Currency Disruption: From Fiat to Crypto, and Greater Personal Freedom

When you think about ‘change’, or disruption, how does it make you feel?

Is it a good thing, or a bad thing? From the Industrial Revolution, through the 20th century, and into the tentatively dubbed ‘Information Age’, we’ve witnessed some of the most significant and disruptive changes ever conceived in human society. The pace never seems to slow. In fact, as demonstrated since the inception of cryptocurrency, the pace of change is capable of exponential rates of acceleration.

Fortunately, change and disruption have come to be recognized for the improvements they bring to society, although they are not always viewed positively from the perspective of established institutions. Change is often perceived as a proposition of risk by those most comfortably situated, but what about the internet, email, and mobile phones? These are but a few examples of disruptive technologies that were viewed with suspicion at the outset but grew to demonstrate significant value and social advantage.

So, what about cryptocurrency? We see the same kind of resistance against this new and burgeoning sector, and in large part that can be attributed to a lack of education about the prospective advantages it makes available; it’s nothing short of revolutionary. We need to communicate that story, especially in terms of the way it will allow ordinary people to hold a greater level of banking power, and take back something they almost certainly never had – personal financial sovereignty.

Speed of transactions

What kinds of benefits does cryptocurrency offer? The most obvious to a new adopter is the speed of transactions. At present, an international currency transfer takes three days. At each stage of the process, there will be a fee for handling the funds, and until now the customer has been powerless but to pay, and wait. However, people are pleasantly surprised at the speed with which their first cryptocurrency transaction moves from one part of the world to another – in minutes, rather than days. If you’re overseas and need to send money to a family member, you can be secure in the knowledge that your funds will arrive quickly and safely.

On top of that, neither national government nor banks can apply fees or charges until the currency is exchanged for fiat: the customer gains true financial sovereignty. But that example only scratches the surface of disruptive possibilities for the near future.

The Internet of Things

Some of us have heard a new phrase bandied about lately – The Internet of Things, or IoT for short. It’s a simple name for a revolutionary concept, describes the way machines talk to each other using wireless connectivity. IoT can exist in a domestic setting, such as your home fridge connecting to the internet to automatically order more bread and milk to be delivered, or a retail setting shop’s display fridge ordering more cans from a soft drink supplier as it begins to run out of stock.

Although that kind of technology is not widely used here in Australia, mainstream application is not far away, and together with a digitally engineered Blockchain payment known as a ‘smart contract’, IoT won’t only streamline logistical processes; it will streamline the attached systems for payment and accounting as well.

Cryptocurrencies function on the basis of mathematical security regulations. These algorithms, when combined with the institutional trust and statutory legislation that we conventionally understand, create a system of currency that is more trustworthy than anything previously known. There’s no need for transaction clearances or lines of credit: the accounting is done automatically and in real-time, which saves human time and resources.

A real example from the blue-chip world

At present, the Australian iron ore mining industry is undergoing its own revolution, using IoT connectivity to enable driverless haul trucks to transport freshly excavated iron ore to driverless trains, which transport the ore to port – it’s happening right now! Wear and tear on those haul trucks can be recorded electronically, scheduled automatically, and the maintenance is performed by human employees. But what would happen if cryptocurrency was used to automatically and instantly settle expenses and payroll?

 “Cryptocurrencies function on the basis of mathematical security regulations”

Picture this: Somewhere in the dusty-red Pilbara Desert, deep in an open-cut pit, a 50-foot-tall mining excavator picks up and automatically weighs a few tonnes of unprocessed ore, and generates a value for it. An empty haul truck drives over and creates a machine-to-machine (M2M) smart contract with the loader, to pay for the ore in real-time as it is loaded into the tipper tray.

This digital ‘smart contract’ incrementally pays the excavator, bucket by bucket, so the accounts are never out of balance. The excavator also incorporates profit margin to be spent when scheduled maintenance rolls around, as well as cover the expense of its capital investment.

Once full, the truck drives to the crusher to dump its load, and another M2M smart contract is generated. This time the crusher pays the truck. After so-many loads, the truck heads back to the workshop for scheduled maintenance, where it directly pays the diesel fitter who carries out the work, and the store for parts and consumables like tyros and oil. There’s no need for PAYG accounting each week, and the store’s stock take is done in real-time.

Meanwhile, these chains of smart contracts are overseen by a small accounting team acting as the secondary caretaker of accounts, rather than a massive team of accountants required for primary-level generation and collation of costings data. Now, the efficiency improvements become clear.

Another benefit for the maintenance employee is that the Australian government will no longer have to hold his tax to a PAYG ransom each week, leaving the employee free to invest that capital in whatever way he wants, only paying for tax owed at EOFY, with no need to wait for a return. In turn, there will be less pressure on the Australian Tax Office. If you scale the employee’s situation up to the level of the mining company, it’s easy to see that a democratic, free market such as this is will lead to greater financial sovereignty. If you apply that to your own SMSF in the future, it may be possible to reduce bank fees and save more funds for enjoying your retirement.

The cryptocurrency genie is out of the bottle, and its myriad opportunities for streamlining business and investment operations are only now being acknowledged and explored at the highest levels of corporate governance. The social implications for this disruptive change include an ability to free up more of our most precious resource, human energy, and direct it to problems more challenging than simply balancing financial accounts. It’s an amazing near future to look forward to, one in which our children and grandchildren will enjoy new opportunities that we’re only beginning to imagine.

Ben Hagemann, Bitcoin Trader