monetary freedom - Pwim.Net

Fighting for Monetary and Financial Freedom

If we want to understand why blockchain will disrupt and uproot our current monetary and financial system, we need to understand the following: the history of currency; what is a currency; why currency exists; and the relationship between currency and wealth. Then we look at three key aspects (money form, money issuance, and the flow of money as Influence Observation Factors, IOF for short) of our monetary and financial system where the blockchain technology may have a significant impact. We believe blockchain will eventually bring about the best form of “freedom” that is most desirable of any monetary and financial system.

Currency and money form

Historically, humans needed to exchange commodities. The earliest form of exchange was barter. Barter trade is completed if only the two sides have complementary needs, or both parties need to trade the third commodity. As the frequency of exchange increased rapidly, that the third commodity, being a medium of exchange, which everyone wanted to possess became crucial. This “general purpose” commodity which is particularly handy for exchange activities then became what we now call the “currency”. In theory, if the commodity is treated as a medium of exchange, it can function as a currency. The commodity with attributes like scarcity, limited supply, and physical stability eventually turned up as the winner. There were once shell, silver, gold, stone, bronze, among others. As time passed and through what we may call natural selection of currency form, gold then became the most accepted form of currency around the world. It is extremely important that the currency as a form of wealth be kept stable for wealth inheritance. Historically, it was very difficult to refine aluminum, and so its price exceeded that of gold soon after its discovery. So aluminum was once a form of wealth. However, after the mass adoption of electrolytic production, the price of aluminum declined drastically. So, as a generally adopted currency and as a form of wealth, the currency form is of uppermost importance.

Money issuance

Using heavy metal as a form of currency, for example, gold had led to several important considerations in practice.

(1) Standardization. The authority normalized and unified the weight and measurement of gold, which was required for money flow, thus the exchange of commodity. Naturally, the power of supervision was vested in the authority.

(2) Non-equivalent exchange. The authority used less gold than what is needed in a fair deal or even other heavy metals in lieu of the gold. This way, by using less valuable currency in exchange for commodities, the authority stole value from us and gained their benefit stealthily. The authority could do that, perhaps illegally, because they control the currency issuance to a certain extent.

(3) Gold standard. For easy circulation, a handier form of currency such as paper was introduced, which is backed by fixed amounts of gold. Since the paper was much easier for exchange and to carry, it accelerated trade. This was a very drastic change. We needed to trust the institutions issuing the paper currency in terms of their worth as measured in gold.

With the development of international trade, gold became the most recognized heavy metal currency around the world. Also needed was a method to measure money and wealth that would be accepted by all. In 1867, the first monetary conference was held in Paris where participating countries agreed to a single gold standard, for the very first time [2]. Currency systems built around that gold standard prevailed. After WWII (or in 1944 to be exact), a world monetary system was built based on US dollars, which in turn was, as claimed, backed by the gold standard under Bretton Woods Agreements. Many countries then fixed their exchange rate relative to the US dollar, thus making all currencies pegged to gold at a fixed rate indirectly. This was the so-called Bretton Woods System. In 1971 with “Nixon shock”, US President Richard Nixon abolished the international convertibility of the US dollar to gold [1]. In March 1973, the fixed exchange rate system was abandoned. “By 1973, the Bretton Woods system was replaced de facto by the current regime based on freely floating fiat currencies”, which let the free market determine the US dollar exchange rates for other countries’ currencies. This marked the beginning of the collapse of the Bretton Woods System. Gradually, the whole world converged to the “national credit standard” where currency issuance was backed by national credit.

Flow of money

Traditionally, exchanging gold for the commodity is completed simultaneously in terms of ownership. Over time, we added more concepts to financialize our service: credit, mortgage, mismatch, leverage, futures, etc. Then the concepts of “payment, settlement, clearance” were introduced to describe the whole cycle of transacting. With more financial derivatives, we added substantially to the complexity of our financial system logic and its implementation. Consider any of today’s banking systems, it is virtually impossible to rebuild it with so many legacy data and subsystems. For cross border service among financial institutions, we are still using the arguably low-efficiency SWIFT protocol, which was first adopted in Brussels in 1973 as “a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.” [3] Because of all these complex systems and protocols, the bank charges us when we make payments, exchange foreign currency, and when we do remittance of any kind. They charge us for even the pettiest flow of money, and by that, they reap huge profits for their inherent low-efficiency services. Moreover, the poor suffered the most from these charges, who became slaves of the currency financial system. In the new blockchain system, both sides trade directly without a third party involved, and thus the trade could finish spontaneously. The concept of payment-settlement-clearance becomes redundant in the blockchain system, leading to a much-simplified money flow cycle. The cost of payment, trade, remittance, and even foreign exchange is nearly 0.

