How will the world transition from a fiat economy to a crypto economy?

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There are two questions in crypto I’ve always wanted answered:

  1. What will the world look like if everything runs on crypto?
  2. How will the world transition from a fiat economy to a crypto economy?

I’m not going to attempt to answer the first question here, but I will try my best to answer the second. Before I continue, keep in mind this is not so much a prediction as it is a thought experiment. An imagining of what could happen rather than a statement on what will happen.

The way I see it, there’s an infinite number of ways we could achieve mass crypto adoption. For example, one unlikely scenario would be if a major nation state suddenly declared all cryptocurrencies legal tender and that no more taxes would be charged for any crypto transactions. Another scenario might be if the US were to turn into the Weimar Republic, and the dollar lost virtually all its value in less than a year (or 90 days). I suppose anything is possible, but here’s what I’m hoping will happen. In the coming years, I hope to see more people begin to realize the value proposition of crypto until we reach that magical tipping point of no return. The point at which it becomes clear there’s no turning back, that no politician or regulatory agency has any chance of stopping it.

To help that happen, I hope to see more people getting rid of their dirty fiat to accumulate more electronic cash. There will no doubt be some volatility along the way. People getting carried away and getting ahead of themselves before the market retraces and teaches everyone some lessons along the way. But as always, after enough fools have been parted with their money, the crypto market will bounce back stronger than ever.

People ask why would anyone spend a cryptocurrency like eCash if they think the value is only going to go up over time? The answer is they probably won’t, not unless they have to. But this is how I think the transition happens, with more and more people exiting the fiat system by spending their dollars, euros, and won to exchange for crypto. It’s Gresham’s law: “the tendency for money of lower intrinsic value to circulate more freely than money of higher intrinsic and equal nominal value”.

Those who see that fiat’s days are numbered will stockpile crypto while using fiat to pay for their daily needs. Only when they’ve run out of fiat, or want something that can only be purchased with crypto, will they use crypto. Couldn’t it be argued then that I am using eCash to help pay developers working on the protocol as well as to help increase the amount of economic freedom in the world?

I also believe the transition from a fiat based economy to a crypto based economy can only happen with the power of number go up. But I’m not just talking about the price. I’m talking about the number of users, as well as the transaction volume. I’m talking about coming up with more use cases, and adding more merchants, and more tools to leverage the technology. But it’s not going to happen in a straight line. As prices rise, it’s natural some people will spend their coins to buy things they need or things they value more than the coins themselves. Maybe they trade their coins to buy a new car, or a new house. After all, this is one of the three major purposes of money, to store your value until you’re ready to use it.

But as I said, until we reach mass adoption, there will be volatility. As cryptocurrency prices top, others will sell with the hope of extracting as much value as possible before the bottom is reached. Of course not everyone. Plenty will just keep holding through the ups and downs until they have something they decide is worth trading their coins for. I see this all as an intrinsic part of the process, at the end of which the volatility should subside and prices will stabilize.

Though some rebuke those who only focus on number go up, I say number go up is the reason why major companies like Expedia, Microsoft, and Steam all started accepting Bitcoin in the 2010’s. But number go up is unsustainable if it isn’t supported by fundamentals. People will see the emperor has no clothes if the technology itself leaves them wanting. That’s exactly what happened in 2017, and sure enough, Expedia, Microsoft, and Steam all stopped accepting Bitcoin due to high fees, unreliable processing times, and cratering prices.

But what if things had been different? What if instead of falling flat on its face at the worst possible moment, Bitcoin had shined. What if making a transaction hadn’t cost an arm and a leg, or taken an eternity to be finalized, but instead had been unbelievably cheap and fast the way magic internet money was always supposed to be?

Fortunately, I believe crypto has been given a second chance. The myriad of mistakes made by central banks around the world have opened a window of opportunity for these new censorship-resistant digital currencies to compete. This is why it’s so important that projects like eCash exist. Projects that are actually building the necessary tools and infrastructure to serve as a viable alternative when the legacy financial systems of today finally collapse.

As with all things, I think the transition will happen gradually, then suddenly. Over the next few years, I see more and more people joining the crypto movement. I see more infrastructure coming online, more businesses using crypto in unique and exciting ways to drive more profits. Meanwhile, our governments will continue to fall further into debt, thus necessitating the need to print even more money out of thin air. It won’t just be crypto that’s going up in value, it will simultaneously be our fiat going down in value until eventually it will become impossible for anyone to ignore what is happening.

The question is when the time comes, will we be ready? Will these new peer-to-peer networks have reached enough scale to serve as a proper lifeboat for all of society? Or will we have been so distracted by the crypto casino to have built anything that works?

I don’t think the transition will be easy, but it will be harder on some than on others. There will be plenty of turbulence as we undergo what could end up being the greatest advancement in human history. One that will alter the way we transact, the way we allocate resources, and ultimately organize and govern.

Those who are able to make the switch early and survive will have the advantage, while those who fail to adapt to the new paradigm will fall behind. But eventually everyone will have no choice if they want to participate in the global economy. They will have to learn about private keys, and self-custody, and what it means not having to rely on trusted third-parties.

I don’t know how long this will all take. Maybe this will be the cycle that ends them all, or maybe we still have several cycles to go, but I believe it all depends on us. On whether we can build fast enough, on whether we can learn from our mistakes, and whether we have enough courage, and ingenuity, and industriousness to finally bring about real change rather than wasting our time wandering in the wilderness.