The Parallel Between Cryptocurrency and Continentals
There’s a parallel between cryptoassets today and the British colonial period predating the US. In the late-1600s, colonies began to print their own money. Today, we’re seeing many startups coin their own money, creating an explosion in the number of new (crypto)currencies.
States printed colonial money to pay debts to citizens. During tax collection times, the state accepted citizens’ bills as payment and retired the bills from circulation. Citizens would pay each other with these bills. They could also exchange them across state lines, but not at 1:1. Each state’s bills had a different exchange rate.
Colonial money didn’t have a central policy body, a federal reserve equivalent. In addition, they were poorly managed. Many of the states issued too much paper money, causing inflation and eventual collapse in confidence of these currencies.
In 1775, the US government issued $241M worth of Continentals, the currency of the Revolution, to finance the war. That currency collapsed too, because of a lack of a single monetary policy, counterfeiting by the British and other reasons. After Independence, the Founding Fathers backed the dollar with gold and silver to prevent a similar loss of confidence. Any citizen could walk into a bank with a dollar and walk out with an equivalent amount of gold. About 200 years later, Richard Nixon ended dollar/gold convertibility.
I think about this history when meeting cryptoasset businesses. Each startup is creating a new currency, like the colonies. They each have a white paper, drafted in the font of academic papers with LaTeX equations. These whitepapers are the policy documents of a mini-federal reserve bank of a their currency. The white paper outlines the monetary policy of the economy. How will currency be doled out? When will it be created? How will it be regulated?
In the revolutionary era, Pennsylvania managed its currency well. Unlike many of its peers and unlike the Continental, the Pennsylvania pound held its value through the war. There’s a history of the Pennsylvania pound written in 1896 for those wishing to go deeper.
Will the story of cryptocurrency trace the arc of colonial currency? Certainly. There will be startups who manage their ecosystems well and whose currencies will thrive and appreciate, and some less so. This is another example of history rhyming.