The year is 2048. Goods and services are exchanged without paper notes, coins, or even cards. Cash is a thing of the past. All purchases are electronic.
This transition was more than just a switch from bills in a wallet to digits on a smartphone. This transition has eradicated fraud, simplified transactions, and provided transparency. Most importantly, this change coincided with a global shift to using the earth’s resources sustainably.
Like most people, I presume, I often think about money. I’m fortunate in that I can afford a comfortable lifestyle, so when I’m thinking about money I’m more often than not pondering the very concept of money. How is money created? Who controls the supply of money? Why does the value of a dollar depreciate over time? What was the gold standard? These kinds of questions have led me to believe that cryptocurrencies offer an exciting solution to our current economic arrangement.
Before getting into the exciting world of cryptocurrencies and explaining what they are, some context and background information is important. For example, economics is an often overlooked pillar of sustainability. Economics determines how humanity produces, distributes, and consumes goods and services. Money is simply the medium of exchange that society uses to balance the supply and demand of resources. Therefore, the rate of resource extraction depends on the relative prices of commodities.
Some background about the economy: The performance of the U.S. dollar is crucial to the functioning of the global economy. In 1971, when U.S. President Nixon cancelled the convertibility of dollars into gold, the U.S. dollar became fiat. ‘Fiat’ currency means that a government has declared it to be legal tender, but it is not convertible for a physical commodity. The U.S. dollar is still the international reserve currency, which means that the U.S. technically cannot suffer a debt crisis, but could instead face hyperinflation, which occurs when prices increase, and the purchasing value of money decreases. One such example of hyperinflation occurred in Germany in the 1920s, when money lost so much value that it was used as wallpaper. If such an episode of high inflation were to happen to the U.S. dollar, the repercussions would be felt on an international scale.
Since the 2008 financial crisis, the U.S. Federal Reserve has expanded the amount of securities it holds by five times (from about $850 billion to more than $4.4 trillion). But instead of improving the economy through additional lending, excess reserves at banks have expanded. This slow economic growth is expected to persist for the foreseeable future. At the same time, continued expansion of the money supply increases the risk of hyperinflation, similar to what happened in Germany almost a century ago.
Bitcoin, the most popular cryptocurrency, is unlike national currencies in that it is subject to deflation. The value of a bitcoin is designed to increase over time because the number of bitcoins to ever exist is limited to 21 million. Banks, and many economists, disprove of monetary deflation because it encourages thriftiness and punishes debt-holding. The opposite is true with inflationary currency -- saving is discouraged, as the value of money in your bank account, or under your mattress, decreases over time.
This conversation about inflation and deflation of money is relevant to sustainability because a deflationary currency better complements the fact that we live on a planet of finite resources. An infinite amount of money works in a debt-based economy of perpetual growth and increasing consumption. But, growth cannot continue forever. In fact, on August 8th, 2016, humanity surpassed the amount of resources the planet can sustain. We are effectively indebting future generations by using more of the planet’s resources than it can regenerate or support in the long term. With deflationary currency, such as Bitcoin, people will still buy things that they need, but people would likely be more reluctant to buy stuff they don’t have an immediate use for.
Another advantage of cryptocurrencies when it comes to sustainability is that they enable the creation of a decentralized economic system. Companies like Bitt and BittPesa are already helping people who face significant obstacles in operating within the formal banking system by allowing them to deposit and trade their currency. As well, the technology behind cryptocurrencies is not controlled by a single nation or a wealthy few, but rather is managed by its users based on group consensus. This represents a departure from the current capitalism.
By not being created through matching pledges of debt, cryptocurrencies have potential to maintain value in a sustainable economy. Every fiat currency ever created has ultimately failed. As the turbulence of the Great Recession and the growing disparity between rich and poor is more pronounced, our economic system is in need of retooling. Though mass adoption of cryptocurrencies will not solve our ecological emergencies on its own, I recognize its fit as a tool in a resource-based economy that is decentralized and free of deep indebtedness. I encourage you to learn more about cryptocurrencies, share their promise with others, and embrace a sustainable currency without banks or borders