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Bitcoin, CBDCs, stablecoins, and the Future of the Internet of Value (P-1)
The vast majority of Twitter discussions surrounding crypto-currencies, bitcoin, digital assets, etc. revolve around zero-sum arguments, i.e. Bitcoin will eliminate the fiat system, CBDCs vs. Libra, etc.
The vast majority of Twitter discussions surrounding crypto-currencies, bitcoin, digital assets, etc. revolve around zero-sum arguments, i.e. Bitcoin will eliminate the fiat system, CBDCs vs. Libra, etc.
IMPO these are myopic & flawed arguments for several reasons. First & foremost; the internet & DLT have empowered individuals / markets to assess value without being dictated a mandatory medium of exchange or currency. People, not institutions, get to choose how to loan & spend.
Second, digitized fiat systems (CBDCs) representing nation-state central banks will not be replaced by Bitcoin or any other DA, but will be complementary in an algorithmically continuous global race for risk management. There is no finish line as the race is humanity itself.
CBDCs representing GDPs, growth & inflation, etc. will focus on optimizing local geographic economic concerns as a service to citizenry (because if they don't the race will incentivize citizenry to use other forms of DAs). This ultimately can solve the problems of populism.
The need for a world reserve currency & the requisite global hegemony it entails will be replaced by a multi-polar world competing for capital & growth in relative terms as it relates to their domestic CBDC management. Energy will push to the forefront as a premium.
As the relationships & economic systems become increasingly complex & supranational the need for cross-border settlements with limited counterparty risk will grow exponentially. This is a trend towards value transfer efficiencies, which governments are notoriously bad at.
As Thomas Mayer of @fvs_com put it "rising powers create an imbalance in monetary stability", which is why single currency systems inevitably create populism. Look no further than the Euro & the regional crisis of confidence of variable economies in what is simply a 'cash' union.
@Lagarde as the head of the ECB will most likely push TARGET2 as a monetary consolidation of risk in an attempt to save the EU. It is also likely the ECB will issue a CBDC to individual accounts & disintermediate the national banks (neg. rates don't work).
All of the aforementioned groups want to either preserve or create credit seigniorage & encapsulate value itself, a natural tendency of aggregators. This is flawed thinking. Value is information, it wants to be free, it wants to flow unhindered & with as little energy as possible
Bitcoin as an abstraction relies on the societal framework around it, cradle-to-grave in its supply chain. It needs raw materials to manufacture the mining rigs, software code (which in itself is an abstraction supported by a decentralized community), ...
People & engineers to design/manufacture ASICs, power plants run by societies to power it, on & on & on. Until Bitcoin can facilitate its own economy in this supply chain it remains a dependent abstraction on top of fiat, which in turn represents local geographic economies.
Do I believe Bitcoin will replace CBs? No. Do I believe Bitcoin, or some other form of DAs (Libra, XRP, etc.), will force nations to enact fiscal discipline or risk growth limits/capital flight? Definitely.
So what about stablecoins? IMPO, these are simply instruments acting as a proxy for CBDCs until they are issued. In some instances they represent unverifiable counterparty risk by the issuers, which are not political/monetary institutions, but rather private organizations.
At the end of the day what are we really left with in this discussion? TRUST. All of the aforementioned require some form of trust in other humans. DLT does not eliminate that, it mitigates it & introduces transparency, eliminates intermediaries, places us closer to bartering.
Some people say you can't trust the central banks because of reckless debasement of monetary value, yet enjoy the benefits of a society around them built on their stewardship. The problem is the outcomes are not optimized & the monetary stimulus tools are ineffective.
The solution: The Internet of Value, a "Level Playing Field", wherein all of the above can compete for value, specialize in their respective ecosystem as a service, and more importantly accommodate CBDCs, Bitcoin, Libra, etc. in a vast network of interoperable liquidity pools.
Look at the work being done by @kava_labs @QuantOverledger @Coil @Interledger @cosmos & you'll see that the interesting evolution of money isn't Bitcoin (institutional investors are simply catching up conceptually), it's interoperability. It's programmable / trustless value swaps
Let the race begin, cheer for you favorite runner if you want, but realize that the IoV will dwarf all other value ecosystems because it neutral, fair, and free. Many of the runners will try & hamstring the others, but at the end of the day consumers will choose continuously.
What happens when there are millions, maybe billions, of runners? No one put it better than @galgitron "...as the number of coins exponentiate, swapping using liquidity via a bridge currency (ILP) becomes the norm". The DAs that service the IoV will do so based on PERFORMANCE.
Personally I've never been more excited about the future in regards to humanity & the ability to solve problems. The IoV won't solve world hunger, but it will gives us the tools to do so.
IoV in conjunction with the internet of information, competition, regulated markets, etc. has the potential to create a fair & just world in which aggregators are limited, individuals can contribute & be rewarded in proportion to their efforts, and humans are free to associate.
