Traditional financial instruments have many drawbacks, the most serious of which are often the least obvious. Therefore, people rushed to look for answers in cryptocurrency.

But for most people, cryptocurrency (Bitcoin in particular) has not become a replacement for the existing financial system but a new way to fit into it, a solution to problems as old as the world: how to multiply and hide money from public and state supervision. That is, to bring financial transactions into an area hidden from regulatory, supervisory and tax authorities, or to invest already available funds in such a way as to multiply them.

This situation no longer suits either the government, which is increasingly trying to regulate cryptocurrencies, or the crypto-enthusiasts themselves, who wanted to use blockchain to change the world for the better rather than watch the old world copy cryptocurrencies, turning them to the benefit of the status quo: making the already rich even richer, and banks and other financial institutions even more powerful.

The eternal problem of money

The eternal problem of money - the dichotomy (contradiction) of exchange and accumulation functions.

Since its invention, money can be in only one state per unit of time: either it works (participates in the exchange cycle for goods and services in the real economy) or does not. The ability of money to serve as a means of accumulation from the point of view of economic utility is a bug that has become a feature for many people.

Money in circulation works for the economy as a whole by stimulating the production of goods and rendering of services: secured demand gives birth to supply. Demand is a need expressed in money. But a dollar that is spent is, by definition, a dollar that is not saved.

Removing money from circulation works for individuals who can afford not to spend it but to save and multiply it. Individual accumulation comes at the cost of economic activity as a whole. It is as if one oarsman on a galleon suddenly discovered that if he stops rowing, the galleon will go on and on - the others are rowing. That is, you can or can not work, and if you do not, you can still feel that the others are working for you. The problem is that a bad example is contagious - and other rowers may want to do the same until the galley stops.

It's the same with money: as long as it's in circulation, it works as an economic stimulus. If it is not - then, from the point of view of the economy as a whole - it does not work, even if it gives someone a pleasant feeling, accumulating and filling up the rate somewhere in the accounts.

The modern economy consists of real and speculative circuits, so-called “financial capitalism” versus “industrial capitalism”. The fruits of labor - goods and services - are traded in the real economy. In the speculative one, expectations are traded. In the real economy, money serves to exchange for the products (goods and services) of someone else's labor. The relation of money to labor, in this case, is two-sided:

• On the demand side, their availability to an economic agent correlates with the labor spent to earn it.
• On the supply side, their value correlates with the amount of the fruits of other people's labor available for purchase.

In the real economy, changes in the money supply reflect the amount of work performed - labor already paid or available for purchase and its products.

In a speculative economy, the money supply reflects expectations: the same labor-money ratio but projected into the future. That is, the connection with the real economy is preserved, but due to the extension into the future, it becomes less accurate, which opens the door to speculation (assumptions). Economic cycles are measured in years, so the watershed between labor and speculative exchange can be conventionally marked by the limits of the year:

If the money earned by selling one's own labor and its products during the next year is spent to pay for someone else's labor and its products, then it works for economic growth - the money earned last year provides economic activity in the next year.

Suppose the money is delayed for more than a year. In that case, it is not spent to pay for labor (wages) and its products (goods and services), and then it is withdrawn from the real economy because the amount of money withdrawn from this exchange reduces the turnover of work/products. In this case, it doesn't matter whether this money is lying under the pillow or “working” in the circuit of financial capitalism, where the exchange takes place according to expectations of future growth in economic activity.

The irony is that financial markets trade expectations of future growth in the real economy (that 10 times as many Tesla cars will be produced and sold in future years as in the previous one) for money taken out of circulation today (all the money spent on buying Tesla shares is not spent on buying Teslas), limiting the growth of the real economy, but the expectations of which are ultimately the basis of speculation.

In other words, everyone can't be a speculator. Someone has to keep rowing - working, providing value to “securities” with their labor.

When the number of such “thrifters” in the economy starts to become prominent, it manifests itself in a well-known way:

• Inequality grows
• Poverty grows
• Economic activity falls
• Middle class shrinks
• Small businesses shrink

In the example of the United States alone, it is higher than in the 1920s, and the growth of financial markets ensures its growth - real production has not been growing at the same rate as the stock market for decades. The overwhelming majority of the population of any country in the world and the planet as a whole is unable to save money at all or to withdraw any significant (exceeding annual earnings) sums from circulation.

