Lesson 7 - Why invest in cryptocurrencies?
When it all started to change..
I don't enjoy talking about depressing stuff, but to give you further understanding as to why cryptocurrency is one of the most important innovations of our era, I have to illustrate it for you.
Picture this: It's 1971, and the world is on the brink of a major economic shift. For decades, the value of a country's currency was directly linked to the amount of gold it held in its reserves. This system, known as the gold standard, helped stabilize exchange rates and prevent rampant inflation.
But as the US became embroiled in the Vietnam War and launched other costly domestic spending programs, the fixed exchange rate system proved to be too rigid. The US had amassed huge deficits, making it nearly impossible to maintain the gold standard.
That's when President Richard Nixon made a game-changing announcement. He declared that the US would no longer convert dollars into gold, effectively ending the gold standard. This decision allowed the US to print more money to finance its spending programs and respond to economic conditions.
The move had major consequences. The US dollar had been the world's reserve currency, and many countries held large amounts of it in their reserves to back their own currencies. Now, the value of the US dollar was determined by market forces rather than gold reserves. This led to greater flexibility in monetary policy, but also increased volatility in exchange rates and inflation.
In short, the end of the gold standard marked a turning point in global economics, one that still echoes to this day.
Unlimited printing means unlimited inflation (oh shit..)
The de-pegging of the gold standard could cause hyperinflation because it removes the constraint on the amount of money that can be printed. Under the gold standard, the value of a country's currency was directly linked to the amount of gold it held in its reserves. This meant that countries could not print more money than they had gold to back it up, which helped to limit inflation.
However, when a country de-pegs from the gold standard, it is no longer constrained by the amount of gold it holds. This means that it can print as much money as it wants, which can lead to an oversupply of money in circulation. When the supply of money exceeds the demand for goods and services, the value of the currency decreases, which leads to inflation.
If inflation continues to increase, it can lead to hyperinflation, which is characterized by extremely high and accelerating rates of inflation. This can cause severe economic instability, as the value of the currency rapidly decreases, making it difficult for people to purchase basic goods and services.
Death of the dollar?!
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Have you noticed that as time goes on, you need more money to buy the same things? Ever question why that is? This has been happening in the US since the end of the gold standard. Over the years, things have been getting more expensive, and the value of the US dollar has gone down. That's from uncontrolled rising inflation and it's not limited to the United States, Canada or any other country.
Internet: Am I a joke to you?
Many people in the 90's and earl 00's thought the internet was a fad, and would die out as highlighted by this newspaper heading:
The internet was a new and complex technology. Many people found it difficult to comprehend how it worked and the potential applications it could have in various aspects of life. This lack of understanding led to skepticism about its long-term prospects.
People tend to be skeptical about new technologies that disrupt existing systems and norms. The internet was no exception. It was challenging for some individuals to envision the future of the internet and its potential impact on commerce, communication, and information sharing, leading them to dismiss it as a passing trend.
During the early years of the internet, the technology was relatively slow and limited in terms of user experience. Dial-up connections were slow, and the web's content was primarily text-based, with few multimedia elements. This made the internet appear less appealing and not very useful, leading people to question its staying power.
The late 1990s saw a rapid influx of investment into internet-based companies, which led to the dot-com bubble. Many of these companies had little to no revenue and unsustainable business models. When the bubble burst in the early 2000s, numerous internet companies collapsed, and the stock market suffered significant losses. This further fueled skepticism about the internet's future and the viability of online businesses.
20 years later, Web 2.0 - the internet, is used everyday in the palm of our hands. We use it to get daily news and information, communicate with our family and friends, and purchase our favorite goods and services - it's become an essential part of our lives. You may not be able to see the internet, but you know it works damn well.
Web 3.0 - Bitcoin, cryptocurrencies, and blockchain have gone through the exact same pattern. People paid no attention at first because they didn't understand what it is. Without any knowledge of what it is, skepticism spread as to how it can be useful. The Bitcoin network only being a form of value exchange didn't garner it much attention. Hundreds if not thousands of cryptocurrency projects came and fell, further fueling skepticism as to the viability of cryptocurrency and blockchain technology.