adminEvery generation or so, money goes through an evolutionary shift, and 10 years from now the fiat currencies currently in use will be regarded as relics of a bygone age, much like the fax machine.
Cryptocurrencies backed by artificial intelligence (AI) are about to swarm the world of money, bringing with them a level of stability that central banks promised and never delivered. About to come is a whole new architecture for the world financial system, including investment.
In the world of investing, the days of the brilliant stock picker may be numbered. AI and predictive technology will swallow them whole. All currencies suffer one critical deficiency: their values are unstable. That’s largely a function of central bank control over the issue of new money and the resulting inflation which eats at currency values. This complicates the world of commerce since all trade rests upon a floating barge of variable currency value.
South Africans understand what this means. The rand is the world’s most traded emerging market currency.
This might be an extreme case, but all currencies in a free-floating system suffer the same problem. Bitcoin attempted to change all this by removing money issue from the control of any central banks. There will never be more than 21 million bitcoins in issue. Since its launch in 2009, Bitcoin has gone from nothing to more than $12 000, making it the world’s best performing currency in the last decade.
The cryptouniverse has been defined by bitcoin and a few lesser coins powered by speculative interest and wild swings in value. But, as a payments system, none have been able to replicate the speed and convenience of a Visa card system with payment executed in seconds. That will change as technology and transaction speeds improve.
Lars Holst, founder of London-based crypto exchange GCEX, has studied the future of money for years and believes Africa is ripe for a crypto monetary revolution.
“I don’t think we are far away from replicating Visa and Mastercard payments systems in terms of speed. The whole settlement system in forex is inefficient,” says Holst, who previously worked in forex at Danish-based Saxo Bank.
“The fiat money system has been corrupted by central banks printing excessive amounts of money and debasing the currencies. Most of the new cryptocurrencies coming to the world take this power out of the hands of central banks. It’s clear that the future is in crypto rather than fiat currencies.”
Bitcoin founder Satoshi Nakamoto and others have applied themselves to the question of a future money system using block-chain technology to verify and validate payments between two people transacting anywhere in the world.
In 2009, Satoshi explained the problem with the current fiat money system that inspired bitcoin: “The root problem with conventional currency is all the trust that’s required to make it work. 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. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
The current monetary system Satoshi complains about is a relatively modern confection. As David Birch points out in his book Identity is the New Money, we entered the world of fiat currency when Richard Nixon ended the convertibility of the US dollar into gold in 1971. As such, fiat is relatively new. The next evolution is now about to sweep it aside.
“Just as the machine-made, uniform, mechanised coinage introduced by Isaac Newton in 1696 better matched the commerce of the industrial revolution, so we can expect some form of digital money will better match the commerce of the information age,” writes Birch.
Holst argues that fiat currencies, if they exist in 10 years, will have a small portion of the market. “We’re in the era of not just data, but information. We upload information to block-chain in encrypted form so it is not seen by other people. By 2030, we’ll see more private use of what people decide to do with their value. They will have simple keys to keep this information private in a global public network where it is logged but cannot be changed.”
What is about to be let loose on the world should terrify national governments and central banks.
The impact of cryptocurrencies on developing countries will likely be huge.
Vodacom and Safaricom launched the M-Pesa mobile money service in Kenya and Tanzania in 2007, allowing users to deposit money into an account stored on their cellphones and transfer funds using PIN-secured SMSs to other users — and redeem cash instantly.
Millions of previously unbanked people now have a payment system that bypasses the banks and is being studied around the world. It’s a relatively small step from this to the cryptosphere and monetary independence.
There is plenty of talk about money moving into the digital age, but we’re already there: cash accounts for only about 4 percent of the total money in the system. The poor — those without bank accounts — rely heavily on cash, but this comes at a cost.
Cash is acceptable to vendors because its value is certain and, while counterfeit notes are known to exist, they are insufficiently plentiful to disrupt commerce. Gregor Kozelj is the developer of the X8 stable coin, one of several stable coins offering currency stability by spreading assets over the eight top currencies in the world as well as gold.
Kozelj is a former portfolio manager who spent several years developing a technique for portfolio risk management that did not rely on predicting whether asset prices would go up or down, but on measuring and limiting downside risk. He then translated his system to investments and banking, where treasury systems could be stress-tested in milliseconds rather than the months it previously required.
It was out of this experience that he developed the X8 stable coin. Backed by AI, it is designed to fight inflation through artificially intelligent re-weighting of the eight underlying currencies and gold. —Moneyweb.
Online Reporter