Cryptocurrencies such as the original Bitcoin are moving away from their utopian vision with the ever increasing ingress of fees; mining, exchange, transaction and now EPOS fees from several startups looking to make crypto payments in the real world the norm.
Let me give some background and history to this.
Until the Nixon Shock between 1971 and 1973, all major global currencies were defined by the gold standard. That is all currencies were backed by gold. The pound or dollar note you had in your pocket had a directly equivalent amount of gold stored in a government vault. And you could actually take your paper money to a government bank (the Bank of England or the Federal Reserve) and exchange it over the counter for its gold value.
Gold was chosen as it was a precious metal of no intrinsic use that had a finite supply and could be easily carried in small amounts. To this day, there are two core assets, land and gold.
Until 1971, all money exchanges were done for free. The concept of fees did not exist outside of a few minor exceptions (traveller cheques etc..). If you were in finance, your options were limited, you could either lend or borrow money (with interest) or exchange monies between different currencies and charge fees.
The physical monetary system was run by the government who produced all the coins and notes using taxpayers money as a one time cost. The subsequent transfer of those monetary units never carried fees.
Then, Nixon broke the gold standard, I won’t go into the reasons, but it suddenly detached the concept of money from physical assets. Suddenly money, instead of being backed by physical gold, was only backed by a “Promise” from the state and a belief in its value.
This turned money from a physical finite resource into an abstract, detached concept that could be manipulated and changed. This promoted the immense growth of credit, primarily at first through credit cards and later through other schemes. This allowed not only interest to be charged on borrowings (as had always been the case), but it allowed the concept of fees, vendor fees, transaction fees, late payment fees etc…
This devalued currency and caused inflation to rise beyond the governments stealth tax system originally conceived.
Roll forward to today and a world with hyper inflation, cyclic boom and bust, quantitive easing and inflation resulting from government borrowing and the time is right to replace an increasingly flawed Fiat currency system with a new, fresh system that eradicated most of the problems associated with traditional currencies.
And so Bitcoin was launched in 2008 which used the concepts of the gold standard and physical cash held by the owner as its tenets, removing the need for banks or any third party intervention or fees. Miners would earn money by using their computers to run mining software and egalitarian volunteers would run the blockchain, processing transactions and verifying the ledger. This was a true utopian vision of a global currency for and by the people.
What I’m now realising is that once the genie is out of the bottle, it can’t be put back. Large corporations, financial institutions and governments are all now adopting cryptocurrencies and applying their traditional methods of leveraging wealth on this virgin territory. With their extensive background, they understand fully how to control money and use that to make money. They understand how the ownership of the monetary system can earn money, and so are attempting to take control.
This benefits the wealthy who have the money and disadvantages the poor and middle class who are encouraged to, or need to borrow this money.
Don’t get me wrong, I believe in a capitalist society. I believe that working hard, making sacrifices or taking risks should be rewarded while being lazy or not wanting to work should be detrimental to your lifestyle. But the poor shouldn’t be penalised by having to pay for the money they need and if a wealthy person stops working, their wealth should become stagnant and even gradually erode.
This comes back to fees on money handling. In the gold standard days, a gold miner was extremely well rewarded for discovering and extracting gold. However once they sold their gold, the income stopped. It was converted into gold backed fiat currency and the original mineral stored in a government vault. The physical paper or metal money retained its value and was not eroded through its use. If you wanted to buy something, you needed physical paper or coin money and when you handed it over in exchange for the goods or services, the recipient retained its full value and no other third party benefitted from the transaction.
This should be the aim of Bitcoin V2 and I welcome its introduction. I suspect, however that fee free transactions will be one of the features that does not make it from the drawing board into reality.