This is the third post in the series of blog posts which aims to debunk popular myths and provide logical counterarguments to some of the most common misconceptions about cryptocurrencies.You can read the previous posts here.
Popular Belief - “Even if Bitcoin is successful, regulators and nation states will eventually get together and kill it through decree”
Credit-based money refers to the form of money that is being pumped into the economy by governments to stimulate growth or control inflation or both. This form of money is easy to create as it just involves printing new currency that is not backed by anything. Governments have been directing central banks to lend this newly minted money into existence for over a century now. With the advent of Blockchain technology, Public blockchains are going to disrupt the paradigm of credit-based money that has been the dominant global money paradigm and replace it with equity-based money paradigms. Equity-based money refers to the hard-earned money that is backed by a stable asset. For example, In the gold-pegged monetary system of earlier decades, every dollar printed is backed by an equivalent amount of gold which is stored and held by central banks.
We expect the multiple positive ways that blockchain can be harnessed to enhance the existing Modus Operandi of sovereign governments to mitigate the extent to which governments will move against Crypto. In recent months, both India and Russia have announced plans to support blockchains that integrate into their existing fiat regimes. This makes sense as this would allow for a significantly cheaper way to secure their fiat regimes from the risk of counterfeiting (that is so prevalent with physical currencies) by leveraging the in-built double-spend protection provided by the architecture of blockchain. The complete auditability of blockchains provides an important secondary benefit in that it allows all transaction flows to be captured and documented in a way that can translate into better forward-looking economic forecasting. Current methodologies for economic forecasting suffer due to huge data gaps caused by the high prevalence of cash transactions particularly in economies such as India and Russia.
Looking beyond fiat frameworks, we think blockchains actually give more power to the governments by facilitating utmost transparency and auditability. This is still a budding perspective but we expect it will be championed by global and local crypto ecosystems. These ecosystem participants need to engage with local policy makers and law makers to draft laws and regulations that will drive the growth of these ecosystems.
On a more practical level, the emergence of completely decentralized exchange protocols such as 0x have the potential to create a wave of truly decentralized exchanges. These exchanges will allow users to trade crypto tokens permissionlessly with full order book visibility and self-custody of their tokens at all times. A decentralized ecosystem for trading tokens globally will make it considerably more challenging for nation states to enforce strict regulations.
In addition, Bitcoin's growing status as a Digital SoV (Store of Value) can be viewed as less threatening to the survival of current monetary systems than a censorship-resistant medium of exchange. Therefore, we expect global regulators to embrace Bitcoin's SoV feature as an alternative to gold.
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