Even though my friends wouldn’t agree, I think that we can use many things, including cryptocurrency, as a reserve currency. I’ll elaborate on this, and Hunter and Christian can leave their comments below.
What is currency, after all?
By definition, the currency is something that serves as a medium of exchange. Therefore, when something is widely accepted and can circulate from person to person – you can call it a currency.
Hm, does this mean that any painting of an acknowledged artist can serve as a reserve currency? Well, it might!
In theory, you can exchange the art for something of similar value. The problem is that the transaction (meaning transporting) of art would be slow. Moreover, you can’t use a painting for small purchases. Thus, most currencies need smaller denominations.
In the case of Bitcoin, one unit has a high value, but there are Satoshis as a smaller denomination. Similar to transporting art, the speed of transactions of cryptocurrency is slow nowadays.
But, would the speed of transactions improve? And would that enable buying groceries via crypto? Or are there other models where cryptocurrency would become a reserve currency?
Reaching Visa’s Speed of Transactions
Not long ago, we witnessed the cryptocurrency Ripple passing the speed of PayPal. However, PayPal isn’t the “speedy one,” too. And yet, other cryptocurrencies didn’t reach even the PayPal speed of 193 transactions per second.
So, even with this breakthrough, cryptocurrencies are far away from the Visa’s 24,000 transactions per second.
Nowadays, many are trying to improve their speed. Sometimes, only the news of the improvement brings the price to the roof.
In these cases, some founders reap the riches in no time. Not always the case, though, as many of them do “hodl.”
There were a few notable cases of improving the speed:
- Lightning Network – is using the built-in scripting of Bitcoin.
- Plasma – is a lightning network for Ethereum, as another try to create a “blockchain in the blockchain.”
- Stellar – utterly different logic than Bitcoin and Ethereum made by the previous co-founder of Ripple.
Besides, innovative concepts like off-chain settlements are also solving the speed problem. Honestly, of-chain settling doesn’t ring my bell. It is because I feel a bit disappointed as it removes the very same values blockchain brought.
Think of it, these models include:
- A contract like any other (not even a smart one)
- Third-party to guarantee the payment
But blockchain was all about removing the third party via smart contracts, right?
The only efficient model I practice is buying the gift coupons with crypto. At the very moment, when you are purchasing the voucher, you are using crypto as a reserve currency. After that, everything is quite the same as you are using a piece of paper or coupon to shop.
Of course, the full experience comes if retailers would accept crypto payments. Alas, it is hard to imagine that they would deal with the volatility.
Volatility is Making a Life Hard
To be clear, some people enjoy this volatility. In the beginning, I doubted that all of this crypto madness came with one purpose – to make a fortune to experienced traders.
Before, trading exotic currency pairs at Forex was only similar to the crypto market. As these exotic currencies are part of some unregulated economies, their value was usually only going down.
Although highly volatile, cryptocurrencies value is growing over time. When applying some technical analysis (Elliot Wave, for example), you can notice the progress.
Yet, don’t take this for granted!
Countless times I wrecked my nerves when Bitcoin went down. As always, Bitcoin is leading the up or down movement of all cryptocurrencies. And I don’t see this would change in the future.
Therefore, volatility would be here for a while. But for how long?
I guess no one knows. At this moment, new solutions rise and fall. But they gain public attention. Whether these are fast or slow, fraudulent, or selfless, the number of people that know about crypto increases. In a way, this also increases the chances these people would consider crypto as a reserve currency.
Reserve Currency in Case of Financial Crisis
Since the visions of the future are motifs of my paintings, I won’t dwell on the fact that anything can serve as a reserve currency.
Imagine a scenario when an imminent financial crisis would wreck the Fiat currencies. In the case of massive hyperinflation, where would people turn?
Logically, gold and silver would be the reserve currency for many. My opinion is that in this case, people will flock to crypto as a reserve currency, too.
Hence, cryptocurrencies can shake our societies and the ways we see values. Imagine, not only a reserve currency but a complete breakthrough in finance and human relations.
Have you heard of Cryptokitties?
I know, it struck me, too. A few of these cute digital kittens were selling for more than $100k each!
As an artist, I was amazed by all of the crypto-collectibles. Having an opportunity to give a monetary value to digital art opened up some new boundaries.
The most compelling for me was, of course, the model of combining crypto with an art. Finally, I admired the fact that the value of art lies in the hands of the public, not some fancy auctioneer. And as this digital artwork changes hands (or hard drives), its value grows.
But wait? As it changes hands, can this crypto artwork serve as a reserve currency, too?
Whenever it is a cryptocurrency or digital art secured by blockchain, all have the potential to serve as a reserve currency. I would love it if it were an art, but it goes for anything that people agree that it has a value.
In ancient history, these were seashells, peppercorn, or tea bricks. Yes, small blocks of tea were the worldwide currency in the 16th century.
So, what’s wrong with cryptocurrencies as a reserve currency?
Nowadays, there are blockchain-based streaming platforms that are giving a share of earnings to the viewers, too. Maybe we would trade with likes, comments, and shares?
Seemingly, blockchain is the part of the future, and progress is imminent. In the future, we wouldn’t need some plastics or wallets when we already have phones. And in a world of “neuralink,” maybe we wouldn’t need phones after all.