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Why money must ‘rot like potatoes’

Giving money an expiry date could be a good thing.
As with blood, so with cash: better when circulating. Image: Waldo Swiegers, Bloomberg

Are cryptocurrencies solving the right problems?

The proponents of cryptocurrencies (or crypto assets, as the intergovernmental fintech working group calls them) say they open the way for solving transactional issues that regular fiats have not dealt with well.

They say cryptos can reduce transaction costs, make cross-border payments easier, cut out intermediaries and be used by people who do not have access to the banking system.

The sceptics argue that many of the advantages cryptocurrencies offer can already be achieved through fiat. They also point out that aside from the steep rise in the value of bitcoin, cryptocurrencies are generally not a particularly good or stable store of value.

In fact, when it comes to acting as a currency, its use has so far been limited because it is not widely accepted as a medium of exchange or used as a unit of accounting.

Read: FSCA again urges caution, vigilance when dealing with cryptos

But maybe we should look at cryptocurrency differently. Instead of seeing it as replacing notes and coins, we should see it as a way to improve on them, by doing something they can’t do – expire.

Rusts like iron

Hear me out.

If someone is given a certain amount of cash that has an expiry date, they know they can’t hoard it and will be forced to spend it before the due date is reached.

This is the thinking of Silvio Gesell, a 19th Century German-Argentine entrepreneur and theoretical economist who wanted money to “rot like potatoes” and “rust like iron”.

Gesell argued that using money to store wealth was a problem. This was especially true in a financial crisis when instead of people sitting on their cash, exacerbating the crisis, they could be forced to keep spending, which would, in turn, keep the economy going.

From his view, money should be seen more like blood, in that it passes energy throughout the body, rather than like gold, which backed legal tender at the time. Looked at this way, it would be better for blood to be circulating through the body than pooling in some organ.

Gesell’s idea was only ever adopted in the Austrian village of Wörgl in 1932, when it was looking for ways to deal with the fallout of the Great Depression. Despite some early success, it was shut down by the Austrian National Bank.

When Gesell died in Argentina at the age of 67 in 1930, his idea of ‘free money’ or Freigold had seemingly passed with him.

Rediscovered 

But then in the age of cryptocurrencies, policy wonks rediscovered him. They liked the idea that money could expire, as it meant it could be used for a specific purpose.

Having an expiry date built into a crypto asset is probably one of the few reasons sceptical central banks will consider adopting a ‘programmable’ tender.

Seeing this kind of digital money adopted in SA is not a farfetched idea. Having programmable money could neatly tie in to the South African Reserve Bank’s pilot card payment platform, which is meant to provide a cheaper alternative to Visa and Mastercard.

If this card is widely introduced, it’s not beyond the imagination for the state to not only make direct payments to citizens but also to incentivise how and where this money is spent.

Missed opportunity 

This brings us back to whether cryptocurrencies solve the right problems.

For me, the answer is no.

Cryptos, when it comes to real-world needs, are not only falling short when it comes to addressing their utility as a currency – i.e. as a store of wealth, medium of exchange, unit of accounting – but also in imagining what money can be.

My sense is that we will one day look back at the ‘Crypto rush’ and recognise it as a lost opportunity in coming up with new ways to transact and wonder why we did not see it as the Tulip Bubble it really is.

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As long as there is fear of fiat and rates are negative; Crypto and the like are hear to stay, I think far to many are invested and committed, it is a self fulfilling prophecy. I suggest allocate a small amount per month on the Easy Equities platform and watch it go tulip up

Why money must ‘rot like potatoes’

What do you think inflation achieves? That’s why all governments want inflation.

Money does expire via inflation.

A Thought for MoneyWeb and Readers:

In the 1920’s prices of stocks on the New York stock exchange was manipulated by a few big players as the market was not regulated. It was via collusion with friends to buy a large number of shares early and then steadily trade amongst your friends a small volume to drive prices up. Remember that you were also tracked here too; but the trick was to open multi trading accounts; one to keep the whale amount of shares and a smaller one to trade the shares to higher prices…

How can we be sure that a similar tactic is not used in cryptocurrency?

