The Future of Cryptocurrency: Historical Context & Application

Introduction

This is a bit of a long post, and hopefully this type of discussion is welcomed here. When researching into the history of monetary policy a few months back, seeing the similarities between Ancient Rome and the United States today is what spurred my interest in cryptocurrency. Moreover, after looking into other historical events, you can see those same (or similar) problems as they exist today in our financial system. I hope others find these topics interesting and insightful, and most importantly, I hope they show why cryptocurrency has inherent value against fiscal and monetary policy incompetence. And below are the reasons why that within the last few months, I have moved a large amount of net worth into cryptocurrency, and why I am excited to see what this space has to offer.

Ancient Rome

There were many reasons for the downfall of the once-thriving Roman Empire, but there was one thing that tied many (arguably all) of these causes together: inflation. The following paragraph is a brief synopsis of the article titled Inflation and the Fall of the Roman Empire that was a transcript of the lecture given by Joseph R. Peden in 1984.

First, Peden notes that his "analysis is based on the premise that monetary policy cannot be studied, or understood, in isolation from the overall policies of the state. Monetary, fiscal, military, political, and economic issues are all very much intertwined. And they are all so intertwined because any state normally seeks to monopolize the supply of money within its own territory.” It is important to note the similarities between Ancient Rome and the United States, with our monetary policy being conducted by only [potentially] 12 individuals—10 as it stands today. Peden then affirms that monetary policy “always serves, even if it serves badly, the perceived needs of the rulers of the state. If it also happens to enhance the prosperity and progress of the masses of the people, that is a secondary benefit; but its first aim is to serve the needs of the rulers, not the ruled.” This is applicable in that the nomination process of the Board of Governors, that is the governing body of the Federal Reserve System, is first via nomination through the President, and then through confirmation of the U.S. Senate. Inherently then, the Board (and the other members of the FOMC) and the rulers (that is the State/government here) must have some type of relationship; I like to view the FOMC's decisions and policies as fiduciary - for the State - in nature.

Nonetheless, Peden begins by looking at the rulers of the Roman Empire. "To look at the mentality of the Roman emperors, we can look just at the advice that the Emperor Septimius Severus gave to his two sons, Caracalla and Geta … He said, 'live in harmony; enrich the troops; ignore everyone else' … as for enriching the troops, he took that so seriously to heart that his mother remonstrated with him and urged him to be more moderate and to restrain his increasing military expenditures and burdensome new taxes." Peden then describes the process by which not one but numerous emperors, to pay for their massive military expenditure, repeatedly debased the coinage. “The emperors simply abandoned, for all practical purposes, a silver coinage. By 268 there was only 0.5 percent silver in the denarius [this was down from 95% silver in 1st century BC].” “[B]etween 258 and 275 … Prices in this period rose in most parts of the empire by nearly 1,000 percent. The only people who were getting paid in gold were the barbarian troops hired by the emperors.”

It wasn’t until Constantine that Ancient Rome saw any meaningful coinage interference. This was by first issuing a tax on the estates of the senators, and then on the capital (not earnings) of merchants; as well as through the issuance of a new gold piece. After the effects of inflation, and an uncontrolled coinage as it related to silver, “the government, in order to try to protect its civil servants and its soldiers from the effects of inflation, began to demand payment of taxes in kind and in services rather than in coin. They wound up, in effect, repudiating their own issued coins, not accepting them for tax collection purposes.” As gold was steadily adopted, it became the “real money of the Roman empire,” but most of citizens could not afford the gold—which had already adjusted itself to the denarius (Roman silver coin).

