Hard To Escape The Need For Custodians(The Bank With Fiat)

We may never truly escape having centralized super powers all up in our finances no matter how hard we fight and this has nothing to do with our individual actions but the fact that it is actually a “need” factor for stability.

Directly, we could claim victory over the banking sector by ditching holding value in fiat likewise spending in them. However, indirectly, we could still be largely exposed to this system and the reason, one could say, is the same reason fiat exists in the first place.

Crypto Would Not Exist Without Fiat

So how can it scale without it?

It may sound pretty dumb but there are currently over 28,424 crypto tokens collectively accounting for a $2.75 trillion ecosystem.

This is literally a fiat-backed economy as all value attained by this industry comes from fiat, and is, till date, maintained by fiat.

Of a surety, the ecosystem is worth way more than the fiat amount that has been passed unto it due to how tin liquidity and high demand can cause rapid market capitalization growth. That said, this is the more reason to acknowledge that the system largely depends on fiat to remain functioning.

Investing in crypto is an insanely wild experiment as there are literally no guarantees whatsoever but we do it.

Take for instance I buy a $100 bitcoin through a p2p market and pay with PayPal USD I earned freelancing.

Now I have BTC worth $100 whilst the seller has $100 in PayPal USD. If for some reason, the seller spends that $100 on anything, do we understand what this means for my investment?

Of course, we don't usually think this far unless we are outrightly dealing with a custodial service like centralized exchanges.

The reality here is that the second the seller spent that $100, my bitcoin investment became “unbacked” as the seller ceased to hold that value to reinvest in the industry, keeping mine backed in the process.

I know a lot of people would like to say that this is not how it works, but it is exactly how it works if you're dealing with a digital economy with low social adoption.

Honestly, I doubt that adoption would fix this in a grand scheme of things, just as the adoption of fiat did not kill gold, fiat will still remain a unit of account and real world backing for several digital economies.

Back to the example.

The reason we don't talk about this reality a lot is because we've earned a sizable market that allows for redeeming investments through other sources with ease.

That is, our market capture allows me to sell my bitcoin back to PayPal USD regardless of the previous seller dumping the USD, and this reality is made possible by “demand”.

With continuous demand for the crypto assets we invest in, we stand protected from losing any value off our capital, but rather, stand to gain even more.

This right here, is a form of custodianship, the availability of various people and institutions with “fiat” waiting to buy out our assets is the need factor we're talking about. Sure, the risk appears spread out, in a sense, it is, but, could we all take a second to think about the size of the stablecoin market and its various claws in off-chain investments and fiat-reserve accounts?

Exactly!

It's all connected, directly or indirectly and it would be crazy to think that a catastrophic event within the real world wouldn't largely affect crypto.

It would because there will never be enough fiat readily available to cash out, that's what we call a central point of failure? No?

Sure, you might want to argue that everyone can't desire to cash out, this is true, but the fact that it's even a slight possibility makes it a great factor because not everyone has to want to cash out for the industry to bleed hard, we've been through several bear markets, this shouldn't be news to us.

Bitcoin itself shows that the trend goes all the way back to centralization. PayPal, in recent news, is proposing for green miners incentives for bitcoin miners but something simply tells me that it's an attempt at centralizing the network even though it claims it will decentralize it more.

Have to give it a second read to decide.

We Ought To Kill The “Kill The Fiat Ideology”

The role of crypto in the grand scheme of things is to increase inclusivity, privacy and individual control of our finances through borderless transactions, anonymity tech and decentralized financial networks.

In all that, it isn't meant to kill fiat as fiat has always primarily been one thing: a unit of account.

This one thing, is something we can't possibly build on-chain, the complexity is quite off the charts.

Hence, though we should encourage crypto adoption, we should at the time enlighten the people coming in rightly, this creates room for an even stronger industry as the right knowledge allows for more informed decisions leading to better product and service developments.

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Posted Using InLeo Alpha