Why Cryptocurrencies Will Not Save the World

As long as credit and debt exist, crypto is no different than fiat

Photo by Andre Francois on Unsplash

Even predating the 2009 advent of bitcoin, cryptocurrency evangelists espoused decentralized electronic currency as an antidote to many aspects of financial inequality. Today, the apparent virtues of cryptocurrency are more widely held and loudly proclaimed than ever. But I wonder if crypto proponents have ever carefully considered what would happen should bitcoin or any other cryptocurrency supplant fiat money.

The answer is that nothing about inequality would change.

Cryptocurrency advocates seem to dismiss the fundamental usage of money in contemporary society: as a tally of debt. Even if crypto assets replaced fiat money, nothing about the current financial structure would change unless the economic psychology of the world population shifted as well. And let’s be honest — that’s not going to happen.

Sure, cryptocurrencies might reduce transaction lag times and some fees and enable peer-to-peer transactions, but that won’t change how the financial system works much. This is because ideas such as interest and debt are already ingrained in the human psyche.

There will always be entities who hold more money than others, be it fiat cash or cryptocurrency. And those richer entities will be able to leverage their reserve of money to extract value from entities with less money. Even if cryptocurrencies magically supplanted fiat money today, you’d still have to get a loan to buy a house tomorrow. Enter interest and debt.

Cryptocurrency evangelists claim that decentralized digital money will circumvent corrupt financial institutions that exist today, but overlook the fact that credit and debt as concepts don’t depend on the medium of exchange. There’s literally no difference in how economic transactions would operate if they hinged on cryptocurrency than they do now, hinged on fiat money.

Centralized financial institutions will inevitably arise to facilitate a crypto economy, just as they are necessary to facilitate the contemporary fiat economy. Anyone who claims otherwise is naive to the realities of the role of money — crypto or fiat— in a financial system that revolves around the concepts of credit and debt.

True, cryptocurrencies have the potential to increase transparency, but do we really think that will matter? The biggest ways “the system” — that is, “big finance” — extracts value from their available capital is through interest earned on that capital or the deployment of that capital in a profitable manner such as paying a worker a wage that is less than the value he generates. Making all this information public and transparent will not only fail to change the structure of interest and capital utilization, but it will certainly undermine individual privacy (do you think anyone’s getting an anonymous crypto loan to buy a house in an economy based on crypto? — Nope).

Also true is that cryptocurrency might reduce fraud and dishonesty (via increased transparency). But while illegal activities get a lot of the spotlight when it comes to the perceived corruption of big finance, large institutions will still make heaps of money staying perfectly in line with the law.

The dichotomy of the capitalist and the worker will still exist in cryptoland.

Just as richer entities employ (read: extract value from) poorer entities in a fiat-based system, these same dynamics will thrive under a crypto economy. Nothing intrinsic in cryptocurrencies will re-balance the capitalist-socialist scale nor increase social mobility.

Crypto-enthusiasts proclaim the virtues of the crypto-economy but understand only the technological aspects of money. Most of them don’t have the anthropological or economical understanding to perceive the intrinsic nature of money systems based on credit and debt, in which the concept of interest operates.