When my daughter was in first grade, for a class project, the teacher asked her what her parents did. I was a consultant. Most adults cannot explain what management consultants do. Forget about six-year-olds. Her daughter replied: “He puts the money in a box. He is not allowed to touch it.”
To be clear, I am not in a job that you would associate with drug dealers, money laundering, or putting money in boxes. The “work” my daughter described is more of a hobby. I collect old American banknotes. I took my girlfriend's daughter with me when I put my recent purchases in the safe deposit box. Now she said I was “unemployed.” That's easier than explaining that you're “almost retired.”
What does collecting old banknotes have to do with cryptocurrencies? More than you might think. If you're trying to understand where your money is going in the future, you might want to look into your past money.
This is clearly a strange way of looking at cryptography. I don't expect you to sell Bitcoin and buy paper money. This is not some kerfuffle orchestrated by a bunch of eccentric numismatists. I'm simply asking you to think about what crypto is and how it fits into the history of money.
No need to track your Bitcoins. You can tell whether prices are going up or down through daily conversations. With prices rising, you can't let 24 hours go by without someone mentioning cryptocurrencies. When prices fall…crickets.
A few years ago I fell down a rabbit hole. The market capitalization of cryptocurrencies is approaching $3 trillion, and even people who can't explain what a “block” is on a blockchain are preaching DeFi and Web3.
Was something missing?
not much. Don't get me wrong, you can make money with cryptocurrencies. Many people know, at least on paper. I just wish people would treat cryptocurrencies for what they are: collectibles. It's not an investment. It's not about money. It's a Beanie Baby, the love child of a tech bro and a finance bro.
What do you own when you buy a cryptocurrency? You buy a line on a distributed ledger with your hard-earned money, proving your stake in the future of money. As of today, you can get the following rights for $50,000. One Out of 21 million Bitcoins. You can buy him 0.000004762% of all Bitcoins ever mined for the price of a mid-sized luxury crossover car.
Although we use Bitcoin as an example, it is not the only cryptocurrency. New coins are being minted all the time. Somehow, nearly $12 billion of global capital is tied to Dogecoin.
Collecting crypto assets does not mean owning the assets. It's like giving a middle finger to the financial industry. They aim to get rich quickly without the social stigma of playing the lottery. It's about imagining a future where arcane cryptographic algorithms are a force for good.
In other words, cryptocurrencies are powered by hopes and dreams. It sounds like when we collectively decided that pieces of paper were a store of value and a medium of exchange. On the surface, cryptocurrencies are the next logical chapter in the money story.
Are banknotes a solid investment? Not so much. Collectable assets tend to underperform more productive assets such as stocks over the long term. So why spend today's money on past money?
First of all, it's rare. Cryptocurrency is not uncommon. So it's actually rare. Many of the notes I own are one of his dozens. In some cases, my examples are better than the Smithsonian Bank or the Federal Reserve's glass-covered examples.
Second, it's beautiful. The funky design, intricate details, and bold colors make this a true miniature work of art. This article will show you some examples, but most of the beautiful pieces are beyond your budget.
Finally, the story is incredible. Crypto stories are better, but they are science fiction. Maybe they're true, maybe they're not. In the case of banknotes, the story is part of our national identity.
Remember when I said you could buy 1 Bitcoin for $50,000? Let's see what half that amount would buy in the world of paper money. Along the way, we explore the revolutionaries promoting cryptocurrencies, does decentralization even make sense, and what it will take for cryptocurrencies to become the future of money.
Before the United States existed, there were 13 colonies. The peoples of these colonies needed to trade, but there was a problem. Gold and silver coins were in short supply. Whatever coins came into the colonies quickly went out in exchange for imported goods.
If you've ever bartered, you know it's a pain. How many horseshoes would you like for that pig?In 1690, Massachusetts became the first colony to issue paper money. Well, in a way. They issued bills of credit paid in gold, the legal tender for tax payments.
Benjamin Franklin was also a fan.this is what he wrote A modest investigation into the nature and necessity of banknotes. Published in 1729:
and the abundance of currency would be a great cause for the development of the trade and wealth of this state, and for the increase of its population. It will not sensibly diminish the population of England, but it will create a much greater outpouring and demand for their goods here. And if we accept that the King is more powerful to his subjects, whose wealth and population are increasing, it is in Britain's interest that we, the supreme judges of our country, should oppose the making of just as large a sum of money here. I don't think it will be. Find your necessities and useful things.
Franklin was a cryptocurrency bro in the 1700s. He wasn't just promoting paper money. He literally put his money where his mouth is.
If you look closely, you'll see “Printed by B. Franklin” on the back of the 1759 Pennsylvania bill. Paul Revere was also in the paper money business, engraving plates for Massachusetts and New Hampshire.
