Introduce any sort of systemic change to a particular culture and backlash will occur. Such a backlash is a demonstration of basic human nature. The fact is that we humans are resistant to change. It is in our makeup. And yet, changes are necessary for the survival of the species. Without change there is no improvement. Without change there is literally no hope of making the world a better place.
For us, philosophical discussions about change must include cryptocurrency. Economics are at the center of nearly every facet of life. Moreover, fiat is at the center of our economics. Cryptocurrency represents a fundamental change to how the world does business. So it's not surprising that so many people and institutions take every opportunity to resist cryptocurrency and its blockchain sibling.
What if things were the other way around? What if cash/fiat were the new monetary system being talked about today, while cryptocurrency enjoyed centuries of history? Imagine some of the complaints that might be lodged against unfamiliar bills and coins. The implications are eye-opening to say the least.
A dystopian and dangerous trend
Coindesk contributor Jill Carlson wrote a great op-ed piece as part of the website's series leading up to the World Economic Forum in late January 2020. Carlson has long been a proponent of cryptocurrency and equally skeptical of cash. In her piece, she posed a question that ties in nicely with ours: what can cash teach us about crypto?
Carlson subscribes to the idea that cash, if it were brand-new today, would be considered "dystopian, absurd and dangerous" by the world's financial power brokers. She makes a compelling case. Many of the same complaints and criticisms leveled at cryptocurrency also apply to cash. Worse yet, many of those complaints carry more weight in relation to cash.
The remainder of this post will look at those complaints mentioned by Carlson in the opening paragraph of her piece. As you read, give each one some careful thought. You might come away with the conclusion that cryptocurrency would be a better alternative to cash if the world could nail down some sort of standardized system.
Slow and costly transactions
Cryptocurrency has a perception problem in terms of its speed. It relates to a fundamental flaw in Bitcoin's design, a flaw that results in the least important BTC transactions taking 10 minutes or longer to complete. This is certainly a fair criticism and one that the Lightning Network will hopefully resolve.
Hand-in-hand with Bitcoin's slow transaction speeds are the fees often attached to transactions. Those fees are the direct result of coin miners, exchanges, and payment processors all needing to get paid for the work they do. And because none of this is standardized, every player in the game sets its own fees. Again, another valid criticism. But now let us look at cash.
The idea that cash transactions are fast is only accurate when transacting business with coins and bills. If those coins and bills are represented by a plastic debit or credit card instead, the perception of speed becomes a mirage. Need proof? Log on to one of your bank or credit card accounts. Then check your activity over the last 30 days.
If you completed any transactions within that last day or so, they likely have not yet shown up in your posted activity. That is because several days tend to lapse between a transaction taking place and it being posted to the account. That restaurant meal you purchased last night will not show up on your account for three or four days.
The truth is that cash payments do not settle very quickly at all. They seem instant to you because you get what you paid for as soon as your credit or debit card clears. But all of the banks involved in the transaction will not actually achieve settlement for days.
As for the fees, they speak for themselves. Banks and credit cards charge all sorts of fees for their services, as do payment processors. In addition, retail prices are artificially inflated by banking fees that are passed on to customers. Unless you actually pay with bills and coins, your cash transactions cost more than you think.
A lack of backing
Cryptocurrency critics point to a lack of tangible backing as the greatest weakness of Bitcoin and its alt coin counterparts. What a strange criticism when you consider that not a single fiat in the world has any backing either. Think about that for a minute.
The world's preferred reserve currency is the U.S. dollar. Dollars were backed by gold stored at Fort Knox until the Nixon administration of the 1970s. Nixon decided that dollars no longer needed any kind of backing, so he cut the ties between dollars and gold. The U.S. dollar is now backed only by the federal government's good faith and credit.
If you think that is enough, ask Venezuelans what they think about the bolivar. Venezuela's fiat is now all but worthless for the simple fact that the government has no good faith and credit. In fact, this is why the Maduro government created the Petro cryptocurrency. They needed something to replace their worthless fiat.
A lack of backing may very well be problematic. But to say that cryptocurrencies are less secure than fiat because they are not backed by anything is to display one's ignorance off fiat's identical position.
Next up are the many criticisms of cryptocurrency being a vehicle for money-laundering. Regulators far and wide talk about criminals using cryptocurrency to disguise human trafficking, drug trafficking, and just about every other crime under the sun. They talk of terrorists who fund their activities and simultaneously hide them with cryptocurrencies. All of that may very well be true. However, money-laundering has existed for centuries.
The city of Las Vegas was essentially built on money-laundering back in the 1950s. Cash from organized crime syndicates in New York, Chicago, and elsewhere flowed to Las Vegas casinos where it could easily be laundered at gambling tables. And of course, the infamous offshore bank account has been a money-laundering tool for longer than most of us can remember.
Money-laundering will always be a problem regardless of the state of a nation's currency. It will always exist because crime will always exist. Cryptocurrency does not make money-laundering any easier. It does make it harder for government to catch criminals, but that is a crime-fighting problem rather than a financial one.
Too many security flaws
Cryptocurrency haters sometimes point to what they see as too many security flaws in the system. It is not quite clear what those security flaws are. Perhaps critics are leery of the fact that Bitcoin's distributed ledger is available for public downloading by anyone, anywhere. Maybe they are concerned that Bitcoin transactions are processed by so many computer nodes scattered around the world. Perhaps they are concerned about the many reports of hackers stealing coin.
Concerns about the distributed ledger are unfounded. Encryption and consensus see to that. As for hacking, it does happen from time to time. Yet we all know that hacking is not confined to cryptocurrency networks. Hackers find the traditional financial system just as lucrative.
Cash is not any more secure in the digital age. If you doubt that, do a quick internet search on credit card skimmers and identity theft. You will quickly discover that global consumers are losing billions of dollars every year to creative thieves who have hacking and scamming down to a science.
Too many operational risks
Carlson lists operational risks near the bottom of her list of common criticisms. She does not explain what she means by this, and we have no idea either. We can only assume that operational risks relate to the actual infrastructure that makes cryptocurrencies work. If so, those same operational risks exist with the cash system. It is all computerized today. Whether you are talking fiat or crypto, computer networks break down and mistakes occur. Crypto is not any less desirable than cash because of it.
Concerns over stability
The proverbial icing on the cake is the criticism that cryptocurrency is unstable. Granted, it is unstable when cryptocurrency is viewed as a store of value and an investment. But such instability is not due to a flaw in the technology itself. It exists because of speculators who view cryptocurrency as a vehicle for making money. That was never its intent. Bitcoin was originally developed as an alternative monetary and payment system.
Also consider the fact that fiat can be equally unstable at times. Again, remember Venezuela and Zimbabwe. Their fiat is worthless. Fiat is not doing much better in Argentina, and a few other countries. Indeed, history is rife with examples of collapsing fiat: the Roman and Greek empires, Germany's Weimar Republic, the reins of French kings Louis XIV and Louis XV, and the United States' Great Depression of the 1930s.
The fact is that all of the criticisms leveled against cryptocurrency apply equally to cash/fiat. The financial problems we routinely face are less about the monetary vehicles used and more about the people who run the system. We cannot solve financial and economic problems by ignoring technology or resisting change. We can only solve them by effectively dealing with the people who cause them.