Is fiat doomed? There are plenty in the crypto community who think so. One of the reasons crypto came to be was dissatisfaction with the current monetary system, in which the state is the sole creator of money and the fractional reserve system imposes systemic risks on most economies.
Outrage at the government and banks are at the literal genesis of cryptocurrencies, with Satoshi Nakamoto encoding a thinly-veiled reference to bailouts into bitcoin’s first block.
While they may be rather provocative, predictions of fiat’s demise have been around as long as digital currencies. They recently returned to the spotlight via noted libertarian, Ron Paul.
Ron Paul Advocates For Crypto, Sort Of
Ron Paul, a twelve-term Congressman and long-term thorn in the side of the Republican Party, recently argued against a government monopoly on currency. At Consensus 2019 he told BlockTV:
“I believe the opportunity has to be there for all alternatives. I want to get rid of the Fed, I want competing currencies….. What I’m interested in is allowing that to be solved in the market, not by government. “Ron Paul, libertarian and long-time Congressman
Dr. Paul elaborated his position in a discussion with Crypto Briefing, in which he argued against regulation of digital assets:
‘I’d let the market regulate [cryptocurrencies]” he said. “I wouldn’t have the government do anything, other than if somebody’s committing fraud….If you need regulations, the market should regulate, they shouldn’t have any subsidies or any bailouts or anything. But if there’s corruption, the government should be involved.”
Paul has long argued for the end of the Federal Reserve system, which places U.S. monetary policy in the hands of a private monopoly. However, he acknowledges that this position is at the extreme end of the spectrum.
Can Bitcoin Speed Along Fiat’s Demise?
In a podcast at the end of last year, noted bitcoin maximalist Murad Mahmudov told Anthony Pompliano that cryptocurrency could be the end of fiat.
Decrying the dilution of money by inflation and fractional reserve practices, Mahmudov centralization is both a strength and a weakness for fiat currencies.
When something is centralized, it is very easy to shut down,” he said. “A privilege of creating and controlling your own money, let alone a monopoly on it, is something that gives the controllers of that system a tremendous amount of power, arguably more than anything else in the world.Murad Mahmudov
As a decentralized currency, bitcoin cannot be censored, stopped, or shut down, lending it superior qualities to fiat money, Mahmudov argued. But the most important quality is its deflationary properties. There will only ever be 21 million bitcoin created, Mahmudov noted, meaning long-term hodlers do not have to worry about inflation eating away their savings.
“Uncensorability’s cool, unseizeability’s cool as well, but to me these really are perks. In terms of… this thing taking over the world… the dominant force which will be doing that is bitcoin monetary policy. Really, its unprintability. The fact that nobody can print beyond 21 million. That is by far the strongest and the most important innovation here.”Murad Mahmudov
The Outlier Examples Where Bitcoin Is Already Replacing Fiat
We are already seeing a rush to cryptocurrency in countries where citizens no longer trust their government’s ability to responsibly manage monetary policy. According to coin.dance, the poster child for the flight from fiat is in Venezuela, of course, where hyperinflation hit 80,000 percent in 2018.
As economist Dr. Steve Hanke pointed out:
One promising use for cryptocurrency is to move value across borders in a way that cannot be stopped by authoritarian regimes,” Hanke noted. “For the millions of people in Venezuela whose lives have been destroyed by hyperinflation, direct cryptocurrency donations will be a lifesaver.Dr. Steve Hanke, Airdrop Venezuela
Argentina has also seen a substantial pick-up in crypto interest, as the government prepares for yet another loan from the IMF.
But What About The Rest Of The World?
While Venezuela and Argentina hardly provide widely applicable metrics, given the extremity of their monetary policy situations, they have set valid examples. Rational people will take flight into the embrace of crypto when their fiat fails.
Dash has also proven popular in the Latin American continent, one in which hyperinflation has routinely wrought havoc on local economies. It is unlikely to take similar economic circumstances to set in in order to increase cryptocurrency adoption elsewhere. And the fiat-is-dead argument continues to remain up for debate.
But for the first time, there is now a viable way to escape the grip of bad government policy without bouncing from one fiat to another. And sometimes, it requires outlier examples to set trends. So is fiat doomed?
Or, as banks and tech giants enter the space with their own digital payment and asset solutions – is it crypto that’s really facing the end of an era?