When I first started thinking about cryptocurrencies I thought they were just useful for some people who couldn’t use regular transactions, like buying weed or things on a darknet market. Or that it was a better payment system as there was no middleman to skim off large fees from all transactions. That’s useful, but it didn’t strike me as revolutionary.1
But the idea of separating money from state made me go “Wow, that could actually have a huge impact.” As we’ve seen earlier the financial system relies heavily on manipulating the money supply and on predicting and reacting to the market. This would, for better or worse, be largely impossible if states no longer controlled the money supply and if people used cryptocurrencies instead.
Religion and state
I was chosen by heaven
Say my name when you pray
To the skies
See Carolus rise
I know it might be difficult to entertain the notion that a country shouldn’t control their own money, and that the mere suggestion is outrageous. If this is the case for you, consider the historically similar relationship between religion and state:
For many centuries, millennia even, religion and the state were inseparable. I’m not even sure it was a conscious decision, rather the mere idea that it could be any other way was simply unthinkable. For many that’s just how it was, like how the sun rose every morning or that you got hungry without food.
Countless rulers have based their legitimacy on religious grounds, that they should rule because God says so. This is useful since you have to question God to question them, and who are you to question God? For example both the Roman emperors and the Japanese emperors used this to legitimise themselves. Even today it’s very common that the church should be the one to crown the kings and queens, as if to say “we give you the right to rule”.2
This is why it was a big deal when the Swedish king Gustav Vasa took steps towards the Protestant Reformation. It wasn’t motivated by religious reasons—he simply wanted control over the Catholic Church’s property, which was the dominating religion at the time. In a sense the Diet at Västerås in 1527 was the first step in separating the church from the Swedish state, a process that was completed in 2000 when they were formally separated.3
Separating church from the state was once unthinkable, yet it’s now a given that religion shouldn’t dictate what the state should do. In a similar way the notion that money could be separated from the state is today largely considered unthinkable, but this might change too.
Not that unusual
In practice some countries have already separated money from their state, as they use money someone else control. For example the Euro is managed by the European Central Bank (ECB), and the countries that use the Euro have very little influence in the ECB’s decision-making (well, most of them anyway). There are also countries that use the U.S. dollar as their official currency, while having no say in what the U.S. does with it.
Gold might also be an example of money outside of state control—there’s nobody with exclusive access to gold after all. But in practice someone has to cast the gold to coins for it to be usable as money, including a “government approved” stamp on them, which gives some sort of control over the money. After all, it’s difficult to determine what a coin is made of so we just trust the stamp on it.4
Maybe a better example is shell money, or other money found in nature, where you just pick them up and start using them. Although they’re lacking compared to coins or modern money, there’s no one in charge of minting or stamping shells.
So the idea that a state doesn’t require control over their own money isn’t really that strange, as there are many examples of the contrary.
The difference with cryptocurrencies
With the various historical examples of how money can exist without state backing we might wonder what cryptocurrencies bring to the table. Why would they be different?
For starters all modern examples where a state doesn’t control their own money simply mean they’re using someone else’s money. There’s always someone in control of the money, in this case it’s just some other country or institution. With cryptocurrencies there’s no single entity in control, meaning it’s money truly separate from state.5
Cryptocurrencies are also different from the “natural” forms of money, such as shells or stones, because they have better monetary properties. For instance the supply in a cryptocurrency is provably limited, while you always run the risk of someone discovering a mountain of shells on some remote island somewhere. Cryptocurrencies being digital also means they’re easier to transport and to send over larger distances, making global interaction much easier.
While historical examples of states without direct control over their money exists, the excellent monetary properties make cryptocurrencies well suited to separate money from state for real.6
What will the future hold?
It’s impossible to predict the future. For example the iPhone was released in 2007 and today almost everyone carry a smartphone in their pocket. This is particularly crazy because each is millions of times more powerful than all of the combined computing power of NASA that put man on the moon 50 years ago.
Nobody could’ve predicted this explosive technological development, so how can we predict where cryptocurrencies will take us? I don’t think they’ll completely revolutionize the world in a decade, but it’s impossible to say what will happen 50 or 100 years from now.
Will countries drop fiat and instead adopt cryptocurrencies? Would this force them to make more responsible decisions and to steer clear of moral hazard, which we saw during the last financial crisis? Or would they fail spectacularly, issuing a new Great Depression?
It’s possible cryptocurrencies will fail, but instead we adopt digital currencies issued and controlled by multinational corporations, truly fulfilling the cyberpunk dystopian nightmare that would make the cashless dystopia seem like a dream?
Maybe cryptocurrencies will co-exist as an alternative to fiat, and as discussed in previous chapters provide payment options for the undesirable and the unbanked? Maybe they’ll even slow down the money printing machines and limit the soaring debt? But maybe they’ll instead hamstring countries who need to act, but now cannot?7
Of course cryptocurrencies might just be a fad that will be forgotten when people realize they don’t provide any real value. (This would be quite unfortunate for me, since I’ve just written an entire book on how I think they do provide value.)
Which scenario is more likely? And what would the ideal scenario look like? That’s something I’ll leave up to you, the reader, to decide.