Could a cryptocurrency ever take over as a national legal tender?
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Cryptocurrency expert Emma Poposka says it’s unlikely digital tokens will replace national currencies — but they may disrupt areas such as foreign exchange.
Could a cryptocurrency ever become as ubiquitous as a dollar?
There are plenty of rumours around that cryptocurrency is being investigated by central banks or that countries are trying to create cryptocurrencies of their own.
In my opinion, speculation on whether cryptocurrency will become a legal tender is hideous.
The main purpose of a central bank is to implement the monetary policy of a country or region, and to do that it manages the currency supply and interest rates.
If you were to create a crypto that is self-regulated through blockchain then central banks would have nothing to do.
One of the features of crypto is that it has monetary policy that is encoded in the blockchain in order to abandon the need for centralised governance.
For example, with bitcoin, there will only ever be 21 million bitcoins in the world and those are mined with a set algorithm.
The inventor based the currency’s monetary governance on artificial scarcity with an adjusted rate of new currency generation over time into the supply that was encoded within the protocol.
If a central bank was managing a crypto currency that is limited in supply and they needed to increase the supply they simply could not. Even if the supply is not limited, by definition a crypto currency should have decentralised monetary governance.
The very nature of a cryptocurrency is for it to be decentralised and managed without a mediator – no bank who is in charge of implementing a monetary policy will ever create a crypto currency.
Will features of cryptocurrency find their way into legal tender?
Digital currency is already in use.
Already in Australia, the majority of transactions happen electronically and very rarely do we use physical money.
Digital currencies exist only in digital form and are a hold of value for everything from loyalty points to virtual currency – they are nothing new.
People get shocked when they realise that they have been using digital currency for so long with their frequent flyer points or supermarket rewards cards.
Just the same as a fiat currency, digital currency can have a so-called “monetary policy”. Qantas can decide how many points they have in supply and implement a type of inflation or give different value for different products.
It is just another dimension of how currency can work. When digital currencies are managed on a blockchain they can inherit some of the attributes that are common to that technology such as transparency, anti-censorship, resilience to DoS attacks etc.
What will the currency of the future will look like?
We are currently in the process of reinventing money again – it is a form that has operated in the same way for a some time and we are still yet to see how far disruption will go.
The point of creating crypto or new forms of digital currencies is not to disrupt payments, but to disrupt money. I think that this new wave will attempt to mainstream usage of denationalised currencies. However, disruption is driven by adoption — not necessarily by innovation — and we will see how that will go.
When it comes to complementary currencies, the ones that will win are those that have particular characteristics that are attractive to people.
If you look at fiat currency, there there is a lot of segregation. If I want to travel I need to change money and deal with exchanges and so forth and the same for world-wide retail.
The way I see it is that companies will look to some sort of global currency, like bitcoin or a digital currency that will facilitate this exchange instead.
The push will come from the retailer’s side by giving an incentive to use that currency and ultimately that will be how it wins market share. Another, school of though is that the stability of an alternative currency will be a decisive factor for its adoption and at the moment we are seeing a lot of innovation is the development of stable currencies.
It is feasible that complementary currencies will become more used way of transacting, as they add additional properties.
Fiat currencies will continue to exist in the next 10-20 years – but they will be challenged.
They have had a monopoly on trade and how we store and keep value however this new monetary model is challenging that.
If people are not happy with what the interest rate, they will have the option to go to others, such as for a store of value or for international transactions.
That is what I see for fiat currencies on mass adoption side.
Is the concept of a complementary currency a new idea?
It becomes a unit of account for a company or a community to keep the economic value within that space. We saw the same thing through the Great Depression, it is just a matter of finding a way to do it cheaply.
For example, during the Great Depression when banks and the government were failing and payrolls faltered, communities in the US discovered the utility of complementary currencies and bypassed the official legal tender to transact among each other.
The same thing happened in Yugoslavia (where I was born) in the ‘90s during the hyperinflation of the national currency. Some merchants, instead of rewriting their prices several times a day due to the constant high currency devaluation, started pricing goods in an alternative currency “bods” (points) which was pegged to the Deutschmark which was more stable.
These are two examples that show how national monetary governance can go wrong and when it does the communities will find alternative ways to adjust to the economic shock by establishing parallel financial systems.
How will digital currencies shake up the way the world does business?
There is already a huge groundswell around the need for reserve currencies.
As it stands, 60 per cent of world reserves are held in US dollars – so that politics in the country can influence a currency no matter how far away it is.
Russia and eastern Europe are leading the charge in coming up with new ways to hold reserves that are not dependant on one country but implementation will not happen overnight. So changes in the structure of reserve currencies is needed as it is a political issue as much as it is an economic one.
If I compare Australia to the rest of the world, I would say that we are one of the leaders because there are a lot of people looking to digital currencies and there is certainly a willingness to experiment.
In the last year, ASIC has been doing a lot of research and figuring out how it should be regulated which I think will be good for everyone in the blockchain space.
Emma Poposka is the cofounder and CEO at Bron.Tech– a technology company that is developing a decentralized data and identity platform. She holds a Masters Degree in Computer Science and Masters in Business Administration (General management).
Ms Poposka has 10 years of experience in technology and software development across different stages of the software development life cycle. During her career she has worked on several large-scale software projects for the public and private sector and taken up varied roles in the software development lifecycle, including project manager, programmer and QA engineer.
Ms Poposka has been involved in the crypto space since late 2012. In 2015, after the inception of the Ethereum blockchain, she was one of the pioneers in incorporating “smart contracts” within a software solution.
In her work, Emma leverages technology to solve business and social issues. She is particularly interested in the synergies between technology, game theory and monetary theory and how they will be applied to disrupt the existing technological and social paradigms.