Why would anyone want to use crypto? Traditional money and banking work just fine, don’t they?
In the world’s most advanced countries, yes. At least most of the time.
But in countries that represent the majority of the world’s population, the question itself is irrelevant. Billions of people don’t have access to traditional money and banking to begin with.
And even in advanced countries, “most of the time” just doesn’t cut it. Traditional money and banking are too important. They need to work all the time.
Unfortunately, they don’t.
As evidenced by what used to be “unthinkable events” — the global banking crisis of 2008, the European debt crisis that ensued, and the mass money printing needed to sweep each crisis under the carpet — traditional money and banking have failed repeatedly.
And they could fail again.
To continually trust traditional money and banking, you must live in a country that has continually enjoyed financial stability. But there aren’t many of those left.
For the rest of the world, the appeal of cryptocurrencies is immediately apparent: Your government won’t print this currency into oblivion. You can trade it with whomever you want. And you can enjoy a kind of financial freedom that would otherwise be impossible.
Case in Point: The Iranian Rial
Back in 2016, long before Donald Trump was elected, the Iranian rial was already in the dumps.
One rial was worth only $0.0000335.
 |
| Click image for a larger view. |
In other words, to buy a single U.S. dollar, you’d need 29,851 rials.
Then, as the U.S. president threatened to withdraw from the Iran nuclear deal, the rial’s plunge accelerated, sinking precipitously to $0.0000264 on April 7. At that point, it took 37,878 rials to buy one dollar.
And that was before word began to come from Washington that the deal was almost definitely doomed.
Because it was on the very next day that the Iranian currency truly fell out of bed. It crashed virtually straight down — to 0.0000238, or 42,017 to the dollar (and as low as an estimated 50,000 in the black market).
Millions of Iranians are panicking. They fear not only renewed sanctions but also economic collapse and financial repression. Many are desperately looking for any viable way to leave the country. Many more are scrambling to find safe refuge for the little money they have left.
And in order to block mass capital flight, the government has no choice but to implement capital controls.
Can this kind of thing happen elsewhere?
It already has. Many times.
In Brazil, Uruguay, Venezuela, Cyprus, Greece — just to name a few.
In Zimbabwe, at one point the currency was falling 98% per day. They had to print Zimbabwe dollar notes of 100 trillion.
In Argentina, the government even deployed dogs to sniff out U.S. dollars. I know. I was living there at the time.
In each case, people discovered that savings in bank accounts are just numbers on a screen …
- When other depositors pulled out en masse, poof! Their money wasn’t really there.
- When the government shut the banks or froze bank accounts, they were locked out.
- When the government replaced their bank savings with another currency, its value was instantly decimated.
Meanwhile, it’s not hard for Washington to bar a nation’s access to the global financial system. So if you’re in a barred country, even if the dollars are still in your account, it’s almost impossible to get them out of the country. Unless you want to risk the harsh punishment for those who drive across the border with a backpack full of hundred-dollar bills.
Nor is it difficult for Washington to inflate and devalue its own currency, the U.S. dollar. It has done it before. It could do it again.
The fundamental problem: Ultimately, all fiat money systems are controlled by governments. Ultimately, politicians and central bankers get to decide who can trade with whom.
So in an extreme crisis, your savings could be hopelessly trapped, worthless or both, right?
Before cryptocurrencies were invented, the answer would have been an unequivocal “yes.”
Today, with their growing popularity and mainstream acceptance, this new money technology is emerging as a beacon of hope for those living in financial turmoil or under the dark cloud of strict capital controls.
All you have to do is change your local currency for Bitcoin or another major currency like Ethereum. Then, once you have taken that simple step, you’re virtually free to trade with anyone anywhere in the world.
Once you’re in a cryptocurrency network, your money sits on a global distributed ledger no central bank, government or sanctions can reach.
They cannot shut it down.
They cannot penetrate a system that is, by its very nature, decentralized, politically neutral and totally permissionless.
They cannot stop you from transacting with anyone else on the network, anywhere on the planet.
Nor can they stop you from exchanging your crypto back to dollars, euros, yen or any fiat currency of your choice. There are always plenty of people in the world who would gladly exchange their fiat for crypto.
Historians of the future may look back at financial crises like Iran’s and see them as a blessing in disguise.
Crypto newbies and veterans alike often ask what catalyst would be needed for cryptocurrencies to gain mass adoption.
I would argue that it’s just a matter of time.
As corrupt governments around the world pursue their vicious habit of seizing assets, imposing capital controls and printing their own fiat money into worthlessness, more and more people will simply opt out.
They will leave the murky world of traditional finance and migrate to a new system where rules are transparent, fair, open, neutral and predictable.
That’s what’s been happening in Venezuela, as citizens flee to cryptocurrencies. And it’s what’s also happening in Iran, as the rial collapses. A growing group of people are exiting the system and exploring cryptocurrencies as the only viable alternative.
Once they overcome the hurdles of the new technology, they feel the freedom. They taste the privacy. They see the great profit potential. And they vow never to return.
Whether the money and banking in your country are currently stable or not, you might want to consider doing the same — at least for the portion of your money that you can afford to set aside for protection in a potentially turbulent future.
Best,
Juan
P.S. What do you think will happen to the Iranian rial? Do you think this will push more people around the world to store more of their money in crypto? Tweet @weissratings and give us your take.