Revolutionizing finance with #DeFi! π°
Real-world problems that can finally be solved with the adoption of decentralized finance.
Share THIS the next time someone calls crypto a scam or ponzi...
Thread 2 of 4 π§΅π
0/29
Real-world problems that can finally be solved with the adoption of decentralized finance.
Share THIS the next time someone calls crypto a scam or ponzi...
Thread 2 of 4 π§΅π
0/29
1/29 Problem number 2: Currency Debasement πͺ
In short, this refers to a decrease in the value of a currency over time.
What causes this to happen?
In short, this refers to a decrease in the value of a currency over time.
What causes this to happen?
2/29
Historically, debasement was caused by coin clipping, a method to reduce the amount of gold and silver in the coins used as currency.
The coins then contain less precious metal but as legal tender are still accepted as if they were worth the same amount
Historically, debasement was caused by coin clipping, a method to reduce the amount of gold and silver in the coins used as currency.
The coins then contain less precious metal but as legal tender are still accepted as if they were worth the same amount
3/29
By extension, this increases the money supply, which leads to inflation - an increase in the cost of goods and services relative to the currency - as the money in circulation was worth less.
By extension, this increases the money supply, which leads to inflation - an increase in the cost of goods and services relative to the currency - as the money in circulation was worth less.
4/29
The days of the 'gold standard' in monetary systems is no longer widely used and sovereign money is no longer 'pegged' to commodities like precious metals.
The days of the 'gold standard' in monetary systems is no longer widely used and sovereign money is no longer 'pegged' to commodities like precious metals.
5/29
To briefly explain, a currency peg is a system in which a country's government fixes the value of its currency to a specific amount of another currency or to a commodity (e.g. gold).
This helps to stabilize the value of the currency and reduce fluctuations.
To briefly explain, a currency peg is a system in which a country's government fixes the value of its currency to a specific amount of another currency or to a commodity (e.g. gold).
This helps to stabilize the value of the currency and reduce fluctuations.
6/29
One of the benefits of using gold to back a currency is that it limits the money supply, since the amount of money in circulation is directly linked to the amount of gold held by the government.
This helps to reduce inflation and maintain the value of the currency.
One of the benefits of using gold to back a currency is that it limits the money supply, since the amount of money in circulation is directly linked to the amount of gold held by the government.
This helps to reduce inflation and maintain the value of the currency.
7/29
By the end of the 20th century, the 'fiat system' is the standard almost all countries adopted.
In short, fiat money is government backed legal tender, essentially a currency which has value because they proclaim it has value & isn't backed by a physical or tangible asset.
By the end of the 20th century, the 'fiat system' is the standard almost all countries adopted.
In short, fiat money is government backed legal tender, essentially a currency which has value because they proclaim it has value & isn't backed by a physical or tangible asset.
8/29
The modern version of currency debasement begins with poor fiscal policy - another term for how governments allocate their budget spending - eventually leading to persistent inflation.
The modern version of currency debasement begins with poor fiscal policy - another term for how governments allocate their budget spending - eventually leading to persistent inflation.
9/29
The rapid switch to a dependance on central banks in early 1900's meant that governments had the super power of being able to stimulate the economy through 'money printing' whenever they felt it was necessary.
The rapid switch to a dependance on central banks in early 1900's meant that governments had the super power of being able to stimulate the economy through 'money printing' whenever they felt it was necessary.
10/29
The not so subtle caveat to this concept, whether it be through negligence or intent, is that this kind of power can be abused.
The not so subtle caveat to this concept, whether it be through negligence or intent, is that this kind of power can be abused.
11/29
This one chart shows how well government backed money works in practice π
I'd recommend looking into wtf happened in 1971.
wtfhappenedin1971.com
This one chart shows how well government backed money works in practice π
I'd recommend looking into wtf happened in 1971.
wtfhappenedin1971.com
12/29
In extreme instances, bad policy over long periods can lead to 'hyper-inflation' - the cause of which can be due to a number of factors;
In extreme instances, bad policy over long periods can lead to 'hyper-inflation' - the cause of which can be due to a number of factors;
13/29
π Excessive money printing by the government
π A sudden decrease in the production of goods and services
π Psychological loss of public confidence in the government and its monetary policies
π Excessive money printing by the government
π A sudden decrease in the production of goods and services
π Psychological loss of public confidence in the government and its monetary policies
14/29
With one or more of these situations, society can eventually lose confidence that their local currency has any value at all.
Discontent and social unrest can manifest when prices skyrocket rapidly and every day goods become unaffordable.
yalibnan.com/2020/05/05/hypβ¦
With one or more of these situations, society can eventually lose confidence that their local currency has any value at all.
Discontent and social unrest can manifest when prices skyrocket rapidly and every day goods become unaffordable.
yalibnan.com/2020/05/05/hypβ¦
15/29
The worst hyperinflation events in descending order:
3. Yogoslavia 1994 - prices 2x every 1.4 days
2. Zimbabwe 2008 - prices 2x every 24.7 hrs
and....
The worst hyperinflation events in descending order:
3. Yogoslavia 1994 - prices 2x every 1.4 days
2. Zimbabwe 2008 - prices 2x every 24.7 hrs
and....
16/29
1. Hungary 1946 - prices 2x every 15.6 hrs
Highest denominated bill:
100,000,000,000,000,000,000 pengo π΅
1. Hungary 1946 - prices 2x every 15.6 hrs
Highest denominated bill:
100,000,000,000,000,000,000 pengo π΅
17/29
Something which might surprise you is knowing that there are many countries presently tackling the problem of hyperinflation.
