Just as maximalists assert one blockchain will rule them all, there’s also a pervasive belief amongst many crypto enthusiasts that the technology will replace fiat currencies. It’s a storyline that appears frequently despite the fact that it’s highly implausible.
Since the 1970’s when the US stopped the dollar from being backed by gold it’s been a fiat currency. Fiat means that the currency has value decreed by governments or monarchs rather than being backed by an asset.
In this regard fiat currencies are often viewed by some in crypto as ethereal, having no intrinsic value, and subject to being overthrown. Many reasons are given to support this view but they’re all based on a fundamental misunderstanding of what fiat means.
The strength of a currency is intrinsically linked to the strength of each country’s armed forces. Without the ability to defend and secure a territory from foreign invaders it’s easy for another nation to take over all of the assets and land, thus rendering the native currency valueless.
Even though blockchain technology is revolutionary and the concept of financial sovereignty and independence is powerful it remains unbacked by any major military force. When China banned crypto for example there was no outcry or threat of sanctions from any other major economy. It was only the decentralized nature of the technology that ensured its survival.
On the other hand when oil-rich nations such as Iraq and Libya started to move away from the US Dollar and trade their oil in gold and other currencies the military might of the US quickly intervened. For those that wonder why the US and China are locked in an increasingly bitter exchange of words and sanctions, it’s worth looking at recent events in Saudi Arabia.
In early December 2022, China’s president Xi Jinping visited Saudi Arabia for a three-day summit looking at ways to strengthen trading ties between the two nations. It was during this summit that they agreed to pay for part of their oil imports from Saudi Arabia in Chinese Yuan rather than US Dollars.
Shortly afterward, in mid-December, the US issued a new list of sanctions and trade bans against China under the auspices of protecting the Uyghur Muslim minority, who have faced continued oppression. The most famous drone manufacturer in the world, DJI, was added to the sanctions list for the reason that their products “…actively support the surveillance and tracking of members of ethnic and religious minority groups in the PRC, predominantly Muslim Uyghurs in Xinjiang”, according to secretary of state Antony Blinken.
In the months following the Saudi summit, there has been a steady stream of stories in the media about the threat China poses to the world. From spy balloons to potentially supplying weapons to Russia the rhetoric is increasing as China continues to negotiate Yuan payments in trade deals with other countries.
When you compare the military might of the US versus the countries that support Bitcoin it becomes clear that crypto won’t become the world reserve currency anytime soon. So why is there so much opposition to crypto from governments in such a coordinated manner? What are they scared of?
The real danger that crypto poses is twofold. Firstly the technology is extremely powerful, especially in cross-border transactions, and has the ability to damage the profit margins of many payment providers such as Western Union and private banks. Secondly, and most importantly, using crypto teaches people about money.
Although money is vitally important to everyone it’s surprising that financial literacy isn’t included as standard in educational curricula. It’s no accident this happens because the more that people understand about money, the less trust they have in governments and the legacy financial system.
When people start to learn about crypto they also learn about the current financial system and the way banks can create money from thin air and make huge profits by lending it to people. This imbalance in power and access to cheap finance works for only as long as people have no alternative.
The real danger cryptocurrencies pose to the current system is that they give people the freedom to choose how they finance their future and manage their resources. With more knowledge they question why banks make so much money and naturally want to move to the fairer systems offered in DeFi.
As Desiderius Erasmus said, “In the kingdom of the blind, the one-eyed man is king.” Crypto gives sight to those previously blinded by a lack of financial literacy and threatens the dominance of the current banking system. That’s the real danger it poses and why regulators are currently targeting exchanges and stablecoins.
Soon they’ll move onto targeting DeFi and every other aspect of cryptocurrency. Just as Bitcoin survived the attacks from the Chinese government it seems the real solution to the present regulatory attacks is to become as decentralized as possible as quickly as possible. As many technologists in the space say, “In decentralization we trust”.