At the same time, the small percentage of the population controlling a disproportionately high share of capital that they do not need to cash out is looking for ways to maximize it. They are increasingly finding them in the economy's financial sector, siphoning money from the real economy into the speculative economy in various ways. For example, through stock buybacks, corporations use the proceeds or subsidies they receive on the stock markets to buy back their shares.

In essence, this is economic asphyxia, as if one smart organ in the body noticed that it could not only use up the oxygen supplied by the blood but also, in addition to each oxygen molecule used for nutrition, save one or more molecules for later. Thus, slowly, blood saturation further down the bloodstream with oxygen decreases, and those who have not received the extra oxygen molecule start to have problems.

In economics, the first to notice it is the categories of economic agents with the most elastic relationship between the income ceiling and their own labor and the state of the economy: the middle class and small business. This ceiling is almost insensible for the rich, sitting on oxygen tanks. At the same time, the poor are so pressed down by it that they are practically deprived of sensitivity to economic fluctuations, except for the most catastrophic ones. The situation of the middle class and small businesses depends primarily on the economy's circulation. There is less money in circulation, and the ceiling presses harder.

It will not be necessary to read a history book and spin the globe, searching for the nearest examples of such dynamics. In one way or another, it's been with people since the invention of money because that's its bug:

• They can be exchanged, sending them further down the economy's bloodstream, or they can be unexchanged.

And it's not about people. At the level of individuals, it's an unsolvable problem. It's about the bug. It is necessary to change money in such a way as to limit the possibility of its withdrawal from the real economy (accumulation, speculation), preserving its usefulness as a means of exchange. To do this, it is necessary to somehow leave only one side of the coin: the paying (productive side). Money that is paid with, but not saved - must be created.

There can be many possible solutions, including non-monetary ones, and there have been attempts to create money with a reduced accumulation function. The most famous of them is the Wörgl experiment based on the idea of Gesell's “free money”. The idea of free money (freigeld in German), which involves a planned depreciation over time, was proposed by economist Silvio Gesell. The experiment, also known as the “Wörgl Miracle”, was launched in the Austrian town of Wörgl at the height of the Great Depression in 1932. The mayor of the city, embodying Gesell's ideas, issued a systematically devalued local currency, triggering processes that were contrary to the state of the Austrian and most of the world's economies after 1929 when most of the world's economies plunged into the Great Depression:

• Unemployment rate in Wörgl fell by 25% in a year
• Bridge was built in the city
• Roads were improved
• Investment in public services increased

However, after only a year and a half, the experiment was terminated by a decision of the Central Bank of Austria:

The bank insisted on maintaining its legal monopoly on the issue of money. It took legal steps to stop the Wörgl experiment - despite the wealth it had created, despite the good it had brought to the people of Wörgl... At the end of 1933, the Austrian courts ruled in favor of the National Bank, declaring the experiment illegal.

Does this ring a bell? The historical parallels between the reaction of the financial authorities to the attempt to reinvent money “from below” in the 1930s and the 2010s are hard to miss. This is not surprising if we consider the invention of blockchain and the rise of the crypto sphere not in isolation, as a phenomenon in itself but in the context of the centuries-long process of shaping the modern financial system, with all its strengths and challenges.

However, in the digital age, it may turn out to be something that was not possible in the lamp age. At the very least, it makes sense to ask whether it is possible to use the magic of blockchain in such a way as to create a monetary instrument that will work for mutual settlement, stimulating economic activity (the constant exchange of money for goods and services) but will not allow itself to be hoarded, thereby preventing money from flowing out of the real economy into the speculative bubbles that pump it up.

And, since the fundamental problems of money themselves do not dissolve into thin air over time, it is worth taking an interest. It is only necessary to ask good questions. The quality of the answer is a derivative of the quality of the question.

Bitcoin's two main problems

Bitcoin's main problem is why spend it, when most Bitcoin investment options are less profitable than the growth of its rate by itself. In the real economy, the rate of return is higher than crypto speculation in a limited number of high-risk (usually illegal) businesses. All other options for spending Bitcoin - even those that promise some profit but less than the rising price of the Bitcoin itself - automatically turn into a loss. More profitable than trading Bitcoin is most often either long-term investment in the same Bitcoin or trading other cryptocurrencies. The basic motor of market economic activity - the desire to maximize profits - takes Bitcoin into the loop of financial speculation, only partially leaving it in the real sector (and that, often, in illegal forms).