Blockchain and cryptocurrency

In 2008, Satoshi Nakamoto invented bitcoin, a peer-to-peer electronic cash system [4] and described blockchain the underpinning technology. Since then, bitcoin and blockchain have taken the world by storm and is hailed to be the answer for a perfect currency and financial system in the future. The issuance of bitcoins is by POW, a proof of work algorithm first proposed in 1993. By the algorithm, the issuance is reduced to the task of mining. This is an entirely new way of currency issuance. Gold mining is measured by human labor, whereas bitcoin mining is measured by computation power. The emergence of bitcoin and blockchain thus marked the beginning of the transition from a carbon-based civilization to a silicon-based civilization. A person tries to maximize their profit and wealth that is generally proportional to human labor. With currency being the main carrier of wealth can lead to different perceptions of money and wealth by the method of issuance of currency. Adopting the bitcoin method shifts our focus to computation power, for which there is still plenty of room for further advancement and innovation. The big open question here is that can we create a new world currency that can benefit (in terms of much-improved features and services) human as a whole in the long run? What currency issue rules should we adopt? Besides the traditional gold standard and then the current national credit standard, bitcoin and blockchain represent the third generation of currency issuance. Bitcoin is a kind of cryptocurrency, of which the ownership depends on a private key. Without the correct private key, there is no way to move bitcoins around, even if it is by means of law. This brings to us the notion of “absolutely private property”, for the first time in human history! Bitcoin is innovative in all IOF factors. Use IOF, For Facebook’s Libra, it is creative in money form and flow of money, leaving money issuance unchanged. Blockchain has the potential to provide us with much better solution in terms of IOF.

With blockchain, we put an end to the monopoly of government-issued currency as suggested by the title of Hayek’s book – “denationalization of money”. Blockchain will simplify the set of concepts revolving around financial services and the complexity of the IT system. With blockchain, we have cryptocurrency that is more stable and safer than any currency that has ever existed before. This is “monetary and financial freedom”!

To learn what else Bitcoin and blockchain can bring to humanity, stay tuned for the next article in the “Blockchain in Human History” series.

About the Authors:

Kun Hu

CEO of Blockchain.News

Professor Francis Lau

Associate dean of Faculty of Engineering, HKU; Former Department Head of Computer Sciences; Former vice president of the IEEE Computer Society.

Source:

[1] Nixon’s Economic Policies Return to Haunt the G. O. P., New York Times

[2] HKEX museum To learn what else Bitcoin and blockchain can bring to humanity

[3] SWIFT

[4] Bitcoin Whitepaper

[5] Dwork, Cynthia; Naor, Moni (1993). “Pricing via Processing, Or, Combatting Junk Mail Advances in Cryptology”

Images via Shutterstock

New Money Theory Research: Blockchain to Usher in the New Age of Monetary and Financial Freedom

New Money Theory Research: Blockchain to Usher in the New Age of Monetary and Financial Freedom

Throughout history, humans have progressed through both a reliance on institutions and in many cases by rebelling against institutions that no longer serve them. In order to improve the overall social efficiency of our civilization, processes of social division of labor emerged where individuals would transfer their rights to an institution like the government or a bank which acts as credit agency. Governments and banks are indeed the most typical credit agencies in existence. It may not be that obvious, but credit agencies are actually everywhere and act as intermediaries for most basic transactions in human life. There are few deals that people can make without a third party involved.

When people initiate a property purchase transaction, they do not simply exchange money with the current owner for the deed of that property. They are obligated through traditional systems to put trust into third parties or intermediaries such as mortgage lenders, real estate agents, brokers/realtors, home inspectors, home appraisers, insurance agents etc. In our current economic ecosystem, the owner and buyer will find it almost impossible to make a property deal without the involvement of a third party.

Here is another example. Let’s say you have 10 million U.S. dollars. Unless you have the amount in physical cash, you do not actually hold the money; instead, what you do have is access to a bank account that records your ownership of the sum. Without a second thought, you put all your trust into the bank that creates and maintains that record of your finances. The reality is that the reliability, security and accounting of banking institutions is a system that people simply take for granted in this modern era—but is it the best way? Well, let’s go deeper, what may surprise some is that the actual value of our money itself is also completely reliant on the trust people have for their Central Bank—the embodiment of their nation’s credit. Since the collapse of the Bretton Woods system, a monetary standard that created money backed by gold reserves—our fiat currencies are now issued based on national credit and by the central banks. Central banking practices, however, have a demonstrable history of devaluing our currencies. It only takes a conscientious look back at the history of currency issuance through national credit to deduce that this contemporary system is extremely unreliable. While most people today still appear to view the U.S. as the most financially reliable country in the world, the reality is that we have seen the U.S. national credit default on several occasions. The collapse of Bretton Woods system was, in fact, the result of a U.S. national default. As Bitcoin founder Satoshi once said: “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

If we could reduce our reliance on credit agencies to a bare minimum, we can cut out significant transaction costs and more importantly—lower the risks of institutional power being abused or expanded. Credit agencies by their nature abuse and expand their power, usually under the guise of serving the people, which in extreme cases could lead to dictatorship and monopoly. Wherever there is a dependence, there is the possibility of being enslaved. Human history is largely a history of fighting against imposed “serfdom”.

