Opinion: Cryptocurrency grasped mainstream attention back in mid-2017, but the world’s first digital currency, Bitcoin (BTC) was born back in 2008 and introduced to the world in 2009. Around this time, the stock market collapsed and fell 777.68 points within a single trading day.
The cause? The subprime mortgage crisis. U.S. banks got greedy and granted mortgages to individuals that couldn’t actually afford them, and there weren’t enough mortgage-backed securities to feed the demand. Home prices fell in 2006 and it triggered massive defaults across the nation. The risk then spread to pension funds, mutual funds, and corporations who owned those derivatives.
Ultimately, the mortgage crisis threatened many government-sponsored agencies that required a government bailout. Banks and Insurance agencies began seeking bankruptcy and in Sept-2008 the first bank bail-out proposal was denied by Congress. To help restore financial stability the Fed doubled its currency swaps with central banks in Europe, England, and Japan. The governments of the world had to provide liquidity for the U.S’s frozen credit markets.
In October 2008, Congress finally passed a new bailout bill, but the damage was already done. Thousands of jobs were lost, and it was deemed one of the worst recessions in U.S. history, just behind the great depression. Bitcoin was created in response to the chaos noted above and was ultimately made to become an alternative to our current financial system.
Current Banking System Downfalls
Paper money was originally created because Gold and Silver was difficult to divide and transport. Then, banks started giving out more money than they had gold in their vaults. Thus, “fractional reserves” were born and banks began collapsing due to runs on the bank. Central banks were then formed to become the last resort to lend smaller banks liquidity. Banks still got in trouble, but now if one bank was in trouble – they all were. This is where governments step in to save the banks like they did back in 2008.
Back in 1971, Richard Nixon severed the ties between the financial system and gold. The president decided that USD would no longer be exchangeable for a fixed amount of gold and now, banks have no limit on the amount of paper money they can create. From this moment on, all money was created as “credit.”
The Global “Cashless” Shift
Now, banks and government are making a huge push to do away with cash completely. Sweden is the first country to make the strongest push and many of its residents aren’t pleased. Cashless means that no two free men/women are able to exchange money without needing a bank to intermediate the exchange- scary.
Should we trust the banks to handle our money completely? These banks we speak of crashed the stoke market and were responsible for the 8.7 million jobs that were lost between December 2007 and early 2010. What happens if their centralized systems’ are broken into by hackers, and all of our funds are wiped empty for 24 hours? Totally screwed.
Personally, I don’t trust the banks or government to manage anything of mine, but if the U.S. starts to make steps towards cashless, what can we do?
Cryptocurrency – the Solution
Currently, it wouldn’t be advantageous to switch all your funds to cryptocurrency, as the market still has high volatility and businesses don’t have the proper structure yet to accept cryptocurrency. However, if the cashless switch does occur, it could be a safe haven in those times that the banks fail.
We’ve all had those times when our banking app was undergoing “maintenance” at the most inconvenient times or we had our accounts hacked into and had to wait weeks for new cards and credit cards to arrive in the mail. If our country doesn’t have cash, what will we do then? Lets not to mention the major banks will most likely start hiking up their fees, as they see an opportunity to make more money. Since switching bank accounts is such a hassle, more times than not individuals will just accept the fees like we already do today.
Placing a number of your worth into cryptocurrency that can be used in everyday purchases could be a cushion in times of those banking fails. I won’t go into all the reasons why the blockchain is safer than the current centralized banking systems because that’s a whole other topic. Also, there will need to be some serious improvements as to how cryptocurrency transactions are taxed. Small purchases shouldn’t be accounted for, and if it is used more on a day-to-day basis it could become impossible to track.
There are many other obstacles the U.S. would face if they decided to make the switch to a cashless society, but it’s nice to know there are other currency alternatives that don’t require a centralized bank to handle each transaction. As cryptocurrency continues to expand throughout the years, hopefully, major merchants, retailers, and stores like Amazon, Walmart, Bestbuy, and Costco will jump on board and start accepting cryptocurrency.
Thoughts? Comments? Rebuttals?
Featured Image: Telegraph