What’s Wrong With Cash?
Traditional fiat currencies are despised by cryptocurrency advocates. It has virtually become a fad among crypto aficionados to not only express disdain for fiat currencies, but also to refer to all paper money as fiat currency.
However, before we go into the reasons why crypto enthusiasts despise fiat currency, it’s important to first grasp what fiat currencies are.
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What Are Fiat Currencies and How Do They Work?
Fiat currencies have a long history dating back to ancient Chinese kingdoms in the 10th century. Credit notes began to circulate in the Tang Dynasty because strong demand for metallic currency outstripped the supply of precious metals during the peak of trade. They were quickly employed as the first-ever type of paper money, which we now know as banknotes.
Simply explained, a credit note is a piece of paper issued from one party to another that assures the second party that the private note is backed by a monetary or gold reserve in the bank. As a result, issuing an IOU credit note was equivalent to paying for goods and services.
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The concept of paper money swiftly gained hold, and in the 18th century, it was accepted by American colonies, France, and the Continental Congress. As feared, issuing too many credit notes or bills of credit might lead to inflation, thus, governments gained control of the bill-of-credit-issue process to increase system security and trust.
Anyone could exchange paper money for gold coins until the early twentieth century. However, wars and government growth programs compelled governments to spend more money, necessitating additional money printing. With paper money backed by gold reserves, governments could only access more capital by raising taxes or printing more money. The United States, as the world’s superpower nation, chose to manufacture money by decoupling the dollar from the gold standard.
The US dollar has been a fiat currency for exactly 50 years since President Richard Nixon unexpectedly removed it from the gold standard in 1971. Most countries adopted fiat currencies as a result of the act of canceling the convertibility of dollars into gold due to diminishing gold reserves and the necessity for additional government spending. Fiat money, by definition, is a medium of trade guaranteed by the holders’ faith in the issuing government’s goodness rather than any tangible substance.
Why Do Cryptocurrency Users Hate Fiat Money?
Crypto aficionados despise fiat currencies because they see them as an out-of-date monetary tool that only serves to reinforce the government’s lack of accountability and totalitarian control over the economy.
Various jurisdictions have gone on a money production frenzy in the last two years as the world has struggled to combat a global pandemic, underscoring the disadvantages of fiat monies. Inflation rises as more money is printed around the world, diluting people’s wealth and income.
Fiat currencies’ ability to operate as reliable repositories of value is harmed as a result of this. The governments of the world have grown so large as inorganic entities that there are no accountability procedures in place to control their spending and monetary policy. Nonetheless, the same governments are led by flawed human individuals.
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Crypto aficionados believe that putting centralized authority over the world’s monetary system in the hands of a few officials is an unfair system that only benefits those in power.
The idea of central banks wielding full authority over an economy by controlling its fiat currency runs counter to the ethos that governs pioneer cryptocurrencies like Bitcoin, which promote justice and transparency.
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