Peden notes that “Rome had basically a laissez-faire concept of state/economy relations,” except in emergencies, which were usually war-related. Moreover, “under the pressure of this need to pay the troops and under the pressure of inflation, the liberty of the people began to be seriously eroded — and very rapidly … We could start with the class known as the decurions. This was your prosperous, small- and middle-landowning class who were the dominant elements of the cities of the Roman Empire … Building stadiums and bathhouses, and repairing the streets and providing for pure water were considered benefactions … [but] in the mid-3rd century, [they were] assigned the task of collecting the taxes in the municipality [after the central government could no longer do it effectively].” Future heirs, those whose parents were employed in certain occupations (artisanship for example), were required to perform the tasks of their parents; so that gradually all forms of economic liberty were erased. To end, a quote from the late Roman Emperor Diocletian (of which he excluded himself); “if the excesses perpetrated by persons of unlimited and frenzied avarice could be checked—if the general welfare could endure without harm this riotous license, if these uncontrolled madmen, the unscrupulous, the immoderate, the avaricious, could be persuaded to desist from plundering the wealth of all, then all would be well [that is, the greedy merchants who cause inflation, or the businessmen].”

Application

This is directly comparable to the United States’ 1) massive military expenditure; 2) the debasement of our coinage; and with 3) being potentially increased taxation / reduction of liberty in the future due to our fiscal and monetary incompetence and 4) being the resulting inflation or lack thereof.

As it stands today, 10 individuals implement monetary policy. And utilizing the Federal Reserve's month-end results from February 2020 to November 2020, M1 in circulation has increased by 64.8% (USD2572bn), and their total assets have increased by 59.7% (USD3057bn). The Federal Reserve, at one point in time, even started buying corporate bonds. This is absolutely insane. Meanwhile, gold's value depends on supply and demand, with the end-all supply ultimately being determined by supernova nucleosynthesis (the universe's form of monetary policy). Having a monopoly on the supply of money fosters inefficiency and wealth distribution, and might explain why inflation has remained relatively muted - in that money is not being supplied and distributed correctly. Low interest rates allow money to permeate every type of investment opportunity - and allow consumers to consume with relatively low costs; inflating asset prices nonetheless. This is extremely important because most of the developed world has been struggling with low interest rates. Europe since 2014, and Japan since 2016, et cetera. And if any central bank were to raise interest rates, especially now, unprofitable industry, and even perhaps some profitable industries, would go bust.

Solutions/Outcome(s) & Relationship with Cryptocurrency

I've heard two solutions about how we should improve economic conditions. First, people are turning to the government for answers. And any type of solution from them will require more money into our financial ecosystem - and is an implied burden on the taxpayer. Secondly, people are turning against business and industry, and wanting more regulation, higher taxation, et cetera. As a result, I believe in the next 10-20 years, there are two equally likely outcomes:

1. The way in which monetary policy is currently implemented is not effective, and will not adjust accordingly in the future. Result: The coming displacement of our workforce due to technology will cause individuals to naturally turn to the entity who they perceive to act in their best interest (and populism will ensue). You can already see this happening with more and more people turning to the government for answers regardless of their political affiliation. In response, interventionist policies and/or increasing public-sector presence, which hamper entrepreneurship and require funding respectively, will accelerate wealth inequality and inflation; thereby devaluing the dollar. In this case, I would want to be holding various cryptocurrencies.
2. The way in which monetary policy is currently implemented is actually effective (or is not currently, but will be adjusted accordingly in the future). Result: Cryptocurrency will boom in a thriving economy whereby it has real-life application and will develop alongside fiat. In this case, I would [also] want to be holding various cryptocurrencies.

Other

It is important to note that the Federal Reserve banks are privately owned (of which ownership is obviously carefully concealed), and that these are actually the conditions for the division of earnings within the reserve banks:

(a) Dividends And Surplus Funds Of Reserve Banks.

• Stockholder Dividends.
  • Dividend Amount. After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend on paid-in capital stock of--
    • in the case of a stockholder with total consolidated assets of more than $10,000,000,000, the smaller of-- 1) the rate equal to the high yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of such dividend; and 2) 6 percent
    • and in the case of a stockholder with total consolidated assets of $10,000,000,000 or less, 6 percent.
  • [And these are the] Limitations On Surplus Funds.
    • In General. The aggregate amount of the surplus funds of the Federal reserve banks may not exceed $6,825,000,000.

(Of which there is...)

(c) Exemption From Taxation.

• Federal reserve banks, including the capital stock and surplus therein, and the income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

GG fiat.

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source https://www.reddit.com/r/btc/comments/ker4oq/the_future_of_cryptocurrency_historical_context/