As inflation rates continue to spiral out of control, some of the world’s regional powers are seriously considering the use of blockchain-based cryptocurrencies in place of traditional hard cash. While these currencies may fluctuate wildly in the manner of an investment product, some monetary experts believe that it would be safer to continue to use them instead of minting additional money. Due to monetary easing, the current supply in most of the world’s major economies is reaching worrying levels and that’s pushed some to propose radical new policies. Fintech companies as well as financial lenders have quickly weighed in with their opinions, which have often differed sharply. Some people have agreed that data is valuable enough to have some intrinsic worth.
Notably, El Salvador has decided to use Bitcoin as a form of exchange, though the country has technically already explored alternative currencies since at least 2001, when they began to use the United States dollar in lieu of any native money. Others might not be far behind, with Venezuela experiencing hyperinflation and even the Republic of the Sudan posting rates of over 340 percent. Since cryptocurrencies are based solely around the collected number of transactions recorded on a single ledger, there’s little risk of them inflating in the same way that hard cash would.
However, that doesn’t mean that economies based solely on the collection of data would be free from problems related to buying power.
Purchasing Power for Intangible Goods
Economists would traditionally measure the strength of a currency by inspecting its purchasing power, which was a measurement of how many real goods or services said currency could buy in countries where it was legally used. For the longest time, currencies weren’t fiat-based and were instead backed by precious metals or other tangible physical things. As money became valuable based solely on intrinsic worth, purchasing power became an even more important measurement of how well a particular currency was doing.
This kind of measurement makes little sense when your money is based around data. Some fintech startups and brokerage houses have taken to treating all forms of data-based currencies as investment vehicles rather than money. They’ve lumped both cryptocurrencies as well as NFTs and other tokens into this pot.
To a degree, this is an accurate summation because it can be difficult to exchange cryptocurrencies into goods, especially if someone is working with one that isn’t as widely accepted as Ethereum or Bitcoin. That would effectively make the purchasing power of a single unit essentially zero. On the other hand, El Salvador’s example has proven that people can easily exchange certain types of digital tokens into regular goods and services. A few grocery stores and other larger retailers have begun to accept cryptocurrencies through the use of a POS app, but otherwise it can be difficult to purchase products using data-based money.
While some might prefer to continue to promote usage of a more traditional investment trust, the fact remains that data is inherently valuable enough that it’s possible to craft investment products around it. A growing fintech market is starting to blossom around this and some are even considering the possibility of issuing loans backed by data and entries in a cryptographic ledger as opposed to conventional collateral.
Not everyone is as excited about the possibility of using intangible products as loan collateral, however.
Calculating the Actual Worth of Data
Industry pundits have brought up the fact that there’s essentially a lack of standardization when it comes to the way that data is supposed to be exchanged as well as how it’s to be maintained. This extends both to the various formats that data could be stored in as well as the disruptions that are created whenever a new law such as the GDPR comes into play. Since the technologies are almost constantly in flux, there are those who fear that these disruptions could be a barrier to adoption.
Others have opined that the fact that commercial cybersecurity threats are growing has dampened the value of big data collection policies. Blockchain technologies, however, surround public cryptographic ledgers. That makes them uniquely able to skirt these problems while ensuring that information stored in them remains valuable.
This information is largely a list of transactions, which makes it only valuable to those who have completed transactions on a particular chain. That makes it even more difficult to assign an exact worth to any of the information in question, since it’s normally only of any interest to people who hold a particular token in their portfolio. A few fintech specialists have even proposed that immutable blockchain records are meaningless if their initial accuracy can’t be verified. However, this problem might average itself out as more consumers get on board the system and start adding records.
If other countries follow El Salvador’s example, then there’s a possibility that many individuals will collectively be making transactions on a regular basis. Complicating this is the fact that information itself always finds a way to become free.
Revising Steward Brand’s Theories
Stewart Brand famously quipped that information wants to be free in spite of the fact that it’s intrinsically valuable because of the fact that the right type of data can change a person’s life. Every major technology released to the market in the past has followed his paradigms. Eventually, someone finds a way to make it free regardless of whether or not doing so is within the boundaries of the law.
Once they do, the actual price that people can charge for something has a tendency to plummet. When this happens, the industry gets disrupted all over again until someone finds a way to make money off of the new paradigm. In some cases, such as in the field of open source software, people have started to ask for donations in order to continue to offer things for free that could simply be copied.
In order for any medium of trade to work, it can’t be easily reproduced, which is why counterfeiting hard currency is unlawful. Nevertheless, most cryptocurrency services rely on free and open source solutions that could easily be reproduced. The fact that it takes the hard work of all of the countless people who perform calculations in order to develop a hash that marks down a transaction may very well add value to something otherwise free in a way that even Brand himself couldn’t have predicted.
Whether or not the fintech industry changes the way it thinks of money, however, is another question that remains to be answered.