BlockchainTech Congress is the first edition of the event, which is entirely dedicated to blockchain technology. Blockchain is a big chance for most sectors, which can be completely changed by the ultra-modern technology. On 28 March 2019 at The Westin Warsaw Hotel, I am going to moderate a debate on “Fiat Money vs Cryptocurrencies – How are cryptocurrencies not just another form of fiat money?”
To start this topic, first we need to know what “Fiat Money” and “Cryptocurrency” is.
Fiat is Latin for “let it be done.” and a Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity.
- Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.
- If people lose faith in a nation’s paper currency, like the U.S. dollar bill, the money will no longer hold any value.
- Fiat money is inconvertible and cannot be redeemed (unlike Representative money)
- Fiat money rose to prominence in the 20th century, specifically after the collapse of the Bretton Woods system in 1971, when the United States ceased to allow the conversion of the dollar into gold
- There are more opportunities for the creation of bubbles with a fiat money due to its unlimited supply.
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
- On March 5th, 2018, the word “cryptocurrency” was added to the Merriam-Webster Dictionary.
- Cryptocurrencies are a type of digital currencies, alternative currencies, and virtual currencies.
- Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems.
According to Jan Lansky, a cryptocurrency is a system that meets all of the following six conditions:
- The system does not require a central authority, distributed achieve consensus on its state.
- The system keeps an overview of cryptocurrency units and their ownership.
- The system defines whether new cryptocurrency units can be created.
- Ownership of cryptocurrency units can be proved exclusively cryptographically.
- The system allows transactions to be performed in which ownership of the cryptographic units is changed.
- If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.
Q: The Federal Reserve controls both the supply and ease of borrowing our money and thus controls inflation. Inflation is a transfer of wealth from poor and middle-class to rich and wealthy people. Why should bankers operate a scheme that transfers wealth in this way?
Q: Gareth Murphy, a senior central banking officer has stated: “widespread use [of cryptocurrency] would also make it more difficult for statistical agencies to gather data on economic activity, which are used by governments to steer the economy”. He cautioned that virtual currencies pose a new challenge to central banks’ control over the important functions of monetary and exchange rate policy
Q: In addition to the social damage and the trillions of dollars that money laundering costs the global economy, it is estimated that an additional $1.6 trillion is lost to governments around the world every year (BBC News, 2009) due to corrupt politicians and public officials.
Q: The Association of Certified Fraud Examiners estimates the yearly cost of fraud to be 5% of global revenues, or, $3.7 trillion per year, based on 2013 global figures (Association of Certified Fraud Examiners, 2014).
Q: Due to the frequency and magnitude of thefts in legacy systems, I will only refer to single theft events larger or similar in size to the largest ever single alleged Bitcoin theft event (Mt Gox in 2014), so as to not encumber the reader with too many examples.
Q: In addition to the more than $3 trillion dollars lost to laundering and corruption, the world’s economy is subject to a further loss of $1.8 trillion dollars to the black market. A lot of the money that enters the black market is “clean”, i.e., a citizen using legally obtained money to purchase illegal goods. The breakdown of this $1.8 trillion dollar market is shown in the table below (Havoscope, 2014).