Let’s Face It, Money is Already Electronic
Ever since cryptocurrencies emerged, the debate around them seems to have positioned these digital assets as an electronic version of ‘money’. In many ways, what we think of as conventional money is presented as real, while cryptocurrencies are presented as something that doesn’t really exist, except as an entry in a digital ‘ledger’.
The reality is that since 1971, ‘conventional’ money supply has largely become electronic anyway. It’s estimated that anywhere between 0.0003% and 1% of the world’s money supply actually exists in the form of physical notes or coins. The rest exists as debits and credits on digital ledgers managed by banks.
The Bretton Woods Agreement monetary system was effectively terminated in 1971, and since then the entire idea of what constitutes as money has changed completely. Before 1971 money was an asset, whereas today it is really just an accounting system.
Coins and paper money can exist in isolation, but electronic money only exists as debits and credits within an accounting system. In other words, 99% of the world’s money supply is little more than a list of who owes what to whom. This system actually works very well to facilitate economic activity. However, if that’s what it’s designed to do then we shouldn’t pretend that money is an asset or a store of value.
If fiat money is 99% electronic, and cryptocurrencies are 100% electronic, how do they differ? Firstly, where electronic fiat money represents debits and credits in a system of ledgers, cryptocurrencies only represent credits. Cryptocurrencies represent a system of who owns what, rather than a system of who owes whom.
Secondly, fiat currencies are legal tender while cryptocurrencies are not (yet). Meaning, government entities will only accept payment of fines and taxes by legal tender, and creditors are only obliged to accept this legal tender to settle debts. That is how things stand now, but the status quo may (and will) change.
Crypto assets are therefore an asset, whereas fiat money is not. The value or buying power of cryptocurrencies is a function of the supply of that coin, the amount of economic activity being conducted in that currency, and investor’s views about that activity in the future. Just because cryptocurrencies are assets rather than an accounting system, doesn’t mean they are supposed to be immune to volatility. Their intrinsic value will depend on the economic activity they facilitate, while their market value will rise and fall as the market speculates about that economic activity in the future.
This volatility makes asset-backed tokens an interesting alternative. Cryptocurrencies like Silvertoken are supported by physical assets — in this case silver. This means the token price depends on the supply and demand fundamentals for the underlying asset. In the case of silver, both supply and demand are very stable. Silver demand comes from dozens of major industries, as well as from investors who want to own real, tangible assets. Supply comes from the ground, with the rate of supply falling every year. Any changes to the supply and demand fundamentals are marginal, but over time we know that demand is rising steadily, and supply is falling steadily.
Silvertoken is the ideal token to store value — the tokens have a strong value underpin and a very low correlation to other digital assets. A small transaction fee goes towards buying more silver to support the entire currency each time a token is used– so the amount of silver backing each token increases over time. The tokens are therefore both a store of value and a very effective hedge against the volatility inherent in other crypto assets.