What is Behind the Crypto Revolution?

In part 1 of the crypto revolution we went through the reasons why crypto is a revolution. In this week’s post we will go through what is behind the crypto revolution.

The Crux Behind the Crypto Revolution

At the core of it all is the belief that the system is working for the few and not the many. Many people in the Western world feel that they cannot get ahead and struggle to make ends meat. Back a generation or two, things were a lot easier to get by. People keep wondering what has happened.

There are an educated few that understand the system is rigged and it has been this way for a while. It really should not come as much of a surprise that crypto has been such a big hit. At the end of the day, the crypto community is aiming to rectify the financial problems in the world. The community is aiming to create a better and more fair world.

How the Monetary System is Rigged

There are a number of ways in which the system works against the best interests of the majority. Here are a few ways which have caused the problems we see today.

Inflation policy

Central banks around the world have an inflationary policy. They are happy to gradually debase their currency. Over a longer time frame the value of the currency reduces significantly. In the past they had a 2% inflation target much like this example from the Bank of England.

Inflation is a form of hidden tax that you did not vote for. Hence it is a form of theft by governments. It depreciates the value of currency over time so you buy less and less with that same currency.

Lately with the health crisis the institutions have mentioned there will be temporary inflation. That is, inflation that will be higher than the usual 2% for a short time frame. However lately they acknowledged it will be permanent inflation.

Regulation

Regulation can be a good thing, but too much regulation is not good for society. Unfortunately governments have put a lot of regulation in place to stifle entrepreneurship. Entrepreneurship is the life blood of healthy economies.

On the other hand some regulations that were placed to shore up the banking system have been gradually removed. The banks have profited from this, but it has made them weaker and is impacting on the financial system as a whole.

Bail outs and bail ins

A lot of people were outraged with the bail outs that took place in 2008. The banks were labelled as too big to fail. Whereas other reasons to justify a crypto revolution are less in your face, bail outs and bail ins are.

Additionally although the banks got propped up, the population got no help during the crisis. Over and above that they got footed with the bill, the banks got paid with taxpayer funds.

Money printing

As mentioned, central banks have an inflation policy. Central banks achieved inflation by printing money and increasing the money supply. In the past couple of years central banks at the request of governments went into overdrive.

The Cantillon effect

We have an article detailing the Cantillon effect. It is the method by which the people closest to the money printing are the benefactors of it. It is a wealth transfer from the poor to the rich.

Interest rates

So that governments can pay off their debts more easily they are artificially suppressing interest rates. This is why you cannot get a decent interest rate for keeping money in a savings account at the bank. It is also the reason why assets keep going up in price like for example real estate.

If interest rates were higher it would discourage people from buying houses at a higher price. This is because the monthly repayments will be higher. So home prices would need to go down so that home buyers can afford the monthly repayment.

Additional Problems Fuelling the Crypto Revolution

Banks have become really hard to deal with. With all the compliance and regulation it has become very hard and slow to open a bank account. Banking is a necessity and something which we take for granted. If you don’t have a bank account it can really hinder your ability to participate in any meaningful way in life.

The reality is most people do not even have the means to launder money. Money laundering keeps happening at large institutions. For example HSBC moved vast sums of dirty money after paying record laundering fine.

Banks are also keeping people back from investing in cryptocurrency. They recognise that crypto is in direct competition with them. Crypto circumvents the system in a way where we do not need banks. So they try and place restrictions to stifle the competition.

The banks come up with excuses to say they are protecting clients. However the reality is that the funds are provided by the client. Ultimately it should be the clients call on where and when to spend funds.

The Solution – The Crypto Revolution

Since institutions work hand in hand to rig the system in their favour, change needed to come from elsewhere.

That is the way innovation tends to work anyway. Established companies or institutions tend to only see things through their own lens and cannot envision a different world.

It leaves a space for other companies to disrupt the scene and innovate in ways that take over the landscape. These new companies end up dominating the industry and calling the shots while the older companies die a slow death.

One example that keeps coming up is how Netflix ended up eating Blockbusters lunch. The same thing is going to happen with the traditional banking system and cryptocurrency.

The cryptocurrency community is building a parallel financial system that offers all the services the traditional financial system has. Parts of the crypto world are decentralised making it more democratic. It has a low barrier to entry to allow anyone to take part which makes it a more fair system.

The point of cryptocurrencies as cryptographers envisioned it is that it would be like the separation of church and state. Crypto is the separation of money from the state. Bitcoin, Monero and others were made with the intent to be digital gold and hence sound money.

Ultimately if money is sound, it will benefit the whole of society and not just the few. Thanks to blockchain cryptos were made in a way that they would be hard to corrupt.

Hackers can corrupt a blockchain. However they also have to bank in the miners running the network not to notice. Otherwise they will thwart the hacker and halt the attack. Hopefully people will transfer in a timely fashion onto the crypto system before the current financial system collapses.