If you listen to the financial news, then it does not represent a beautiful picture of the state of the global economy. Trade wars, the increase in government debt, overvalued markets and low yields of bonds add to an economy that is on the brink of disaster.
Many dark economists think we could approach the end of the financial system as we know it. These analysts cite that if there were another liquidity or credit crisis like in 2008, the world economy could not withstand the coup.
As a result, the entire global financial system would collapse, leaving your bank account worthless as the currencies evaporate their purchasing power. Of course, this is the worst case, but it is a possibility. If something like this happened, what would we use as money?
Some analysts believe that the arrival of the cryptocurrency marks the end of the fiduciary system.
They expect cryptocurrency to be the new reserve currency to replace the dollar in times of monetary crisis and collapse.
Let's examine the case of cryptocurrency as the future of money.
A brief history of money
To predict the future, we need to look at the past. The first registered monetary system began in ancient China more than 2,500 years ago. The Chinese stopped using tools to trade and adopted the world's first currencies, known as "cash," which is where we get the term today.
King Croesus of Lydia was the first government authority to coin gold coins in 561 BC. C., marking the beginning of a new way of paying for goods and services instead of exchanging. Gold coins were the preferred option for money worldwide, until the 1930s, when President Theodore Roosevelt decided to withdraw gold coins from circulation at the beginning of World War II.
The end of the gold standard
Throughout history, countries and governments relied on gold as the preferred medium of exchange. However, history has many examples of governments that degrade their currency, which leads to the collapse of society.
The world traded with gold coins until the early thirties. The then president FDR announced that the public will hand over all their gold holdings to the federal government in support of the US war efforts. The Federal Reserve then issued the first paper bills or dollars, which we use today.
However, during the first confiscation of gold by FDR, gold still had some relationship with paper money. Each ticket represented a physical amount of gold, which was supposedly redeemable. However, after FDR suspended gold exchange rights in the economy in general, people moved away from currencies and got into paper money.
On August 15, 1971, President Richard Nixon ended the gold standard, marking the beginning of a new "fiduciary" monetary pattern that no longer had links to gold. Fiat money describes an unsecured monetary system that supports the assets.
Unlike the era of the gold standard, where each ticket was a deposit of checks for physical gold, the new fiduciary dollars issued by the Federal Reserve had nothing to back them up.
As a result of being the world superpower and the main reserve currency, the US economy grew by leaps and bounds over the next four decades. The fiat money system allowed the expansion of global credit without the need for guarantees to support the world's monetary reserves.
Today, dollars are eligible for payment of public and private debts, and tax settlement. It is the tax part of this equation that gives credibility to the dollar in the eyes of consumers. While the US public only accepts dollars for the payment of taxes, the dollar will be used as legal tender.
Read: A history of money, gold and monetary policy
The establishment of world reserve currencies
Since the 1300s, the world traded with a system of reserve coins. Usually, the leading reserve currency was from the nation that was the world superpower at that time. The reserve currencies began with the Portuguese and passed through the Spaniards, Dutch, French and English until the United States became the dominant superpower of our time at the end of the First World War.
Since this period, the United States and the dollar remain the world's leading reserve currency. The IMF controls the Special Drawing Right, or ADR, which is a basket of currencies that it uses to manage the global debt crisis as a lender of last resort.
This basket of coins includes the dollar, the euro, the yen, the pound sterling and the most recent addition, the Chinese yuan. All these currencies play a role in the regulation of world financial markets, but it is the dollar that reigns. Some analysts suggest that China will eventually take the role of the leading reserve currency of the dollar.
However, if we look at the current weighting of the SDR, China accounts for less than 10 percent of the basket. Therefore, as China's economy continues to grow, we do not see that it puts a lot of threat to the hegemony of the dollar in the coming decades.
Global debt and credit markets
The fiat dollar system led to the development of international credit markets and the establishment of the Eurodollar system. As a result, the world underwent a rapid transformation. Companies became rich, establishing a new globalized and interconnected economy.
With all the central banks in the world collaborating in the monetary reserve system, managed by the IMF, it was easy for the US government. UU. Take over the global financial system. By issuing bonds in USD, the United States financed its wars, while the rest of the world felt the effects on imported inflation through the devaluation of the currency.
It was not until the 1997 failure of Long Term Capital Management that the world began to feel the adverse effects of a debt inflated financial system. This crisis ended up almost sinking the global financial system. A few years later, the fall of the 1999 dotcoms would also lead the world economy to a crisis that resulted in a disaster.
However, with the advent of the high-risk mortgage crisis in 2007, followed by the Great Financial Crisis of 2008, the world's central banks began to wake up to the consequences of unlimited credit.
You might think that governments would learn from their mistakes. However, they did the opposite, and the response to the credit crisis was to print more money and increase the balance sheets of central banks throughout the United States and the developed world.