This was better researched and presented than I was expecting but you miss three of the fundamental achievements of block chain:

1. asset movement between two parties without a third party playing the role of trusted intermediary
2. Solving of the double-spend conundrum (and triple ledger accounting as an added benefit)
3. Bitcoin is deflationary and because it is controlled by open source code, there are no evil little men who have levers of power to adjust the supply of circulating money, fiddle interest rates or implement QE – which is just money printing with a fancy name.

Larry, you have a great grasp of the fundamentals, but claiming that cryptocurrencies have no real use for re-imagining what money can be is like saying that the Wright brothers first flying machine did little to re-imagine what transit could be like. Go look up DeFi (decentralized finance) and see some of the work being done there – the future of money has already been conceptualised in that space.

As for tulips? Lol! At least you didn’t list that trite about crypto only being used for drug dealing. Look forward to your next article 🙂

1. Asset movement between two parties without a trusted intermediary. And this is a good thing, right? So you absolutely have to trust the guy you’re buying things from using bitcoin, because if he disappears, he’s not only untraceable, but you can’t reverse the transaction like you can with a credit card payment.

2. Bitcoin is deflationary. And this is a good thing, right? Really? You do realize that deflation is a nightmare? Picture this: I buy a car using bitcoin. Within 3 months, bitcoin rises in value by 40%. I am now intensely sorry I bought the car when I did, because I could have had it for much less bitcoin. Soon, people are hoarding their money, but, then along with this, the value of debt rises too. This is what was know as “The Great Depression.”

@Incitatus:

Sigh..:

1. Your ignorance is astounding !

Firstly, there are many escrow services if you wish to use a trusted intermediary…Escrow.com for example, who facilitate anything from domains to luxury cars, and have been around for many years.

2. You’ve obviously never used the ZAR, or seen its fluctuations.

Incitatus, rather stay in your fiat dream coma if you feel easier there.

The world’s most valuable fiat currency, the US dollar, has lost 98% of its purchasing power since 1971. The dollar is rotten.

For currency to act as money, it is supposed to be a store of value. Therefore, nobody will accept a currency with an expiry date as payment for real goods unless those goods are past their repective expiry dates. The farmer will sell rotten potatoes for rotten money.

Fiat currencies are not free money. It is money by decree. It has value because the state has an army and a criminal justice system that can bomb and incarcerate anybody who refuses the currency as payment. Consider the link between the War on Terror and the petrodollar system.

The state has a monopoly on the issuance of currency under a fiat regime. Therefore, crypto will never be an accepted international means exchange, even though it may be a superior store of wealth, means of exchange and unit of account.

To get to the point. If crypto is uncorruptable, then it cannot be money, for under a fiat system, only corruptible currency is allowed to act as money.

Sensei, money is a medium of exchange and therefore should have no real value and only perceived value. For a store of value, you need something that holds its value. Glucose and starch/glycogen are good biological metaphors, where organisms use glucose as the primary energy source to burn and produce ATP. The ATP is the money and is used up to do work (consume energy or build energy storage). It’s principle purpose is to exchange energy, like money’s principle purpose is to allow exchange to happen. Neither glucose nor ATP can be readily stored, only easily consumed or exchanged or lost, like fiat currency. To store value on the other hand, you need something stable and relatively immobile and relatively exchangeable that maintains its conversion rate over time, like long-chain polymers such as starch and glycogen, which can be easily converted back to or out of glucose (currency). Something like gold or a good choice of productive investment like a bond or share. I’m not sure that cryptos or block chain hits any of this.

@Sensei,
My 2 cents…

The idea of money having an expiry date will work very well when it is combined with UBI (Universal Basic Income) and coded into a crypto fiat currency which the Goverment could as they do now create at free will from thin air.

Most other crypto currencies at best mimic what central banks do and have a stake in the game, they will eventually be shot down.

Bitcoin on the other hand We can all agree is something special, different and out of the Major shareholder grouping control with no of development team who can create more of it. It’s value is therefore that of truly democratic.

The future of money I foresee something of a very mixed arrangement, with Bitcoin certainly having spooked both politicians and bankers. There will be a new currency issued by the IMF in crypto for the explicit use of Exchange Medium between Countries, the exchange will become the Bench Mark Rate of each country currencies and we will see real currency wars.

People are tired of a US military Backed Dollar that servs a very selfish need and at the same time many fear a Chinese authoritative Fiat for privacy reasons.

