Cryptocurrency, Central Banks, and the Future of Money
By Sean Ryan, CEO of Glitch Finance
MetaMask broke 5 million monthly active users for the first time in April. This serves as one of many indicators that cryptocurrencies and the ecosystem built around them are gaining momentum.
Long touted for its potential to help ordinary people preserve wealth and resist financial censorship, cryptocurrencies are finally pushing the fringe toward the mainstream. As the economic fallout from Covid-19 settles, crypto is seeing real traction, the infrastructure is getting better, and its potential is coming to life.
At the same time, collisions between existing power structures and the new form of techno populism are increasing. This is because those currently in control—bankers, politicians, or business leaders—have little incentive to change. Until now, it has worked as the line from Scarface: first you get the money, then you get the power. But now, incumbents fear this trend is reversing.
Banks, in particular, stand to be dethroned as they are losing the monopoly on money and capital flow they’ve enjoyed for decades. While Fintechs eat into their profit margins, embedded financial services, DeFi protocols, and dApps are eroding the exclusivity of their customer relationships.
Meanwhile, governments face a related but different set of problems. Government leaders still rattle off all the old talking points: crypto is for money laundering, buying illegal goods, or circumventing capital controls. But what they’re really saying is they fear losing control… over capital flow, over their power, and over people.
Challenging the power brokers
The ability of a central bank to issue and manipulate a state-backed currency is fundamental to a government’s power. As crypto presents an alternative, tension was inevitable. When people start to question what money is and whether they want to denominate their lives in fiat, it makes those at the top of the hierarchy uncomfortable. And what we see today are the early skirmishes in a much larger struggle to resolve this tension.
We may be heading toward a future where public blockchains supersede central banks, DAOs with opt-in politics are normal, and network states fueled by transhumanist charters rival the power of the traditional nation-state. There may also come a time when governments clampdown on crypto, progress is stifled, and official CBDCs are the only legal option.
But that’s tomorrow. Today, many governments are struggling to figure out what they want to do about Bitcoin. Some are jumping on the bandwagon as early adopters while others are trying to ban it. Over the last few months, we saw clear examples of both.
A slow-moving confrontation
During a recent U.S. banking subcommittee hearing, U.S. Senator Elizabeth Warren criticized Bitcoin. Another speaker took things a step further, recommending a concerted international effort to criminalize Bitcoin, “I think the best thing to do is for the U.S. and other countries to get together and agree that in none of their countries will Bitcoin be convertible into the local currency."
More repressive regimes such as Nigeria and Turkey have taken steps against crypto. India has been flirting for years with a bill to ban cryptos altogether, and China recently curbed cryptocurrency mining operations while aggressively moving forward with its government-sanctioned DCEP project.
Without question, governments, banks, and other central authorities will all try to hold onto power. The only difference will be the people-centric rhetoric and the shallow strategies they employ to achieve this goal. And how combative they are depends on how much they have to lose.
Adoption at the nation-state level
On the other end of the spectrum, El Salvador made ripples across the crypto and traditional financial ecosystem by passing a bill to make Bitcoin legal tender.
The small Central American country had previously abandoned its currency in 2001 and adopted the U.S. dollar. This process of “dollarization” was intended to curb inflation and increase trade with the U.S.
While the dollar will remain the co-legal tender in El Salvador, and some question the motives of the country’s leader, adopting BTC is a significant step toward a more free financial future. Other politicians in Latin America have signaled their intent to pursue similar actions. The news is also already motivating countries beyond Latin America as the President of Tanzania encouraged her country’s central bankers to follow suit.
Critics will be quick to point out that these are small countries whose impact on global finance is insignificant. But the size does not matter as much as the precedent.
A cryptocurrency now has the stamp of approval from a sovereign government. More are likely to follow, which, among other things, makes it less likely that other countries will ban it and run the risk of regulatory arbitrage.
We are now living in a global economy that has the worst wealth gap in history. Market manipulators are lining the pockets of asset holders, and in doing so, they’re penalizing the most vulnerable people in our societies. As the saying goes, the rich get richer and the poor get poorer.
Worst of all, most of the world’s population lives with monetary systems they cannot change. And whether they understand quantitative easing or not, people intuitively sense that they’re being ripped off. They’re tired of opaque entities that answer to no one and possess the power to manipulate their economies.
According to the 2021 Edelman Trust Barometer, public trust in social institutions, including central banks, continues to fall globally. And trust is what this is all about — who or what do you trust? And an increasing number of people are choosing to trust public blockchains, smart contracts, decentralized communities, cryptography, and memes.
The future is now
Of course, crypto still has growing pains to go through. It’s a prime target for scammers. It needs scalability. It needs greater interoperability, use-specific networks, better front-ends, unbiased educational resources, and whatnot.
Despite the flaws, crypto is improving. Its challenges are being solved, its solutions getting better, and its ecosystem becoming more trustworthy. Today more than ever, it’s clear that crypto is here to stay. The buy-in is simply too big.
Elizabeth Warren et al. have a vested interest in the status quo, so their opinions are unsurprising. But they’re on the wrong side of a generational divide, and ultimately, they will be on the wrong side of history. Need evidence that crypto is winning? An increasing number of talented professionals from top-tier tech companies and even some regulators are joining the bandwagon to work in the crypto space.
Above all else, these human flows prove the viability and potential of what’s being built, and they’re why I’m so optimistic about the future of crypto.
Sean Ryan is the CEO of Glitch Finance
Glitch is building a blockchain-agnostic super protocol designed for trustless money markets. The project was founded on the belief that DeFi needs better infrastructure so more people can opt out of centralized finance. Glitch is scalable, features unique user incentives, and solves the expensive fee structure of other blockchains, so dApps can run more efficiently. The project also has a $2 million grant for new projects built on Glitch. You can sign up for it here. Learn more.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.