As a result, the US economy experienced the longest run in history in the last 11 years. The S&P500 now remains above the 3,000 point level, which is a fantastic recovery from the post-crisis level of 666 points. With the Dow Jones approaching the 30,000 mark, economists begin to get nervous in their seats, as the conversation about a pending recession begins to permeate the air.
Read: The great recession: What caused the financial crisis of 2008?
The end of the hegemony of the dollar
As we mentioned earlier, the story paints an impressive picture of what will come in the future of money. Historically, the fiat money system launched by society ends up failing. Whether they were Portuguese or British, eventually, power is transferred to the next regime to take global economic control.
The US fiat dollar system is currently the most successful of the more than 2,200 fiat currencies used throughout the history of the civilized world. However, while the Federal Reserve desperately tries to maintain the hegemony of the dollar, inevitably, this system will also expire.
So what comes after the dollar dies?
Is Crypto the next reserve currency?
The interesting thing about all previous reserve currency systems is the transition period. Each system experienced a period in which the new reserve currency emerged to domination. For most countries, this period of development lasted between 20 and 40 years.
Given that leading economists say it could be the end of the financial system, what currency would replace the dollar if each currency ceases to have value in the next crisis? The only economic system that would survive, as an event, is the cryptocurrency.
It is also interesting to note that cryptography has only existed for a little over a decade. It is also the only asset class that has emerged to challenge the current financial system. Therefore, if we go down in history, we could say that cryptography is in an ideal position to become the next reserve currency in the world.
Read: Should you invest in Bitcoin? Complete beginner's guide
Governments and cryptocurrencies
The only drawback with the encryption that becomes the next reserve currency is its decentralized nature. Banks and governments cannot control Bitcoin, since Blockchain is an automatic evolution entity controlled by the end user.
Therefore, there is no way that governments can manipulate the currency or use it to create credit. It is for this reason that many governments around the world refuse to recognize Bitcoin and crypto as a legitimate currency.
Instead, these governments publish Bitcoin and crypto as the money of choice for criminals and drug dealers. However, the reality is that the preferred currency of drug traffickers, money launderers and criminals is the US dollar.
We believe that governments and central banks are unlikely to allocate Bitcoin or any cryptography they cannot control, as a reserve currency in the future. Without the reserve status, crypto will never achieve mass adoption in industry and the economy in general.
However, that does not mean that crypto is completely out of the image. The Venezuelan government recently launched "el Petro", a cryptocurrency linked to the nation's oil reserves. However, this experiment is proving to be a disaster as big as the Bolivar, the nation's currency.
Nothing is preventing the US. The United States, the United Kingdom or another reserve currency nation issue cryptography as their new currency system. In the 1990s, The Economist magazine launched the elite's plans to implement a new world currency called "The Phoenix." Analysts argue that this could be the cryptocurrency of a new financial system.
Read: Coinbase Review: the easiest way to buy and sell cryptocurrencies
Threats, obstacles and bottlenecks
In addition to the danger of the big government intervening in pumpkin encryption or distorting it in its own way, there are also other obstacles and bottlenecks. These threats could stop the introduction of cryptocurrency as the future of money and, in some cases, could endanger the entire crypto ecosystem.
The first threat against encryption comes in the form of quantum computing. Cryptocurrencies generally operate with military grade encryption for the networks that control the various blockchains. Google recently launched the first quantum computer, and they claim that four to five processor evolutions could lead to 256-bit encryption.
If this technology reaches the hands of hackers, and inevitably will, then Blockchain security is under serious threat. It would be necessary to prevent hackers from entering the Blockchain and destroying it.
The next threat comes in the form of bitcoin mining. At this time, there are millions of people who extract Bitcoin. However, there is a finite amount of the cryptocurrency, limited to 21 million coins. What happens after the miner finishes extracting Blockchain? If everyone turns off their machines at the same time, who will be responsible for maintaining and verifying all transactions on the network?
Another problem with cryptography such as the future of money comes in the form of a whale. At the moment, research shows that 20 percent of all BTC wallets contain more than 80 percent of BTC. Therefore, there are players who can balance the markets by selling their wallets.
Our final concern for the future of cryptocurrency as money comes in the form of global utility. The most advanced cryptocurrency, Bitcoin, still cannot process transactions as fast as the VISA network. According to the investigation, Bitcoin can only process seven transactions per second, while Visa performs hundreds of thousands of transactions.
Therefore, if we were to move global commerce to a blockchain, things would be greatly slowed down. Imagine waiting weeks for your credit card transactions.
In conclusion: embrace the future today
One thing is for sure; The US dollar system cannot last forever. While it is mere speculation to guess what will come next to replace the dollar, the only contender so far is cryptography. We do not believe that it is Bitcoin that emerges as the next global reserve currency.
However, we believe that governments will eventually transfer to this monetary system when the current financial system fails. Do your best now to familiarize yourself with technology or fall behind in the next evolution of money.
Disclaimer: The opinions expressed herein are only those of the author, not those of any bank or credit card issuer and have not been reviewed, approved or endorsed by any of these entities.
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