At the end of the day the US $280 Trillion global debt cannot be passed on an infinite amount of times.

Thanks for all your comments, most of us read them like a schooling lesson, it has certainly ignited my thirst to understand the markets and the economy much much more.

@Larry – what a strange article, verging on complete ignorance here.

“Cryptos, when it comes to real-world needs, are not only falling short when it comes to addressing their utility as a currency – i.e. as a store of wealth, medium of exchange, ”

Are you serious ?……..firstly, investing in blue chip crypto like BTC/Ether etc has produced superior returns hardly seen elsewhere to date !

Secondly, it is possible to send $1m of BTC to any wallet anywhere in the world within about 20 minutes !!!!…

Or, it can be transacted to within decimals of a fraction [ called ‘Satoshis’ ]

How on earth is that not a superior medium of exchange ?????

Thirdly, BTC has no expiry date, wchich makes it PERFECT – I can leave it and watch it grow as more and more people start waking up to the infinite advantages of BTC.

I can also bequesth it to my children and loved ones with nothing more than the passing of the private keys, so that they will benefit from it too.

BTC can never rot……no gubberment can ever touch it……it costs NOTHING to store…….it is SOOOO easy to transport etc etc

Geez, I could carry on…..

Are you kidding – BTC right now is the most perfect asset in the world until proven otherwise.

Good luck with anything else till then.

This is a theoretical exercise. Cryptocurrencies are classified as “financial instruments” or as “commodities” and not as currency. You may use it as an instrument of barter in a voluntary exchange, but you run into a brick wall when you want to pay your taxes or groceries.

I agree with your points and as staunch supporter of free-market capitalism, I believe that uncorruptable currency, free from political interference and debauchement, offers the solution to the problems of the boom/bust economic cycle, declining living standards and unemployment.

The problem is that the majority of voters do not want honest, free and uncorruptable money. They want fiat currencies because they constantly vote for unaffordable socialist policies that can only ever be funded by currency devaluation. The ignorant socialist voter supports the political party that steals the future purchasing power of his money to give him social benefits today.

The modern money system employs, and pays, a socialist politician to lend a citizen’s own purchasing power to him. It enables a citizen to plunder his own future. The voters are ecstatic over the benefits they receive from the state, even though they are actually paying for it themselves in a roundabout way.

This easy-money cool-aid is simply too tempting for the average voter. The average voter will never support any government that use, or allow, uncorruptable and valuable cryptocurrencies to be used as money. They will punch your street address into that green screen when they send the Reaper Drone after you.

Sound money like gold or crypto is a threat to the current world order.

Succintly put. Therefore Mr Average hard working person , not blinded by the light, will work very hard and cannot save( even neg interest rates in some countries –if you save you lose, if you store the fiat under your mattress , they just print a lot and devalue it) Except perhaps 100 USD notes that has a criminal premium attached to it and operates in a parallel economic system on the streets, likely those notes never see the inside of a bank once issued in paper( so-a store of value because of scarcity and demand) Also you wont be able to go to Wallmart and buy a grand thing off the floor( likely the fed will be waiting at the shops entrance , tipped off by the shop) BUT , if you use the Wiese way, your ( legally aquired) briefcase stacked with 100 USD bills will work very nicely if you buy a property and the owner gives you a discount for the briefcase or 2 changing hands in an alley after you pointed out the structural flaws of the building that will take you , ah, exactly 2 briefcases to correct.The balance obviously remain to appease Mr Taxman, ensure the registration etc. Very much like bitcoin operates currently for big transactions. Criminal? Maybe , depends on your thinking about the mafia-state. Lastly a briefcase filled with 100 USD bills is worth a grand 1 million dollars at face value, likely 10% premium because of scarcity. Difficult to hide, burns easily, rats like to make nests out of it, get confiscated at borders if a brown envelope is not produced( wiese), may easily be replaced ( eg if euro issue a 1000 euro bill) , can be forged with the right techno, prone to gunshot through the skull if owner, easily stolen. Can be made obsolete by printing vast amounts of 100 USD bills and flooding the ” market” All these obviously unlike bitcoin

@Realitybites
“Secondly, it is possible to send $1m of BTC to any wallet anywhere in the world within about 20 minutes !!!!…”

Well technically within 10 minutes if you are willing to pay.

