Ricardo Rodriguez
Are You Taking Cryptocurrencies for Down Payments Yet?

Technology is about to change the money game. A banking system that was designed to lend money in excess of its intake of deposits is coming under scrutiny. And moving the “paper money” to digital currency may be the only solution to keep the game going. Paperless money has been with us for quite a long time. The banks move money back and forth on their ledgers without ever seeing a real dollar bill. The genius minds that created the Federal Reserve, which can create money without any assets backing it, never imagined that a computer could track the movement of each penny in real time.

Blockchain technology was outlined by Stuart Haber and Scott Stornetta in 1991-1992 as connecting the dots with timestamps in a peer-to-peer transaction. Digital information is stored in a “block”. This contains the date, time, and value. Another “block” stores the information about who is participating in a transaction. Note that each person has a digital signature, and the transactions are done without ever revealing the user’s identity. The “blocks” store information that makes them unique from any other “block”. These “blocks” store a special code called a “hash” and they are cryptographic codes created by special algorithms. The core concept of blockchain is that all the facts of ownership and transfer of ownership can be verified instantly and without any outside interference. Users do not have access to identifying information about the people making transactions. Digital information can be recorded and distributed, but not edited in any way.

The technology behind this, at least for me, is mindboggling. Today’s money is immaterial. It exists as bits and bytes of data on a computer.

The banks act and charge as middlemen for services involving the transfer of valueless data. One of the industries to benefit from this blockchain technology is the banking industry. The best example is Bitcoin which was the first cryptocurrency (meaning electronic cash) to appear in the world that is 100 percent peer to peer without third party involvement. In 2009, and with the use of this cryptocurrency, blockchain became a real-world application.

And here is the dilemma for the traditional banks. Printed currency is regulated and verified by an entity such as a government or the Federal Reserve. And, as I mentioned, a government can print more money without anything of value to back it up. And then this money is “given” to people and companies in the form of a loan to be repaid with real money. You end up with $250,000 trucks and million dollars homes. People are realizing that the computers can do math, but the banks cannot.

Cryptocurrencies are now ten years old and growing. The banks cannot stop it, so how they adopt it and adapt it remains to be seen. Money moves the world but inflation and asset devaluations from additional money supplies can bust any economy in a year or two. (Unless there is some manipulation like making all payments of government agencies by an electronic transfer, paying all the bills with credit cards, and making sure that citizens can no longer demand paper currency from their own deposits.) As an exercise go to your bank to pick up $50,000. I bet you leave empty handed. I can’t see the future, but I would check on how to open your dealer crypto “wallet”–you may need to do so sooner than you think.

Suggested reading:

Blockchain Basics by Daniel Drescher 2020

Chapter 25 – The Creature from Jekyll Island by G. E. Griffin 1994.