Here’s a new one for you: Miami and New York City are considering issuing their own cryptocurrencies. Imagine visiting and using digital Miami or NYC coins to go for dinner or see a show. Heck, even the two mayors of have agreed to be paid in cryptocurrency. Albeit, for a very limited time of course, they’re not that crazy.
Sounds futuristic and perhaps utopian but there are a few obvious problems.
What’s the catch?
What are we going to do – carry a different coin for each city? State? Will we need Nike coins to buy a pair of running shoes?
I live in Vancouver so if I were to travel to New York, I suppose I’d use some sort of crypto foreign exchange to transfer my Vancouver coins into NYC coins and presumably pay a transaction fee. How is this different than the traditional system where the big banks charge fees to process foreign exchange and money transfers?
When in Rome
Actually, cities began issuing their own currencies well over two thousand years ago. However, as the ancient world consolidated first under the Greeks and then the Romans, the need to facilitate trade and spread culture to the far reaches of the empire meant that some central authority had to guarantee the value of a bronze, silver or gold coin.
Minting money in the ancient world was not much different than the supposedly legitimate cryptocurrency tokens being issued today. But the dilemma remains: who guarantees their value? And who determines the exchange rate between a Spartan coin and an Athenian coin?
The proliferation of unbacked cryptocurrencies has ignited government interest in releasing national central bank digital currencies (CBDCs), similar to the Roman mint in the third century BC when they issued the first silver denarius. For any of these ‘regional’ currencies to retain any value, they required a central currency guaranteed by the central government.
Cryptocurrencies are no different. Without legitimate CBDCs to provide relative value, they will remain completely speculative and risky.
An oldie but a goodie
Blockchain, cryptocurrencies and decentralized finance are also touted by libertarians and decentralization nerds as the future of finance because it removes our reliance on big banks.
I sympathize with the libertarian ideals of crypto because we all deserve an easier and cheaper way to move money. However, if the crypto token minters have no better way to make a profit than by adopting the same business model as traditional banks, they are doing nothing but substituting themselves for your bank.
This is not libertarian or decentralized, it’s just a tired old business model re-purposed for a new age.
DeFi is not DeFuture
Social Media and streaming Cloud services created a paradigm shift from the text-based Internet of Web 1.0 to the multimedia social internet of Web 2.0. Blockchain, cryptocurrencies and decentralized finance promise to usher in the next paradigm shift to the decentralized Internet of Web 3.0.
But interestingly, the promise of the social Internet and the power of the companies behind it, Facebook, Amazon, Apple and Google haven’t really created a better business model than advertising.