- >How to Find Your Way Down the Crypto River
How to Find Your Way Down the Crypto River
Here in Canada, the public has received a lot of government assistance in the form of covid related relief programs like the Canada Emergency Recovery Benefit (CERB). This program has assisted those with lower incomes very much. However, there are larger businesses running off with bigger cheques, and they don’t appear to be doing much with it. In fact, many large businesses seem to simply be holding onto the cash from the cheques.
Some may justifiably be doing so in preparation of debts to pay as closures and lockdowns become more frequent. Their closed businesses have to tread water while multinational corporations are given even larger amounts of money and permitted to remain open. That’s a whole other discussion on it’s own, but let us ask, what are the consequences of holding onto large sums of money?
Michael Brown | Jan 12, 2021
The Financial Dam that Accumulates and Centralizes Money
Money is like water, it has to move and flow to perform its task effectively. Accumulation in bank accounts and control by centralized authorities is the proverbial dam in this financial river. After all, if you control the dam you control the power it produces and how much water flows past. Just like water, when money sits unmoved in liquid form, it can stagnate, and it goes bad. While this is not the sole cause of inflation, it is a contributing factor.
For those privileged few with large accumulations, inflation doesn’t hurt them quite so badly because they’ve got the advantage of quantity and diversification of assets. But for the rest of us in Canada and the United States (and likely elsewhere) we do not have that luxury and have to rely more on the quality of our money.
Both Canada and the United States have taken to printing money this year because their money has not flowed. Since the large accumulations are stuck in the dam, the result is printed money to be distributed by the government. While I doubt this will be the end of the financial systems in either country, it does provide a good opportunity to talk about how an individual can avoid the consequences of inflation, big or small.
Moving Past the Dam
So how does one get past the dam? What we can do is take an alternative route, down a free flowing river delta, with many branching paths. This delta is cryptocurrency. Cryptocurrency has some risks of it’s own but no action is without risk, especially in finance. Risks can be managed with the right information and knowledge. There are those concerned with the volatility of cryptocurrencies, Bitcoin in particular because recently, Bitcoin surged past $40,000 USD, despite historic volatility. Bitcoin isn’t the only cryptocurrency available for investment, but it is certainly among the strongest.
So what does cryptocurrency have to do with avoiding inflation exactly? One can avoid a centralized financial institution deciding on your behalf that printing money is a good idea. When we have seen historic evidence time and again that printing money to fight poverty is a failure of a scheme. The infamous historic example is the Weimar Republic. Referenced by economist and social theorist, Thomas Sowell in the following quote
“If increased government spending with borrowed or newly created money is a ‘stimulus’ then the Weimar Republic should have stimulated to unprecedented prosperity, instead of runaway inflation and widespread economic desperation…”
More recent examples of inflation include Zimbabwe and Venezuela. By choosing cryptocurrencies over traditional currencies, you are placing your financial confidence not in an institution, but a decentralized financial community. A community complete with other investors who want to see returns on the power of crypto. It’s a far more mutually beneficial arrangement than the “relationship” with federal banks like Canada and America where money seems to be trickling up into the hands of big businesses.
A Mutual Arrangement
I’ve heard crypto explained as “shares in a company that doesn’t exist”. I don’t know about you, Dear Reader, but shares with spendable liquidity, that can grow in value, sounds lucrative and useful to me.
When you own cryptocurrency, you do so alongside everyone else that owns the same currency that you do. This gives all owners of a particular currency a stake in the value of their owned cryptocurrency. They’ve spent money on investing in it or put time and effort into mining.
Compare this to central banks, who can print at will, with no cost to themselves. This doesn’t exactly sound like they’ve put skin in the game. It is more difficult to exploit people whose finances and thus confidence do not lie in a central authority. The same authority that decides the paths and quantity of water before it is released out of the dam.
Can Crypto Inflate?
Is cryptocurrency immune to inflation? Not entirely. It is certainly more resistant to it though. There is an argument to be made that the act of mining crypto is essentially the same thing as printing money. However, the difference between an organization like the Federal Reserve and Bitcoin miners, is that the miners doing the work are rewarded 100% of the value of the Bitcoin they just mined. Whereas the people running the presses at the Federal Reserve are not rewarded in the same capacity.
Mining crypto has the potential to be more lucrative than being a textile worker at the Federal Reserve, especially when one single Bitcoin is worth over $30,000 USD. However mining quickly becomes a game of odds. With there being around 2.5 million bitcoins left to mine, that is an equation that some are choosing to hedge their bets on despite the diminishing returns in mining. The rewards a miner receives for mining 1 “block” are cut in half every 210,000 blocks that are produced. This means that the amount of Bitcoin mined per block is reduced every four years. This is different from government run mints, which produce as much money as they need every year.
Vote With Your Wallet
They say you vote with your wallet, why not make that wallet a cryptocurrency wallet? Vote against the authorities devaluing traditional currencies. Instead, choose to place a vote into a cryptocurrency you’re comfortable with, and benefit mutually with your fellow investors.
For the first time in history, individuals have a means of shaping the financial system that they use. One may opt out of the traditional world of finance, and choose a financial system that upholds their values and ethics. A move to decentralized money is the first step to navigating your way down the free flowing river of crypto.