One of the greatest achievements in the history of humanity, was the introduction of constitutions for the purpose of restricting government’s power and protecting private ownership—basic laws that apply to all people and served to abolish class systems. However, there is still one more hidden, untamed and indirect powers exist that are driving us to economic serfdom—the U.S. dollar and the Federal Reserve that creates its monetary policies.

Oil Exclusively Adopting U.S. Dollar Replaces Gold standard

The Vietnam war proved costly for the U.S., requiring the nation to spend vast resources to fund its military operations. During this period, the excessive printing of U.S. dollars to pay for the expense pushed up the dollar’s commodity price but could not affect the stable price level of its pegged gold benchmark. The continuous inflation of U.S. dollars resulted in an accelerated pileup of at least USD 80 billion Eurodollars which European wanted to redeem their USD for gold in late 1960s.

The collapse of Bretton Woods was a result of gradual loss of confidence in U.S. dollar. In May 1971, West Germany left the Bretton Wood system and Switzerland redeemed USD 50 million for gold. In early August 1971, France sent a warship to New York Harbor and redeemed USD 191 million from the New York Federal Reserve Bank. On August 11, the British ambassador requested to redeem USD 3 billion for gold[1]. These gold withdrawals have placed mounting pressure on U.S.’s long term gold reserves. In an attempt to protect the remaining U.S. gold reserves, President Nixon removed the dollar from the gold standard. By dissolving the Bretton Woods agreement, Nixon and his globalist accomplice, Henry Kissinger, knew global demand for the dollar would decline. Since then, the U.S. gold reserve kept unchanged.

After the Yom Kippur war, the Saudis and Americans struck a deal—the U.S. would protect the Saudi oilfields and restrain any threats from Israel and in return the Saudis agreed to price all of their oil sales in U.S. dollars only and to refuse all other currencies. This led to the rise of Petrodollar [2].

By 1975, every single oil-producing nation of the OPEC had agreed to price their oil in dollars and to hold their surplus oil proceeds in U.S. government debt securities in exchange for the generous offers made by the U.S. The world’s subsequent reliance on oil further galvanized the U.S. dollar as the de facto world currency to facilitate trade and commerce meanwhile the Federal Reserve continues to monopolize U.S. monetary policies without restriction.

As Lord Acton famously expressed to Bishop Mandell Creighton in 1887—absolute power corrupts absolutely—and the U.S. dollar has unfortunately not been the exception to this rule. Unlike the gold standard, currency created without consensus and without support, will fall prey to the law of the jungle which holds that the habitat is destined to be ruled by the apex species. While the U.S. dollar is clearly no longer at the apex, the currency has been manipulated through monetary policies in order to maintain its current dominant international status. These policies have unfortunately been created to serve the sole interests of the currency issuer, even when it undermines the economic wellbeing of other countries or regions and their people—indirectly leading the world into the soft dictatorship of the U.S. dollar.

If the U.S. dollar represents our monetary enslavement then blockchain-based cryptocurrency paves the way to monetary freedom in some sense.

The Essential Advantage of Blockchain

Blockchains incorporate several important features such as immutability, encryption and distributed storage, which combined makes secure peer-to-peer transactions possible and in turn has created the means to end human dependence on credit and thus credit intermediaries. Due to these features, blockchain has been referred to as ‘the Trust Machine’ and is forecasted to transfer the trust from agencies and institutions which are enforced by law to machine-based networks guaranteed by technology and mathematics.

Let’s take a look at the profound potential impact blockchain has on our monetary and financial system. We previously introduced three key aspects of money: money forms, money issuance standards, and the flow of money.[3] With blockchain, we are leveraging a brand-new system of architecture for the flow of money. In addition, blockchain makes new forms of money available that could bring us to realize the notion of “absolutely private property” for the first time in human history—where ownership of an asset on a blockchain is guaranteed by technology and mathematics. Bitcoin, for example, the original cryptocurrency, of which the ownership depends on a private encrypted key. Without the correct private key, there is no way to move bitcoins around, even if it is ordered by law on pain of enforcement. As for the money issuance standard, blockchain has even more to offer.

Blockchain-based Money Issuance Standard for a Better Society

Bitcoin opens the door to new concepts of money issuance. The issuance of bitcoin is by Proof-of-Work (PoW) algorithm first proposed in 1993. By the algorithm, the problem of issuance of bitcoin is reduced to the task of mining.