2022 EY report lists these economies.
ey.com/en_gl/ifrs-tecβ¦
Something which might surprise you is knowing that there are many countries presently tackling the problem of hyperinflation.
2022 EY report lists these economies.
ey.com/en_gl/ifrs-tecβ¦
18/29
TLDR some examples included;
π Argentina - 216% 3Y cumulative inflation
π Iran - 144% 3Y cumulative inflation
π Lebanon - 173% 3Y cumulative inflation
π Venezuela - 2,330,000% 3Y cumulative inflation
π Turkey - forecasted 138% 3Y cumulative inflation in 2023
TLDR some examples included;
π Argentina - 216% 3Y cumulative inflation
π Iran - 144% 3Y cumulative inflation
π Lebanon - 173% 3Y cumulative inflation
π Venezuela - 2,330,000% 3Y cumulative inflation
π Turkey - forecasted 138% 3Y cumulative inflation in 2023
20/29
Considering the above, we can summarize some of the main problems causing currency debasement:
π Inherently centralized
π Requires trust of strong fiscal and monetary policy
π Money and government inextricably interconnected & with the risks of conflicting interests
Considering the above, we can summarize some of the main problems causing currency debasement:
π Inherently centralized
π Requires trust of strong fiscal and monetary policy
π Money and government inextricably interconnected & with the risks of conflicting interests
21/29
A way to overcome these issues would be to retain a democratized & decentralized system which relies on more than just a few stakeholders to govern the monetary system.
A way to overcome these issues would be to retain a democratized & decentralized system which relies on more than just a few stakeholders to govern the monetary system.
22/29
It's imperative that, to ensure a strong and hard money, it is absolutely necessary for it to be backed by an asset which supports to peg the currency to a stable value over time.
It's imperative that, to ensure a strong and hard money, it is absolutely necessary for it to be backed by an asset which supports to peg the currency to a stable value over time.
23/29
As a sparse and desirable commodity, gold proved its status as hard money for centuries.
One of the reasons for this was it's natural sparsity and the investment of labour required to mine it.
As a sparse and desirable commodity, gold proved its status as hard money for centuries.
One of the reasons for this was it's natural sparsity and the investment of labour required to mine it.
24/29
Similar to Gold, $Bitcoin requires evidence of the energy spent for the 'proof of work' consensus to generate the new bitcoin reward every 10 minutes.
Similar to Gold, $Bitcoin requires evidence of the energy spent for the 'proof of work' consensus to generate the new bitcoin reward every 10 minutes.
25/29
As there is a finite supply of Bitcoin (21 million), and a hard coded limit of how quickly new currency is created and added to the network, this creates a naturally appreciating asset which, through adoption, can retain its value through time.
As there is a finite supply of Bitcoin (21 million), and a hard coded limit of how quickly new currency is created and added to the network, this creates a naturally appreciating asset which, through adoption, can retain its value through time.
26/29
Due to the decentralized nature of Bitcoin, there is no central point of failure and it is immune to corruption or financial negligence.
Due to the decentralized nature of Bitcoin, there is no central point of failure and it is immune to corruption or financial negligence.
27/29
Bitcoin is a global network and sovereign to anyone who holds it as an asset.
Bitcoin is a global network and sovereign to anyone who holds it as an asset.
28/29
Because of this;
π Bitcoin cannot be freely printed
π A Bitcoin currency peg could stabilize sovereign currencies
π It is extremely resilient to hyperinflation events
π Due to sparsity it is an appreciating asset and holds its value well through time
Because of this;
π Bitcoin cannot be freely printed
π A Bitcoin currency peg could stabilize sovereign currencies
π It is extremely resilient to hyperinflation events
π Due to sparsity it is an appreciating asset and holds its value well through time
29/29
I hope you enjoyed the second of my 4-thread series on the real-world problems DeFi solves.
Each will highlight a different real-world problem and act as a reminder why crypto & #defi exists and why we need a more decentralized world
π
cryptocontemplation.substack.com
I hope you enjoyed the second of my 4-thread series on the real-world problems DeFi solves.
Each will highlight a different real-world problem and act as a reminder why crypto & #defi exists and why we need a more decentralized world
π
cryptocontemplation.substack.com
My goal of this profile is to build up confidence and knowledge to the point where I can articulate the benefits of crypto and blockchain in the simplest way to those new entering the space.
#1percentbetter
Education is the most important to onboarding the masses to Web3 π
#1percentbetter
Education is the most important to onboarding the masses to Web3 π
Curated some carefully selected tags below for educatoors in the space who keep me going! In no particular order...
@ViktorDefi
@diana_web3
@2lambro
@eli5_defi
@arndxt_xo
@GrowCrypto__
@NFT_GOD
@ViktorDefi
@diana_web3
@2lambro
@eli5_defi
@arndxt_xo
@GrowCrypto__
@NFT_GOD
@N3tyan_
@Only1temmy
@BucharaYT
@jpegrascal
@nftshark_
@ballanutsa
@cj_zZZz
@0xDinoEggs
@pedroo_nv
@Chinchillah_
@Slappjakke
@DefiIgnas
@jake_pahor
@bubits_
@0xMughal
@Only1temmy
@BucharaYT
@jpegrascal
@nftshark_
@ballanutsa
@cj_zZZz
@0xDinoEggs
@pedroo_nv
@Chinchillah_
@Slappjakke
@DefiIgnas
@jake_pahor
@bubits_
@0xMughal
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