years from now, will take a small share of the market. “We are in an age not just of data, but of information. We upload information to the blockchain in encrypted form so that it cannot be seen by other people. By 2030, we will see a more private use of what people decide to do with their value. They will have simple keys to keep this information private in a global public network where it is saved but cannot be changed.

Huge impact

What is about to be unleashed on the world should terrify national governments and central banks. And the impact of cryptocurrencies on developing countries is likely to be enormous.

Vodacom and Safaricom launched the M-Pesa mobile money service in Kenya and Tanzania in 2007, allowing users to deposit money into an account stored on their mobile phone and transfer funds using SMS secured by PIN code to other users – and exchange money instantly.

Millions of previously unbanked people now have a payment system that bypasses banks and is being studied around the world. There is only a relatively small step between this and the crypto sphere and monetary independence.

There’s a lot of talk about cash moving into the digital age, but we’re already there: cash is only around 4% of the total money in the system. The poor – those without bank accounts – rely heavily on cash, but this comes at a cost.

Cash is acceptable to vendors because its value is certain and, although counterfeit notes are known to exist, they are not plentiful enough to disrupt trade.

Enter the stablecoin…

Gregor Kozelj is the developer of the X8 stablecoin, one of many stablecoins providing monetary stability by spreading assets across the world’s eight major currencies as well as gold.

Kozelj is a former portfolio manager who spent several years developing a portfolio risk management technique that was not based on predicting whether asset prices would go up or down, but on measuring and limiting risk. of decline. He then transposed his system to investments and banking, where treasury systems could be stress-tested in milliseconds instead of months.

It was from this experience that he developed the X8 stablecoin. Backed by AI, it is designed to fight inflation through artificially intelligent reweighting of the eight underlying currencies and gold.

Many companies attempt to replicate this by spreading their cash across multiple currencies, but this is both expensive and unwieldy. There are simply too many moving balls to do this effectively. Every time someone invests in X8, new X8 coins are “minted” and cash is transferred into the eight underlying currencies and held in custodian banks. Once you are part of the stablecoin universe, you can make payments on the blockchain without using bank transfers.

“A lot of people say we’re entering the age of AI, but we’re already there,” Kozelj says.

no future

“I don’t see much of a future for fiat money in 10 years. Fiat will probably still be in use, but I see the global monetary system being decentralized and being taken out of the hands of central banks, which was bitcoin’s original vision and of the blockchain. In a decentralized world, anyone will be able to mint their own currency. Whether they will be accepted by others or not is another question. But there will be many different cryptocurrencies that will be widely accepted.

Tether was the first to launch and is a cryptocurrency that aims to be tied 1:1 with the US dollar. Then came True USD, USD Coin, both pegged to the US dollar, and Stasis Euro, pegged to the euro.

Just as money goes through evolutionary change, so does the world of investing. Advances in AI and quantum computing will connect us based on an intimate profile of each individual’s investment risk tolerances and appetite, and provide opportunities not currently available, says Kozelj.

“AI will be able to track capital movements and changes in the competitiveness of economies around the world and adjust your stablecoin weights at any time to deliver money where it is needed, where it is needed. is the most productive, so it works for you. It will also revolutionize the world of investing by measuring opportunities in real time to maximize returns and growth on a global scale.

He adds: “History tells us that if you don’t adapt to the changing economic environment, you need new money to buy new productivity growth, which includes innovation. If the same amount of money is in circulation, people cannot buy the new things even though such innovations would change lives and businesses for the better. It blocks progress.

“Every time we went back to the gold standard, which has happened often in history, it was abandoned. Is gold that bad? No, it only failed because you cannot adjust the volume of gold in sync with the growth rate of real and innovative productivity to maintain economic and price stability.

“Of course, runaway money printing is not good, but fixed money supply is equally dangerous, and both invariably lead to instability. Bitcoin has and will continue to have the same problem – it will have a fixed supply in the future AI-driven stablecoins are a way to overcome this problem.

  • This article was originally published on Moneyweb and is used here with permission