Bitcoin mining is “the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together.” [4] The computation power of the bitcoin network is generally measured by the hash rate. Bitcoin mining has raised concerns around power and computing power waste. However, computing power may be the most important basic parameter and issue of our future society. It would motivate the improvement of computing power and research of high-efficiency power usage. The more important question here is how to reduce the consumption of power and convert computing power to computer contributions in some sense.

We propose our principle for the money issuance standard: extract the most important parameter(s) from the driving forces behind human society and future technological developments; then use these factor(s) as inputs of the money issuance rule. In this way, the problem of money issuance is reduced to contributions to factor(s) that make the world better.

The Profound Impact of the New Money Issuance Standard

The era of “machine-orientation” is the beginning of measuring the value of people and machines with a unified scale, and it is also the beginning of the blurring of the boundaries between people and machines in terms of social contribution. Different from the traditional human labor based social value system, the new standard will lead us to rethink and reconstruct our entire social value system. The emergence of bitcoin and blockchain thus marked the beginning of the transition from a carbon-based civilization to a silicon-based civilization. Although we can map real world assets to blockchain, we still need a currency to measure the value of the blockchain system itself.

Currency—the Key Factor in Future Blockchain-based Value Networks

For future value networks that are blockchain based, we need to answer some basic questions regarding value: What is value? How is value created and where makes something valuable? Currency is the most direct means of value quantification and is the most basic form for the evaluation value of a blockchain network. The money issuance standard on blockchain will determine how to create money, in turn it will determine its value, which consequently will re-define all social values.

About the Authors:

Kun Hu

CEO of Worldmoney.org

Professor Francis Lau

Associate dean of Faculty of Engineering, HKU; Former Department Head of Computer Sciences; Former vice president of the IEEE Computer Society.

Contributors

Matthew Lam

Content Manager of Blockchain.News

Lucas Cacioli

Journalist of Blockchain.News

Source:

[1] IOWA State University, Department of Economics, Bretton Woods System

[2] FXCM.com, What is the Petrodollar?

[3] Fighting for Monetary and Financial Freedom – Blockchain in Human History Series

[4] Bitcoin: A Peer-to-Peer Electronic Cash System

AmeriCoin – The Pathway to Monetary Freedom, Tokenization and the American Dream?

Is cryptocurrency the tool to achieve the “American Dream”? Adam Kokesh, the leading libertarian candidate of the 2020 US presidential race has revealed the plan to develop AmeriCoin cryptocurrency. The development of AmeriCoin will be led by Alastair Caithness, the Chief Blockchain Policy Advisor appointed by Kokesh.

Purpose of AmeriCoin

The announcement of AmeriCoin is part of Kokesh’s localization plan, which aims to mitigate the reliance of the Federal Reserve due to the instability of the fiat currency system. The recent global stock market crash following the disagreement on oil price between Russia and OPEC nations, interest rate cut by the Federal Reserve and macroeconomic uncertainty caused by Coronavirus have reignited the debate on whether Bitcoin is considered a “safe-haven” asset. Oleksandr Lutskevych, CEO & Founder of CEX.io believed that US and UK investors expect Bitcoin to serve as a hedge against currency depreciation, which indicates the American’s demand in seeking alternatives to fiat currencies. Kokesh identified the need of creating a decentralized monetary system and AmeriCoin will serve as the backbone to achieve his goals.

The New Vision to Monetary Freedom and Tokenization

Unlike cryptocurrencies such as Bitcoin, AmeriCoin will be backed by assets of the Federal Government including gold, timber, land, energy and mineral reserves. If Kokesh becomes the next US President, he intends to distribute an equal number of AmeriCoin to the entire population of the US. Such distribution attempts to eliminate unfair government policies on taxation, aiming to serve as the unit of universal basic income. As a result, citizen’s wealth is no longer controlled by the Federal Reserve which in turn brings them monetary freedom.

With the advent of AmeriCoin, Caithness is confident in restoring liberty, financial and monetary freedom for the Americans. “It’s an honor to work with Adam Kokesh as he seeks to transform American society. The burden of federal tax is one of the main reasons young people are having such a difficult time developing a sound financial start to life. I am confident that Adam’s initial idea to create an American cryptocurrency can be combined with the rapid advances in the architecture of asset-backed tokenization to develop AmeriCoin as a force for financial freedom. AmeriCoin has the potential to restore liberty to all people in the United States, and we are building a dream team of blockchain experts to join me in developing this important project,” she added.

Both Camps Care About Cryptocurrencies

Cryptocurrencies are gaining popularity between both Democratic and Republican parties. Former Democrat presidential candidate Andrew Yang is renowned for his friendly approach towards cryptocurrencies, which he asserted that blockchain should be incorporated to modernize the voting systems. Yang is also a supporter of cryptocurrencies when he highlighted the importance to regulate digital assets.