A monetary system is a system by which money is created and exchanged in an economy. It is made up of a set of rules and institutions. In a fiat monetary system, money is determined by government decree. The system is then upheld by central banks, national treasuries and commercial banks. Central banks, in particular, play a pivotal role in the system, as they influence the money supply at any given point. They can create, or “print”, new money, at will, and can influence the “price” of money by setting interest rates.
A monetary system is fundamentally based on trust. When money takes the form of a commodity like gold, trust is based on the value of that commodity. In a fiat system, people must trust their governments and institutions. If that trust is eroded, monetary systems fail. This has happened repeatedly throughout history and we believe that it is about to happen again. But this time it will be different. Trust will shift towards pure mathematics and the incorruptible, decentralized technology that is blockchain.
New Monetary System
As governments increasingly default, central banks fail and the US loses its status as the global hegemon, people will begin to lose trust in the current monetary system. To stave off their inevitable decline, governments will resort to last-minute desperate measures such as arbitrary taxation and the introduction of central bank digital currencies (CBDCs). By the time they take action, however, the damage will have been done and people will have already found monetary alternatives.
We believe that Bitcoin, and crypto more generally, will be the alternatives of choice because they will fulfill the principal purpose of a new monetary system - re-establish trust. Bitcoin is built on mathematical principles that are verifiable, unchangeable and traceable. Its supply is eternally fixed, it is secured by cryptography, it protects privacy through pseudonymity and provides true ownership through the possession of private keys. Trust in Bitcoin and decentralized finance will, therefore, be based on faith in mathematics. They are immune to human intervention.
Providing the ultimate measure of trust, Bitcoin will become the basis of a new monetary system. This system will eliminate central banks and limit the power of governments to create and accrue debt. The new system will be transparent, decentralized, stable and secure. Beyond the monetary system, we believe that all industries, and especially the financial industry, will be rebuilt on blockchain. Trust, through blockchain, will permeate through all sectors.