“Or, it can be transacted to within decimals of a fraction [ called ‘Satoshis’ ]

How on earth is that not a superior medium of exchange ?????”

Simple : cost. (This example is specific to BTC)
Since there is no trusted third party that guarantees a transaction you would have to wait for a transaction to confirm before you would be absolutely sure you could hand over goods / services to someone.

Imagine telling everyone at your local fast food restaurant their order will be prepared once their transaction has confirmed.
Best case scenario they would have to wait 10 minutes, and for the privilege of only having to wait 10 minutes it would cost you around 16USD in transaction fees.
Of course you could get those fees down to a mere 1USD fee, but goodluck convincing someone to stick around for 4 hours while their transaction is waiting in the mempool.

BTC might have some characteristics of a store of value asset, but it would be a horrible medium of exhange.

I would strongly recommend your read or listen to a book called
The Bitcoin Standard, if its your first Audible book then follow the link and get it for free https://a.co/ehIg99U

I use bitcoin as a store of value and a few other as transacting and movable capital. An illustration to a Financial Fundi i should him how to move my money into 14 different countries and back again with almost fees within 30min.

@PJJ

Firstly, thank you for your comment – at least you have some inkling on how BTC functions.

Ok, yes, I rounded off the BTC transaction to 20min as an average – I can’t spend all my time behind the keyboard trying to split hairs and educate – the amount of BTC ignorance displayed by some of the commentators like Incatatus etc is astounding.

Regarding your point on transaction costs – basically, in a nutshell, as the hash rate increases, the cost of transacting comes down.

And with Lightning for eg, as other networks come into play transactional times and costs reduce too.

Remember, crypto is still relatively new and most ppl have no clue about it.

As it approaches mass adoption, like all technologies it scales accordingly and the smaller transactional fee’s will reduce.

Further, for larger transactions, BTC wins hands down and is un-contestable.

Eventually you’ll come round to it.

if you think about it, FIAT money is basically crypto in that most of it is digital in any case these days. Of course taking Sensei’s comment into consideration. FIAT got backing of governments, Crypto have backing of a pyramid scheme. I’ll take my chances on the regimes

It really doesn’t matter if we have fiat or cryptocurrencies because at the end of the day, they are both manipulated by the users, the human species. Greed, fear and corruption are inherent in every banking and trading system and will influence the “value” in comparison to whatever “asset” you like, be it land, gold, tulip bulbs or cowrie shells.

The manipulation begins with the authors of whatever method of exchange you want and all the average investor can do is stay sharp, move quickly and diversify.

If anyone thinks that crypto’s, gold, coffee beans, sugar, wheat etc and the dollar are not subject to some form of manipulation, they shouldn’t be reading this but rather sitting on the couch watching Wrestlemania (which is also manipulated but with less option of losing your savings) with a stash of beer.

Except for large profits (and losses) there are many useful things that should remain. There is also scope on the DeFi side to develop amazing products.

How is it not useful to be able to create a wallet in seconds holding USDC (USD stable coin) linked and backed 1:1 with the USD??

Try to open a USD account at your bank?? The third degree and huge costs. Holding USDC in your wallet costs NOTHING. Your friendly banker will offer you 0.1% interest per year. Your USDC savings wallet offers you 7.6%?? Yes!! 7.6% on USD! Around 7.6% is what you can expect from Government retail bonds fixed for 3 years. No fixed period for your USDC take it out when you want.

Try paying something in USD offshore?? You get ripped off and it can takes day’s. From your wallet. quick, easy and almost free.

It is as volatile as the USD so why is it a bad idea??

Think about it…

When money has an expiry date, the economy will experience shocks of over-saturation of money circulation, due to people spending as much as they have to because of last minute spending before the expiry date. That will then increase inflation (in this case – when there is more money than there are goods). The Reserve Bank will then have to implement harsh contractionary measures by increasing interest rates substantially to bring the inflation down to its prescribed band of 3-6% as quick as possible. There is not a single country in the world that can accommodate those swings periodically. With slight optimism, South Africa can MAYBE survive a single shock.

However, The school of thought is interesting and it’s something i l spend many nights on.

Larry Classen, Thanks for the article.

End of comments.

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