A new Harris Poll, conducted on behalf of Bloomberg, published a surprising yet expected statistic: One in 10 Americans have never heard of cryptocurrencies.
The poll also found that 61 percent of people who knew of cryptocurrencies had minimal understanding of how they actually work, and 43 percent of those familiar with cryptocurrencies didn’t believe they were a legitimate form of payment.
But somehow, despite this skepticism, mainstream adoption of cryptocurrency has already begun on an institutional scale.
MasterCard now accepts cryptocurrency use for transactions on its credit and debit cards. The U.S. Office of the Comptroller of the Currency also released an announcement stating national banks and federal savings associations have the authority to provide cryptocurrency custody services. And Tesla began accepting bitcoin use as payment for its automobiles.
The internet has entered practically all facets of our life, and the world is preparing for it to enter our finances as well.
If you’re ready to die on the hill that cryptocurrency will always be “fake,” you may already be dead. The digital financial revolution is upon us, and it’s your responsibility as a modern member of society to learn more about it. Here are three main points to know about cryptocurrency:
1. It’s not necessarily any less safe than conventional banks or currency.
The U.S. dollar is not tied to any physical standard and has no intrinsic value — not since the 1933 nullification of the gold standard, at least. It’s what we call a fiat currency.
Cryptocurrency is in some ways very similar to conventional fiat currencies.
However, the biggest difference between crypto and fiat is that the value of one coin is not decided by any governing body. The dollar, for example, is vulnerable to inflation — at any point, the government could print more fiat paper notes, and your holdings would lose their worth.
Rather, the laws of the free market, as well as supply and demand, rule cryptocurrency.
Especially in times of financial turmoil, such as the current economic recession caused by the global COVID-19 pandemic, being at the mercy of a governing body that actively chooses to lessen the value of your money is much more dangerous than the relative volatility of cryptocurrencies.
The Federal Reserve Board lowered the value of the dollar this year by printing over 65 percent more dollar notes than in fiscal year 2020 in response to the recession.
One of the reasons cryptocurrency advocates are only advocates is because with cryptocurrencies, you’re not trusting one body of people with how much you are worth. You are entrusting your value to the Adam Smith-ian “invisible hand” of the free market.
While I am all for big government in social welfare, entrusting your financial worth to the government is unsustainable — or not particularly more stable — than entrusting the free market.
2. The utility of the U.S. dollar is diminishing.
The dollar “has historically held a position as the world reserve currency because it offered a number of strong competitive advantages over the alternatives,” writes Eric Ervin in a Forbes article.
However, “fiscal deficits, loose monetary policies and the onerous banking regulations,’” as Ervin puts it, have weakened the U.S. dollar’s legitimacy as a reserve currency. The banking system in the U.S. deteriorated, and the U.S. simply doesn’t have the political clout it used to in order to truly hold onto its hegemony in finance.
Cryptocurrencies offer an easier-to-use alternative, particularly for large institution-to-institution transactions. Simply put, it is difficult to continue to trust the dollar’s legitimacy for the decades to come, and cryptocurrencies have emerged largely to provide respite as distrust in traditional financial institutions boiled over.
3. Until full adoption, volatility means possible profits.
Cryptocurrency was built with the intention to replace fiat currencies issued by governments some day, but the road to get there is far and long.
In the field of economics, we look at less economically developed countries as an opportunity for large profits — it’s what drives foreign investment in regions like Southeast Asia. This is because these are emerging markets.
If you’re familiar with the field, the economics principle that a low stock of capital leads to a high marginal product of capital, and therefore high returns on investment, holds true in most emerging markets.
Cryptocurrency is just that: an emerging market that will reward early adopters for trusting it during its rise to prominence. An investment with payoffs in such Pascal-ian asymmetry is difficult to find and cryptocurrency is just that.
In Pascal’s wager, he concludes the risks of not believing in God are far greater than the “costs” of believing in God — and the same can be said for crypto — potential rewards for early adoption are significantly greater than the costs.
In the case that the world goes through high levels of economic turmoil — which seems likely in the post-COVID-19 world — cryptocurrency may well be the investment hedge that saves investors from economic disaster.
I realize the large jumps and dips in the cryptocurrency market can be frightening to the everyday retail investor. It’s exactly how I felt before I leaped into this rabbit hole. But all signs point to cryptocurrency success, or at least large returns upon success.
Cryptocurrency is set to change the world, for better or worse. If you want to be part of the biggest financial revolution since the creation of the International Monetary Fund in 1945, the time is now.