Imagine a world in which thousands of different currencies are used to buy and sell. You may use one currency in your local area only to find something completely different just 100 miles away. Does that sound odd? Actually, it is not unusual at all. There was a time when national currencies didn't exist as the common currencies of the day.
We will get to explaining those thousands of local currencies in just a minute. However, let us start by talking about cryptocurrencies. The cryptocurrency arena is in much the same position today. There are thousands of different cryptocurrencies floating around in cyberspace.
Some of those currencies, like Bitcoin and Litecoin, are widely traded thanks to global distribution. Others are used less commonly as payment systems. Still others have coins that are, for one reason or another, not in circulation at all. Imagine being a merchant trying to decide which coins to accept and which ones to ignore. It begs the question as to whether or not we need a single, global cryptocurrency capable of unifying the entire system.
8,000 currencies in the U.S.
The U.S. is one of the more recent examples of a country that used to be without a national currency. Prior to the late 18th century, there was no official fiat in the States. The common currency of the day was the Spanish dollar, though the young country was also fond of Britain's fiat.
It wasn't until the Coinage Act of 1792 that the U.S. government officially established a currency. Along with that came federal minting. Still though, the U.S. dollar was not in wide circulation as the preferred payment system among citizens until after the U.S. Civil War.
According to the Smithsonian Institute, there were upwards of 8,000 individual currencies circulating in the States prior to the war. Many of the states continued to rely on their former colonial currencies. And of course, local communities created their own currencies for trade among local citizens. It was very common to find different currencies from one county to the next.
It is believed that the Civil War provided the impetus for a national currency capable of unifying the broken country's economy. With the end of the war and the cancellation of the currency of the Confederacy, Washington stepped-up and linked paper money to precious metals, thereby making the U.S. dollar the only currency citizens were willing to spend.
A unified legal tender
The importance of Washington's decision following the Civil War should not be underestimated. By linking the dollar to precious metals and declaring it legal tender, Washington was making the statement that its fiat currency was acceptable for settling any and all debts. If a merchant willingly accepted dollars as payment for goods or services, the payment was considered final and the debt completely satisfied.
The difference between legal tender and a payment system underscores where we now find ourselves with fiat and cryptocurrency. Platforms like Bitcoin and Litecoin are recognized payment systems in many countries around the world. But today, there isn't a single country that recognizes cryptocurrency as legal tender.
One possible exception to this rule is Venezuela. They have issued their own cryptocurrency backed by the nation's oil production. It may be that the Venezuelan government recognizes their coin (a.k.a. the Petro) as legal tender.
Unifying the cryptocurrency space
Understanding how recognition of the U.S. dollar unified currencies in the U.S. following the Civil War, it is interesting to think of what would happen if Bitcoin were made a global cryptocurrency that unified all others. Would such an action mean the end of Bitcoin competitors?
We can see a couple of different scenarios. One scenario would involve Bitcoin being the global cryptocurrency with its competitors becoming regional or industry-specific. We can use Monero as an example.
Monero is already a popular cryptocurrency for online gambling. It is truly decentralized, truly anonymous, and nearly impossible to track. That makes it an excellent choice for people who want to play casino slots without worrying about being tracked. We could easily see Monero becoming the standard gambling coin even while Bitcoin acts as the globally accepted, all-purpose coin.
Practically speaking, Monero would have no value outside of online gambling. Gamblers would convert bitcoins into XMR in order to fund their gambling accounts. Withdrawals would also be made in XMR, but those coins would have to be converted back into BTC in order to be spent elsewhere.
The other scenario is similar to what happened in the States in the late 1800s. Once the U.S. dollar became the official currency and the country's legal tender, all of those other local and regional currencies fell out of use. It is not beyond the realm of possibility to think that all but the strongest cryptos would simply fade away under the dominance of a global Bitcoin.
Bitcoin as a store of value
There is no indication that what we're talking about is anywhere close to becoming reality. We don't even know that anyone is genuinely thinking about. But it's fun to speculate what things would be like in a world where Bitcoin is the unifying global cryptocurrency.
What would make Bitcoin the crypto of choice for such a scenario? For starters, Bitcoin left off being a payment system years ago. Experts now consider it more of a store of value than anything else. If you are not familiar with the term, a store of value is an asset that can be saved, retrieved, and exchanged for another asset at will.
This is easily seen in the fact that Bitcoin transactions make up only a tiny fraction of the total annual remittances around the world. Yet Bitcoin's market capitalization and volume are astronomical. At the time of this writing, Bitcoin's market cap was US$72 billion. Its volume was $9.7 billion while its price hovered around $4,000.
Why is the value so high if people are not using bitcoins to buy and sell goods and services? Because investors are trading coins. Investors see Bitcoin as an asset similar to stocks, shares, and commodities. So they buy coin, wait for the price to go up, and then sell it.
As a store of value, Bitcoin would be the ideal global coin through which regional or industry-specific coins would derive their value. Bitcoin would essentially become the cryptocurrency equivalent of a fiat reserve currency.
The only downside to this scenario is the fact that there are only a limited number of coins available. Once all 21 million coins have been mined, there will be no more. The value of Bitcoin will no longer be in mining and investing at that point. Rather, it will be derived solely from transaction fees.
There may be no need
Of course, this entire discussion is undermined by the fact that there may be no real need for a unifying cryptocurrency. Just because the U.S. unified its economy following the Civil War with the single currency doesn't mean doing so was necessary. The country got along just fine with thousands of local and regional currencies prior to the mid-19th century.
You can make the case that unifying the U.S. system under the dollar actually created more problems than it solved. For example, moving the country's entire economy to Washington's fiat gave the federal government unprecedented control over the money supply. Whoever controls the money supply essentially controls economics.
By the way, this is one of the central tenets of decentralizing cryptocurrencies. Fiat currencies are controlled by national governments and central banks. National governments control fiscal policy by deciding how much money to mint, how it will be loaned, and how it will be spent. Central banks control monetary policy by manipulating how much currency is in circulation at any one time.
The net result of this dual manipulation is economic control. Government officials and central bank regulators work together to artificially control national economics through fiscal and monetary policy. This almost always leaves the consumer on the losing end.
Cryptocurrency was invented initially as a payment system that would level an economic playing field on which all participants are treated equally. Having thousands of cryptocurrencies to choose from ensures that the level playing field continues, at least in principle. A single coin becoming a global cryptocurrency would change that forever.
Centralized control over a single coin
Again, imagine Bitcoin becoming the standard global coin with all others deriving their value from it. The instant that happens, the coin is no longer decentralized. It is suddenly being controlled by a small number of investors and miners whose activities ultimately determine its price. All other cryptocurrencies, deriving their value from Bitcoin, would be under their control as well.
Seeing what happened with fiat in the U.S. following their Civil War, it is easy to believe that we do not need a global cryptocurrency. Maybe it's better to continue on with thousands of different choices. At least consumers are not locked into a single coin over which they have no influence. This is one area in which unification may not be such a good idea.
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