Why is this a problem specifically from Bitcoin's perspective? As stated in Satoshi Nakamoto's manifesto, Bitcoin's purpose was to serve as a means of e-commerce payment - that is, it was conceived to operate in the real economy.

Another problem with Bitcoin is with its limited planned issuance of 21 million - how can it replace all the world's money? Even at Bitcoin's maximum capitalization, the world economy's capitalization remains about a hundred times larger. Even with Bitcoin's trillion-dollar capitalization, the capitalization of all world markets approaches $90 trillion. But even before, it was clear that there would be no fools to give the planet's economy to the clever people who were the first to mine the digits.

The deflationary nature of Bitcoin is one of the factors that predetermined its inevitable transformation into a means of accumulation. Since the early days of Bitcoin, this has been and remains the main argument in favor of its popularization. Its quantity is limited, and then they will become more expensive; therefore, they should be mined while you can.

What was intended as a means of payment (i.e., constant circulation) became valued as a means of accumulation. And our Bitcoin-as-payment-means-alternative-to-fiat broke. No Satoshi Nakamoto will have digital money if it is more attractive to save than to spend at the first sign of demand.

The means of payment must be inflationary. Inflation of money is one of the incentives to spend it. And all that would be fine, but human ingenuity is constantly inventing what to convert money into so that it doesn't depreciate - including Bitcoin. The irony of Bitcoin: the alternative to fiat has turned out to be another way to accumulate it.

Anti-Bitcoin: an infinite democratically regulated currency

Why can't inflationary mining be done? Let this music be eternal. And stale cryptocurrency, on the contrary, melts in the wallets of those who do not spend it.

Blockchain provides a way to solve one of the problems that cryptocurrency should solve:

• Democratization of money, freeing it from centralized regulation by a regulator virtually unaccountable to the people (central banks in most countries, the FRS in the U.S.) is exactly what blockchain can do.

The way to regulate the people's cryptocurrency is to look at Bitcoin - and regulate it by the people. A democratic majority, 50%+1, should beat even the blockchain.

Accordingly, the question “How to decouple speculative value from transactional value?” is nothing less than the invention of Bitcoin. At least one that will work toward the outcome for which it was invented. The first one turned out to be flawed, and instead of a trading instrument for markets, it became a tradable commodity itself, living primarily on exchanges. This result is incompatible with the solution to the problem formulated in the very first sentence of the original presentation of Satoshi Nakamoto's idea.

The constant news coming from the speculative front of cryptocurrency distracts attention from the problem of “How to create a payment instrument after all?”

Solving this problem - creating a cryptocurrency that is sharpened for exchange and uninterested in hoarding - will not only solve the Bitcoin problem. This cryptocurrency will solve the money problem and become the new money. Not an alternative to fiat, but the first money in the history of money that fixes its main side effect: it no longer works as a means of accumulation. Only as a medium of exchange. Isn't this an interesting problem to ponder about the applicability of crypto? If it is solved, the question of the necessity of such a solution will cease to be relevant, and the question to all those who use “old” money will appear: “Why do you still use lead in water pipes?”.

For many, the point of crypto is precisely to make it work independently of anyone else. As an analog to cash. But the statement of the problem brings us back to the common fundamental problem of all crypto-enthusiasts, an original sin dating back to Satoshi himself: a lack of understanding of what money is and how it works. However, this is not so much an IT problem as a projection of the general problem of modern theoretical economics, in which there is a “civil war” of ideas between (neo)Keynesians and proponents of modern money theory (MMT) on the one hand, and (neo)classical economists, on the other.

Cash is not a natural phenomenon; it doesn't grow on a tree. Cash is a legal tender issued by the state:

• If the “independence of cryptocurrencies” means banks and the modern financial system, then everything is correct - cryptocurrencies do not need to negotiate with anyone except the state.
• If we mean “independent of the state”, then if it were possible, people would not be able to use cash. The state not only issues it, but it also provides the daily possibility to use it, including its mandatory acceptance as a means of payment on the country's territory. Without this law, all chances to pay with cash in any place would equal the chances to pay with cryptocurrency - just each time we would have to negotiate individually.

