Cryptocurrencies – Fiat Killers or Strengtheners?

Do privately issued cryptocurrencies threaten fiat currencies or do they strengthen and compliment fiat currencies?

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Smaulgld Speculation Series – Episode 1

The purpose of this series is to throw out ideas that are not fully thought through and to have Smaulgld subscribers comment, discuss and debate them.

Competing Currencies

Most countries today have legal tender laws which means in effect that the currencies that the countries issue must be accepted for payment for goods and services.

Many critics of legal tender laws contend that since there is no competition government mandated national currencies hold an undeserved monopoly position.

In addition, since all national currencies today are fiat and unbacked, traditional currencies like silver and gold may be more appealing to those wish to hold a form of money or currency that is not mandated by government but desired voluntarily for its properties and use.

Most governments view gold and silver as threats to their mandated nationally issued currencies and many suspect as a result they work to keep the prices of gold and silver down so as to undermine confidence in those assets and to establish confidence in their fiat currencies.

In recent years privately issued currencies like Gold Money and cryptocurrencies, like Bitcoin, Litecoin and Dash have offered alternatives to those not wishing to use their countries mandated currencies

Competition Among Currencies?

Nobel prize economist Frederick Hayek argued for competition among currencies. Hayek argued that private firms could issue currencies and that through competition the more desired currencies would become the most widely used. The “winning” currencies would be the most valued and would take away from the government the power to mandate what people choose to use as currency. In a sense Hayek was advocating the privitisation of money.

Proponents of Hayek’s competing currency theories argue that the best currency would win and that currency would most likely take the form of gold or silver. Today, Hayek’s proponents might argue that a gold or silver-backed currency or Bitcoin or Litecoin might win the competition to become the dominant currency if competing currencies were allowed to trade freely without government interference in the form of taxation or outright prohibition on their use.

The 10X Platform

In addition to gold and silver there are currently over 1000 crypto-currencies. A company called 10x is doing an initial coin offering to fund its program whereby it will offer a product, using Ethereum, that will allow holders of various crypto-currencies to use those blockchain assets to purchase goods and services via a service like Mastercard or VISA. Click here to see the 10X white paper.

Ultimately, the 10x platform could conceivably have on it as many crypto-currencies that exist and users who own those crypto-currencies using the 10x application could use them to buy goods and services. The merchants, however, would not be accepting any of the crypto-currencies directly, they would be receiving amounts of their home countries’ fiat currencies at the exchange rate of the cryptocurrency presented for payment.

The 10X Project appears to eliminate the confusion of Hayek’s system of competing currencies as it accepts the government mandated currency as the benchmark for all other currencies. Without a third party clearing house such as 10x, competing currencies might circulate freely, but holders of those currencies might find it difficult to use
their currencies in a universal manner as some merchants might accept some currencies but not others. One advantage of legal tender laws is one’s money is “good” any where. A system of competing currencies may not necessarily lead to an easy flow of commerce even though it would allow the market to select the best form of money.

The 10x platform will allow for the proliferation of competing currencies but puts them on a platform whereby they can be converted easily in the user’s home currency. This in a sense makes any cryptocurrency more valuable in that it can gain a wider spread acceptance (but has to compete with other currencies for value) but perhaps also solidifies fiat currencies as long as they are still supported by legal tender laws.

Discussion questions

Would a platform like 10x give greater prominence and promote greater use of cryptocurrencies? If so, would those privately issued competing currencies pose a threat to fiat currencies? Or would the privately issued cryptocurrencies compete against each other only? Would such competition among cryptocurrencies complement and strengthen fiat currencies? Or would it work to end them and the central banks that issue them?

Your thoughts?

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