The Battle for a New Monetary Standard

This is a generic article on virtual currencies and it does not require any prior knowledge. 10 mins read.

If the last 20 years were defined by the rise of internet and social media I think the next 20 will bring deeper changes to economical and political systems. One of them could be a completely new monetary standard. Let’s look a little bit at the past, and then we’ll try to understand the future.

The money that you have in the bank is basically a series of number. The amount, the account number, the bank identifier, etc. There is a link to your identity there somewhere, and a currency type too, but my point is that all the money you have in the bank, it’s just numbers. So what makes it real?

Currencies used to be based on the Gold Standard. It meant that you could always exchange your currency for gold. If you think that’s a simple concept, think again. To quote Wikipedia: “Great Britain accidentally adopted a de facto gold standard in 1717 when Sir Isaac Newton, then-master of the Royal Mint, set the exchange rate of silver to gold too low, thus causing silver coins to go out of circulation.” Newton was a pretty smart guy, but maybe he wasn’t cut for the job?

Anyway, the gold standard was abandonned by most countries around World War I. Then after the war most countries re-used it. Then 10 years later it was abandonned, apparently because of the great depression. Huge mess. And then after World War II in 1944 America who owned 2/3 of all the gold pretty much forced everyone into an agreement (Bretton Woods) to use gold… and the dollar. A few years later in 1971 it dropped the convertibility of the dollar into gold, and thus we entered a new era. The era of the fiat currency, a currency backed by nothing real except the trust into a government. Lol.

So yeah… long story short, the money you have in your bank account is backed by the international trust toward your government. Scary? It gets worse.

In the last few years a new sort of currency appeared, the cryptocurrencies. With Bitcoin and Ethereum the value comes from raw computer power, and it’s called Proof of Work (PoW). It’s a virtual finite mine that can be mined for coins, and it gets harder and harder to get more (like in a real mine!). It costs money to mine coins, hence the coins have value. Exactly like gold.

Gold Standard -> Government Trust Standard -> Computer Power Standard

From there it gets seriously complicated. Because people are not just trying to make a new currency, but they’re also adding some benefits tied to the currency. Anonymity, decentralization, smart contracts, ERC-20 tokens, exchanges, launch pads, dApps, staking, DAOs, NFTs and we don’t just have a currency anymore but an entire ecosystem that can ‘do’ things. Ethereum was the first usable utility blockchain, it can run smart contracts creating tokens which values are in turn backed by the Ether, the Ethereum-coin. And that’s how Ether became a virtual Gold Standard, right after Bitcoin.

So now everyone wants to create their own currency. You have thousands of Ether based tokens, and new ecosystems similar to Ethereum being built to create even more currencies and utilities, many of them by the founders of Ethereum themselves. Most recent ones are not using the mining approach, but are based on Proof of Stake (PoS) which is basically a rollback to a trust or voting system, avoiding the enormous energy consumption of PoW networks. But since you cannot just give voting rights to anybody, and that no one wants governments to be involved, the trust / votes are based on how much money you’ve staked in the system and for how long. Which is to say, the rich and the early adopters get most of the voting power.

It explains in part the rise of NFTs, which are starting to become a thing of their own. Part virtual status, part investment, part digital art they are hated and loved, with passion. But NFTs are not a currency, they are unique tokens bought with currency, so why am I talking about them?

Because my hopeful theory is that in its next iteration NFTs could be used to build a currency / ecosystem backed by creativity itself. Forget gold, governments, computer power, money, or time. The centerpiece and the standard would be art and creators.

That sounds very poetic and hopeful I know, but it would make a great ending.