The United States has been admired throughout the world for centuries.

When traveling in places like Thailand, Japan, and Latin America I can remember seeing locals sporting ball caps and t-shirts with the American flag.

However, the reputation of the U.S. has been in a slow decline for a few decades now.

In this article, we argue that the centralization of the US banking system is the main cause of the the demise of the American empire, and how the decentralization of money could prevent a similar outcome in the future.

How Money Was Centralized

The US has been waging a battle against centralized banking since its inception.

When Andrew Jackson "slayed the bank" back in 1832, a "Free Banking Era" began in which any entrepreneur with sufficient capital could start a bank.

Over the next century however, the US financial system would gradually become more centralized, impose more barriers to entry, and reduce the economic freedom of its citizens.

What caused the centralization?

America has a central point of failure. The nation's representatives all gather in Washington D.C., where they can be lobbied, bribed and potentially blackmailed to serve private interests who wish to consolidate power.

It's just human nature that even a well-intentioned man can be gradually compromised by the promise of status and riches, especially when a corrupt environment has become normalized.

Although the free banking era of the early 1800s was chaotic, economic freedom was preserved. During the Civil War however, congress was pressured to nationalize the banking system, giving only nationally-chartered banks the authority to issue currency.

The US financial system was further centralized after the Federal Reserve was established in 1913.

Financiers argued that the currency supply needed to be more "elastic". But the increased control came at the expense of reduced competition.

Eventually the Nixon administration was pressured to drop the Gold Standard back in 1971, so that the government could continue spending money on war and social programs.

Compared to today however, government spending back in the 1970s was very much constrained. Since the GFC of 2008 and the launch of Quantitative Easing (QE) however, the spending has gone exponential.

At this point, the US dollar is backed by nothing but faith that the government will continue to service its debts. With the restarting of QE last year, it has become even more evident that the only way out of this problem is further debt monetization.

What will replace fiat currency when it is printed into irrelevancy, and how can we prevent the centralization of money from re-occurring in the future?

Decentralizing Money

Imagine if the issuance of a currency was either fixed, or adjusted automatically by a smart protocol. This would not only prevent corruption of the money supply, but eliminate the need for central planners entirely.

Cryptocurrencies are decentralized by design, meaning no state representatives can be bribed to install a central bank that would adjust their issuance. Any changes to the protocol require a consensus among a majority of the miners, validators, or token holders.

Cryptocurrencies are also open-source and transparent, so the community knows what the rate of token issuance will be, or the factors that could automatically adjust it.

Being permissionless, anyone can install a node to verify the balances and total supply of a cryptocurrency.

What About Decentralized Gold

Gold bugs would likely argue, why not return to a Gold Standard, and measure the prices of goods and services like we did before the transition to pure fiat currency in 1971?

Spending gold on a blockchain is certainly possible. In fact, there are already tokens like Tether (XAUT) that represent real gold, and can be passed quickly between digital wallets.

Although tokenized gold is certainly easier to audit, the age-old problem of counterparty risk still exists. In other words, the custodian could abscond with the gold, decreasing the value of the token.

Also, consider that a centralized issuer such as Tether has the authority to freeze the tokens of an account, which defeats the main purpose of cryptocurrency, namely censorship-resistance.

Rather than being backed solely by gold, cryptocurrencies are backed by a combination of energy, utility, and community as well.

Therefore, it's more likely that in the future we will transact with a variety of tokens (L1s, DeFi, DePIN, AI, etc) in addition to real-world assets (like gold) that are tracked on the blockchain.

Gold vs Crypto

Another argument against the Gold Standard is that it prevents the economy from growing by restricting the "elastic" money supply. This is what happened during the Great Depression, when the population hoarded gold, and currency couldn't be created to support the expansion of the economy.

Unlike a strict gold standard, cryptocurrencies can be created or destroyed based on the needs of the economy. For example, "competing" DePIN tokens that support decentralized wireless networks can be minted until the global market reaches a saturation point.

Maximizing Competition

Critics argue that the problem with using Bitcoin as money is that anyone can launch their own cryptocurrency, diluting the overall supply.

However, whether it's a Layer-1 like Ethereum, or a token on an existing blockchain, the free market is brutal when it comes to eliminating the unambitious.

Memecoins that have only existed for a few months do not inspire confidence, because they disappear quickly in bear markets. A cryptocurrency that has stuck it out through multiple bull/bear cycles, however, gradually builds trust with the community and the outside world.

When projects are free to compete with one another, we end up with the most useful, innovative, convenient, safe, and private cryptocurrencies.

Maximizing Decentralization

Instead of hoarding tokens, our aim should be to distribute them as widely as possible. A wide distribution makes the token more resilient to being hijacked by the parties who seek to consolidate power.

Well-thought-out tokenomics are crucial too. The more that tokens are distributed proportionally to community members' efforts, the better. Unfair initial token allocations may be detrimental to a cryptocurrency's long-term success.

Until next time...

Just like the "Free Banking Era" of the 1830s to 1860s, the current "Decentralized Crypto Era" comes with more chaos, and less safety. But if we value freedom more that security, we should embrace the uncertainty.

If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on X or InLeo for more frequent updates.

Further Reading

- Inside the Minds of No-Coiners, Bitcoin Maxis and Shitcoiners - Why Censorship-Resistant Blockchains With Economic Activity Will Be The Most Valuable Long-Term

Posted Using INLEO