Cryptocurrency is an uprising against today’s flawed financial system
As millennials come of age, cryptocurrencies like bitcoin revealed a chasm of misunderstanding between generational values
We live in troubled times. A sense of crippling anger and abandonment grows. People feel powerless to shape the forces that command their lives. In this setting, young people- the generation of millennials – are reshaping the financial world through technology and especially cryptocurrencies.
In a recent Reuters interview, Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS) urged “extreme caution” about buying cryptocurrencies. “I do hope when the fever has gone away, when the crash happened, it will not undermine the much deeper, and more meaningful technology associated with digital currencies and blockchain.”
Menon added that he would not rule out the possibility of the MAS issuing a cryptocurrency directly to the public, but that he was not sure it was a good idea.
Such ambivalence and misunderstanding about the underlying socio-economic and historical undercurrents blinds the baby boomer aged leadership to the roots of the next financial crisis. The remaining members of baby boomers (those born between 1946 to 1964) are still running central banks and financial institutions. Millennials (born between 1980 and 1994) view boomers as the group who plunged markets into the 1987 crash, the 2000 dotcom bubble burst and 2008 global financial crisis.
The collusion of state and market in dispossessing people through speculation and financial excess haunts millennials. It feeds their scepticism of traditional financial services and the market system. Their desire for change in how financial products are delivered and support for the cryptocurrency revolution is difficult for others to comprehend.
Millennials living in their parents’ basement may save us from a debased, debt-laden fiat currency world that lurches between cycles of boom and bust. Cryptos and bitcoin have revealed a chasm of misunderstanding between generational values.
The fault line began in consumers’ changing perception and relationship with banks, especially in payment preferences. A 2013 study of US consumers by the US Federal Reserve already showed that debit card usage was far greater among consumers aged 18 to 34 (51 per cent) relative to older consumers.
According to a 2015 Goldman Sachs study, credit card usage was already declining among millennials; 63 per cent of them did not even hold a credit card. Payment platforms like PayPal lowered the cost of payment and the reliance on traditional networks.
That many central and private sector banks and regulators are cutting off relationships between fiat currency and cryptos shows their concern about how much cryptos are being fuelled by speculative fiat money- trading between fiat and bitcoin, instead of applying bitcoin for daily use. So any future financial crash will still involve fiat currencies. Cryptos won’t be allowed to save the individual from the financial system.
“Gold is the enemy,” said Paul Volker, former Chairman of the US Federal Reserve. Governments love deficit spending and hate anything that restricts the issue of fiat-debt currencies. It does not matter at the moment because people are used to having money backed by nothing. The last financial crisis did not turn into an irreversible bank run because people retained confidence in fiat currency.
The potential and threat of technology and private cryptos was well understood by the US government as far back as the 90s. How to make a mint: The Cryptography of Anonymous Electronic Cash, by Laurie Law, Susan Sabett, Jerry Solinas of the Cryptology Division of the National Security Agency office of Information Security Research and Technology, (published in 1996), lays out the need for government crypto: “Potential risks in electronic commerce are magnified when anonymity is present … these problems are best avoided by using a secure electronic payment system that provides privacy, but not anonymity.”
The future of money is being decided by those countries that actually have physical reserves and resources and the military power to control them. For Russia and China reserves and resources does not mean holding more unpayable debt in the form of US Treasuries. China is not only developing its own crypto, but also pushing the yuan as an international currency.
The real test that bitcoin is undergoing isn’t the day-to-day price movements- the volatility of the coin mainly reflects the age of the coin, but trust and sustainability as it tries to shed its speculative reputation and shift to being a credible and reliable store of value and medium of transaction.
Do not underestimate the power of central banks to innovate their own crypto in order to maintain a centralised currency system. At issue is more than paper money becoming extinct in favour of a digital, cashless currency. It is part of a trend of de-dollarisation combined with inevitable, powerful technological change championed by a new generation.
Young people love risks because they can’t imagine the consequences. And old people love building golden tombs and sealing all of us in with them.
Peter Guy is a financial writer and former international banker