Fiat currencies have reduced themselves to the level of NFTs. The USD is a perfect example of this. The story is fairly easy to understand.
The story of NFTs
Some intelligent people realized that smart contracts could be used to register ownership of a given contract by a given public key, and that contract could contain references to a real-world asset (a land title, for example), much to the benefit of all.
Some clever scammers then realized that the reference part of the contract could simply be arbitrary data, like the bytes of a variation of a picture of a monkey, for example, and hence NFTs were born, much to the benefit of the unscrupulous sort who enjoys stealing money from morons. A Tulip Mania predictably ensued.
The story of Fiat
Some intelligent people realized that paper contracts could be used to register ownership of a given quantity of gold given an adequate protection against forgery and, optionally, proof of identity, and that mutual respect of these notes between banks would massively lubricate business, much to the benefit of all.
Some clever government planners then realized that the paper notes were being valued on their own and gold was almost never involved due to logistical complications, and that simply dispensing with the gold entirely would leave them free to print endless notes for themselves so long as they did not burden the notes with an identity requirement, much to the benefit of unscrupulous government planners willing to trash their entire society’s future for some temporary gain.
The USD has literally reduced itself to the level of NFTs.
Gold as the sole proxy for value (and yes, it is a proxy for value, just one that requires convincing an accommodating star to explode in order to create) is unworkable for a long list of reasons, but the basic idea of leveraging the laws of the entropic universe in which we live to provide a proxy for value that is very nearly impossible to forge is sound. This is exactly what cryptocurrency is: a proxy for value that is backstopped not by the backdoor deals and public utterances of scheming politicians, but by the laws of the universe.
Unfortunately, cryptocurrency is experiencing quite a lot of trouble overcoming its own usability issues, problems that simply must be solved in order to enable the “currency” part to come back into meaning. The attentive among you may have noticed that people say “crypto” quite a lot these days but almost never say “cryptocurrency” any longer. The reason is that there are still no general marketplaces for ordinary buying and selling — no crypto-based eBays, Etsys, Amazons or Rakutens — that use crypto as their payment backend, despite us being 14 years into the experiment. I won’t go into the details now, but suffice to say that a solid half of the reason is purely technical in nature (there are basic reasons why this is a bit difficult to pull off, simply due to the nature of crypto itself), and the other half is a combination of speculation and scams saturating the market, making it difficult to price ordinary products in terms of crypto (which is itself a bit of a chicken-and-egg problem). The closest we have come is fake exchange scams where all the trades are off-chain and therefore entirely fake (consider the ridiculous story of FTX).
The e-commerce use case of crypto is almost entirely untouched.
Stew on that for a minute — it is as amazing as it is ridiculous.
Two interesting things are occurring right now:
- FTX is showing people who invested heavily in crypto without understanding anything about how it works or what blockchains even are just how dangerous it is to follow hype without understanding anything
- An online marketplace project that uses crypto as a payment system (and actually does it on chain for once) is nearing completion.
I know about the marketplace system in detail because I am its primary developer.
There is, of course, one major problem with the e-commerce use case as well as one strongly mitigating factor.
The problem part is regulatory risk in this wacky era of comically absurd and arbitrary abuse of government power throughout most of the West. The situation can be best summed up by a meme.
The strongly mitigating factor is that the marketplace is run by a Japanese company. Japan appears to have decided to not commit suicide outright along with the West, though various elements of societal suicide are receiving a mixed response, to say the least. The legal structure here is still very much “wait and see” about how crypto will turn out. That is, there are major obvious economic advantages to providing another avenue for both local domestic and international trade — but government officials don’t have all day (or won’t make time) to sit around thinking about crypto long enough to come to a concrete conclusion about it all, so our government is taking a less cavalier approach than the American Empire planners in the US and their frenemies in Davos, currently rating crypto as “property” and leaving it at that for now (disrupting this category would completely disrupt our bizarre and enormous gambling industry where people don’t “really” gamble, but totally do because it is for “property” rather than “money”).
This situation is barely metastable, so We’ll just have to see how this goes. Ideally having a real marketplace and toolkit that makes it possible to conduct business on-chain for the first time ever will enable a few people to do real business rather than financialized nonsense, and demonstrate what is good about crypto as well as illuminate some of its true (rather than imagined) limitations. This is an economic experiment that needs to happen. Hopefully speculators don’t blow it up.