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Is cryptocurrency the solution to hyperinflation?


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The invention of cryptocurrency has added a whole new dimension to the digitization of the global economy. It offers an alternative to conventional forms of central bank money, or ‘fiat’ currency. It also offers new approaches to setting monetary policy, free from political interference and the damaging consequences of hyperinflation.

Published in: Economy & Finance
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Is cryptocurrency the solution to hyperinflation?

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  5. 5. The invention of cryptocurrency has added a whole new dimension to the digitization of the global economy. It offers an alternative to conventional forms of central bank money, or ‘fiat’ currency.
  6. 6. Fiat currency is money that is not backed by an underlying asset or commodity but is given the status of legal tender by law. Legal tender is something that a business is obligated to accept as a means of payment. But the fiat itself is inherently worthless.
  7. 7. It’s value is based on users’ faith that a given nominal amount of currency. the face value - will entitle them to a certain amount of goods or services in exchange.
  8. 8. It’s easy to see how it might be difficult for say, a physician to provide their services as a medical professional, in exchange for payment in groceries, gas, utilities, clothing, and so on, from their patients. The healthcare industry would be brought to a halt pretty quickly under a barter system. Fortunately, we have money to smooth the process.
  9. 9. It is this aspect of money - that it enables deferral of payment - which is key to understanding why monetary stability, or stability of the value of a currency, is crucial for maintaining the integrity of money and the economic systems it underpins.
  10. 10. Without monetary stability the purchasing power of a given nominal amount of money becomes uncertain. And that, in the extreme, might inhibit individuals and businesses from engaging in supplying goods and services altogether.
  11. 11. Fiat currency may be the legal tender in countries like Venezuela and Zimbabwe, but that does not mean it is fulfilling the essential function of money.
  12. 12. Fortunately, in some other developing economies where there is a lack of financial inclusion, the technology underpinning cryptocurrency is being looked at seriously.
  13. 13. The government of Montserrat has even gone so far as to enter into a Memorandum of Understanding with Barbados-based fintech firm Bitt to create a digital payments platform for the country.
  14. 14. Of course, it is important to note that any government backed or operated cryptocurrency is likely to be highly centralized in nature.
  15. 15. Governments and central banks will feel deeply uncomfortable with the idea of entrusting responsibility for maintaining the integrity of the ledger to unknown, private, third parties. Users will, most, likely, interact only with trusted public or private nodes that ultimately validate transactions.
  16. 16. There is also little chance that the governance or monetary policies associated with any state endorsed implementation of cryptocurrency would be operated on a decentralized set of rules.
  17. 17. In turn, that would probably leave them open to the same politically motivated, inflationary, policies that have undermined trust in conventional fiat. It is only the truly decentralized cryptocurrencies that can offer an immutable commitment to monetary stability.
  18. 18. For the citizens of countries in which monetary credibility has been lost, cryptocurrency offers a relatively safer, more reliable, alternative to local fiat currency and payment systems.
  19. 19. We in the cryptocurrency community should continue to strive towards the goal of offering truly decentralized alternatives to current economic and financial systems.
  20. 20. As they hold out a genuine prospect of greater freedom and a better standard of living for some of the most oppressed and disadvantaged people on the planet. We at BitBay think that’s pretty cool.
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