Term: Free Money in the Era of Digitalization and Cryptocurrencies

Term: Free Money in the Era of Digitalization and Cryptocurrencies

Anatoly Piskunov

When I delved into the world of cryptocurrencies, immersing myself in token economics and digital assets, I came to the conclusion that it is the perfect time for such an experimental Alchemical crucible.

The testing of ideas and hypotheses has accelerated a thousandfold. The minting of digital assets through the race to find a random number (nonce) - Satoshi Nakamoto's brilliant invention - Bitcoin, capturing the attention of enthusiasts and refined by the ideology of seeking a new entity of independent money, paved the way for new experiments. Looking back, there have been tens of thousands of them. Who remembers all the Bitcoin forks? Only those that found their path to success or their followers survived and adapted. Litecoin hasn't disappeared; it continues to evolve to this day. Dogecoin has weathered different times and was embraced by influencers for the sake of amusement. With the emergence of DeFi (DEX, AMM) and smart contracts (EVM, WASM), the number of experiments has grown even more.

It is impossible to deny that the future belongs to programmable assets. Whether it's smart coins, multi-sig addresses, or NFTs with expandable logic, unique digital items can possess assets and manage them according to programmed logic. It's no longer just the transfer of an asset from actor A to actor B. It represents a new phase in financial and economic perspectives.

Even central bank-issued national currencies strive for similar flexibility. Many predict that Central Bank Digital Currencies (CBDC) will replace cash, leading to the decline of anonymity and a surveillance state that controls people's economic activities within a country's territory. However, alongside these concerns, there is also the belief that the entry of national currencies into the global network will diminish their significance due to competition among themselves and independent cryptocurrencies, among others. A protocol for the compatibility of digital currencies will inevitably trigger a rebalancing of all assets.

Novices entering the world of cryptocurrencies experience emotions similar to those of a child entering a large toy store. Bright banners, persuasive marketing, familiar characters, and the pleasurable feeling of making purchases. Their eyes wander. There are tokens in games, reminiscent of Tamagotchis, closed clubs of pony lovers, and new exchange and ownership protocols. Data storage, cooperation in the form of DAOs, and mysterious whales whose movements generate rumors and discussions about insights. Trading with leverage leads the adventurous to gamble like playing a slot machine. People, hypnotized by charismatic leaders, invest in EOS, XRP, and other "scams" for years. Some do it knowingly, studying project documentation, conducting their own analysis, and going all-in, hoping for a win.

Wild West? World of possibilities? Freedom.

Freedom, in one's own understanding, to enter any asset and exit it. Market price, trust, liquidity, or lack thereof—eternal questions, mostly rhetorical. No one is forcing anyone. Unlike the "G-formations."

Governments strive to protect their interests. Capital outflows into the digital world naturally irritate them. It is challenging to control, track, and combat fraud. It's a new headache. But with it comes an influx of capital. If a person leaves a casino with money, where will they spend it? In the economy of the place they reside. Therefore, finding a balance between "can" and "cannot" is extremely difficult. Startups and new projects, desiring to remain in a legal framework, go where the rules are clear. That's why everyone closely watches the long-standing confrontation between the crypto-world and the real one.

Governments cannot control it, prohibit it, or allow it without fear. They delay making decisions for as long as possible to provide people with an alternative in the form of CBDC. Because they can feel it - it's a question of retaining control and influence.

Cryptocurrencies are precisely Free Money.

Because individuals make the choice to study, use, or ignore them. Digital currencies from central banks exist on a different plane. They entail compulsion to use them. It may be soft and inconspicuous, as seen in the implementation of the Fast Payment System in the Russian Federation. However, within the next ten years, it will undoubtedly happen. Every person will have 3-4 wallet applications on their smartphones, one of which will operate with CBDC.

P.S. The term "Free Money" (in German, Freigeld) was also used by the German economist Silvio Gesell to refer to "money used solely as a means of exchange (a measure of value and medium of exchange)." For those interested, I suggest exploring articles about his experiments and his followers (controversial yet successful in times of crisis and liquidity shortage), where each example involved compulsion (payment of a tax to the city for holding a banknote, cleverly substituted with the purchase of stamps) during unfavorable times, where people were compelled to accept new rules of the game out of desperation. In the modern digital world, there is no point in restricting the use of an asset or money solely as a medium of exchange. The genie is already out of the bottle, and it cannot be put back in.


Report Page