It would take exactly the same thing to create a digital cache that is as convenient as cash. Not code - hoarding cryptocurrencies might as well be as easy as printing your own money on a printer. The value without being recognized by the law is the same. Actually, Bitcoin is now functioning the way your cash would function in reality if it were not issued by the government and protected by law.

Therefore, a digital analog of cash, like cash itself, bypassing the state is impossible. It must be a technical solution recognized by law as a means of payment. Now, it is a problem (first of all, because there is no technical solution), but when it is solved - digital cash will be as convenient, if not more convenient, than paper cash.

It can be considered a new generation of Stablecoin. Stablecoin is a cryptocurrency whose rate is pegged to the rate of some fiat to avoid high volatility. A popular objection to stablecoins (crypto whose rate is pegged to the rate of fiat) is: “If crypto is 1 in 1 like fiat, it will be absolutely indifferent whether I have a dollar or a crypto dollar, whatever it may be called - that is, there is no point in switching to it at all” - does not cancel the value of cryptocurrency (primarily due to the blockchain) as a tool.

Cryptocurrencies still solve one big problem: working around banks. Economic activity is independent of traditional financial institutions. Exactly what underpinned the idea of Bitcoin. Direct online transactions. These are possible either with fiat through banks. Or directly with crypto in an extremely limited range (99.9% of businesses will not accept it). And crypto dollar is legalized crypto. Now a person has only one way to use fiat online: have a bank account, use financial services.

With crypto dollars, it will be possible to keep them in your wallet but pay as freely as fiat from a bank account. In short, digital cash. Just as it was intended to be.

The main problem with stablecoins is their fundamental secondary nature relative to fiat. Existing stablecoins cannot become new money because fiat ensures their functioning. They solve the volatility problem as an inherent property of Bitcoin-like cryptocurrencies but lose their main advantage - the independence of their functioning from the traditional financial system. Stablecoins 1.0 represents a patch, not a solution.

In essence, trying to moderate the volatility of Bitcoin-like cryptocurrencies by tying their exchange rates to third-party entities - commodities, values, fiat, other crypto - is like trying to adapt a balloon to travel on roads by loading its basket with more sandbags so that it flies, but low - instead of inventing a steam locomotive. The reason Bitcoin is volatile is that, by its very nature, it is a speculative instrument analogous to stocks rather than money. That's its value. That's its weakness. Tying the exchange rate of Bitcoin-like cryptocurrencies to anything removes their speculative value but does not make them a full-fledged means of payment. This is a dead-end direction. The solution to the problem that stablecoins are trying to solve is to create an Anti-Bitcoin, cryptocurrency for payments, the speculative potential of which will be minimal or absent by design. That is, there will be no source of volatility outside the normal inflation corridor, and therefore, there will be no need to compensate for it with something.

Conclusion

In principle, there are several methods. Tax regulation can do it, but it is crude and impractical. Ideally, resistance to accumulation should be inherent in new money as such, just as existing money is inherent in encouraging it. In a unified blockchain environment, this might be possible. If not, external tools.

However, the challenge question, on the contrary, is specific: how can speculative value be decoupled from the blockchain's transactional methods?

The computer was not built at once, either. There were first attempts at computers on punched cards, LEDs, and transistors, and only on microchips did they change the world. And each next attempt in this chain was something that was not there before, thanks to the emergence of a new technology. Now, the idea is to look at the question: “Maybe blockchain was created for that?” In terms of the ambition of the task, it's hard to find another money problem that would be even more historically important to solve than to try to decouple the exchange function of money from the accumulation function to create “pure money” - a universal equivalent, and only that.

Such a task would be much more ambitious than all the existing purely technical projects to develop the cryptosphere. Their common problem is that, in most cases, crypto projects are developed by progressive technicians without the participation of progressive economists.

Pure technicians are let down by ignorance of economics, so they confuse scale with stupidity and don't know about the important money issues. Economists are let down by unfamiliarity with new technologies and general conservatism. But there are exceptions among both.

Nowadays, whatever interesting problem you take - if it is not solved in a multidisciplinary way, it is not really solved. And if, say, researchers of the modern theory of money cooperate with crypto-geeks whose hobby is to design new blockchains - it will probably be the best effort possible at this stage of progress in technology and economic science.