The Bank of International Settlements, BIS, which serve as the central bank for central banks, recently released a report claiming cryptocurrencies cannot succeed because of their lack of trust.
The report claims “Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded. Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value”. Alternatively, the report claims, most central banks have maintained trust and have been relatively good at “safeguarding society’s economic and political interest in a stable currency.”
The report also claims that central banks have been able to maintain low transaction fees and cites Bitcoin’s high fees during December 2017 as an example of cryptocurrencies’ inability to do the same. Interestingly, the report adds “Money has value because it has users,” and that “[w]ithout users, it would simply be a useless token. That’s true whether it’s a piece of paper with a face on it, or a digital token.”
In users we trust
The report interestingly juxtaposed the concept of users and trust comprising the value of a currency with public trust in central banks. The report economically correctly recognizes that a currency’s value arises from multiple users exchanging goods and services for said currency and having trust that they can take it to another consumer at any point in the future and conduct a similar exchange. The BIS claims that this requires central ‘governing entities that control monetary policy and guidance’. However, the BIS does not seem to recognize that cryptocurrencies have their own monetary policy and guidance, but it is simply written into the code for all to view and determine if they trust it or not. The BIS also does not seem to recognize that the code is still changeable by the public who is then free to adopt the change, push back against the change, or switch to another currency if they do not like the change.
This ability of cryptocurrencies to quickly adapt to consumers’ desires grants more freedom than central banks grant to consumers. Users are able to choose the currency they want to use based on which they trust the most. It allows for a free market of currencies that average consumers can participate in to choose the currency that works best for their needs and wants. Contrary to the BIS’s claims, by the simple fact that cryptocurrencies exist, consumers are moving their preferences from a less trusted entity to a more trusted entity and thus users’ trust levels are increasing. The BIS also claims that central banks have held currencies relatively stable, which might be true in a still frame photo of first world countries, but it is certainly not true in a historical context or for other countries like Venezuela. This has been a significant factor for why so many individuals are switching to cryptocurrencies.
Bitcoin did have a transaction bottleneck issue that rapidly increased transaction fees, but that was because of a host of issues too complex for the scope of this article. However, during that period, other cryptocurrencies demonstrated how free markets work by having consumers switch their trust from Bitcoin to other cryptocurrencies such as Dash. The BIS report claims that trust in cryptocurrencies could just evaporate, which is true, but no more so than trust could evaporate in fiat currencies of governments that are burdened with debts above 100% of their annual GDP. Instead, as the Bitcoin fees debacle demonstrated, trust does not disappear, trust simply evolves into another currency and another cryptocurrency is the path of least resistance.
Dash creates a decentralized trustless network
As mentioned above, cryptocurrency creates its trust within the code, and that is why cryptocurrency is sometimes referred to as ‘trustless’ since no trust in a centralized party is required. Instead, only trust in the visible code is required. Dash furthers this trust by building into its code an incentive structure that enables masternodes of the network to fund professional development and outreach of the network that betters the network for all users. This allows users to place further trust in the fact that Dash is continuously bettering and expanding the network.
Dash has been steadily increasing its partnerships to provide its users with a plethora of locations to pay for their goods and services with Dash. Dash has also been able to continuously maintain low transaction fees, fast confirmation times, and security making Dash appealing around the world. These features allow Dash to pursue a decentralized method of trust and continuously increasing its user base, which the BIS understands is what gives currency value. Dash’s decentralized autonomous organization creates a system of incentives within the code that users can trust, which then expands the network creating more users and thus further promoting Dash’s value.