As July 4, 1776 approached, momentum for independence and our currency grew. The obverse of the 1775 Maryland bill depicts Britannia receiving a petition from the Continental Congress as King George III tramples his carta and holds a torch over an American port. subtle.
Paper money is closely tied to the story of independence. I've heard similar rumors in crypto circles as well. Proponents argue that virtual currencies free people from government control. This allows us to move money freely and escape the tyranny of inflation.
There's one problem. Most cryptocurrencies are not held by those who stand to benefit most from freedom and independence. Syrians fleeing violence are not holding it. Venezuelans, crushed by inflation, aren't keeping it that way. It is not held by the Rohingya people who fled persecution.
It's held by people like Michael Saylor. He doesn't know the man, but he seems more like George III than Benjamin Franklin or Paul Revere.
The U.S. currency was not always centralized. In an attempt to monetize the federal debt, the government commissioned more than 12,000 banks to issue paper money from 1863 to 1935. Decentralization is not a new idea.
National banknotes were issued under three charters. The first Charter notes were printed primarily in the North, as the South had not yet recovered from the failure of the Revolution. The second charter note was issued all over the country and included some of my favorites, “Brownback.” Third Charter banknotes came in a variety of designs and sizes, including smaller types similar to the currency currently printed by the U.S. government.
I own a $5 brownback from the Fifth National Bank of Cincinnati. This bank later merged with Third National Bank of Cincinnati to form the unimaginatively named Fifth Third Bank. I don't think marketing was that important for banks in the 1920s.
Each bank used a slightly different design, including the charter number (for example, 2798 for the Fifth National Bank of Cincinnati). At first, the bank president and teller signed the banknotes, but they got tired of them and started stamping their signatures instead.
Decentralization is a great idea, but you may remember that something terrible happened in the 1930s. Although national banknotes were not the cause of the Great Depression, they were a victim of 1933 (Glass-Steagall Act) and his Banking Act of 1935. Stabilizing the financial system is not easy when 12,000 banks are issuing currency.
There are already over 9,000 cryptocurrencies in the world. Do you honestly think you can formulate effective fiscal and monetary policy in a fragmented system? I don't.
That may be why cryptocurrencies are already on the path to centralization. The largest exchange, Binance, is almost 10 times the size of the second largest exchange, Coinbase. Exchanges decide who can trade and which coins people can easily use. Despite being a currency founded on the concept of decentralization, cryptocurrencies are becoming more and more centralized day by day.
Is centralization through exchanges any different from the US government's efforts to control paper money? It's similar. The difference is that the Federal Reserve has been around for 110 years. FTX barely reached 3rd place.
Let's do a thought experiment. You buy 1 Bitcoin. Tomorrow, Bitcoin will suddenly become worthless. how do you feel? Are you comfortable knowing that your Bitcoin still exists on the distributed ledger? Probably not.
I would be sad if the value of my banknotes dropped to zero. But I didn't throw it away. In fact, I think I'll buy more. I would buy an 1890 Treasury bill with an intricate “green screen” or his 1896 silver certificate with an “Education Series” motif.
Banknotes were necessarily decorated. Complex designs are more difficult to reproduce than simple designs. Today, anti-counterfeiting features greatly reduce the visual appeal of banknotes. I don't know if Franklin will be a fan of his uncomfortable security strip that sits uncomfortably close to the face of his current $100 bill.
Encryption takes security a step further. It doesn't even exist in the physical world. Again, most of today's money does not exist in the physical world. JPMorgan Chase does not hold physical funds on my behalf. My net worth is in the encrypted database ecosystem.
Blockchain is promising, but cryptocurrencies are an under-considered application of the technology. Cryptocurrencies fail to leverage the best aspects of blockchain (like low cost), making something that should be incredibly secure vulnerable (looking at you, North Korea).
Cryptography is a solution in search of a problem. It is rarely the secret to success.
I'm not against the financial revolution. I am not against decentralization. I'm not even against blockchain as a technology.
I don't like cryptocurrencies. Because it's a collectible disguised as money. It's a simple solution designed by lazy entrepreneurs to extract resources from technology-insecure people. Unlike artificial intelligence, there is little substance behind the hype.
I will buy cryptocurrencies when they effectively function as money. I'm not married to USD. We will look back and realize that there was some truth in the crypto science fiction being spewed out today.
Until then, I will continue to collect banknotes. It was more beautiful, rarer, and did something useful to the world.
If you're passionate about cryptocurrencies, you've probably stopped reading and furiously typed your responses along with other offended US history buffs. For those who are still reading, I have one piece of advice.
Predicting which collectible assets will increase in value over time is a fool's errand. Collect what you like, not what you think other people like. If you like peeking into cryptocurrency wallets, we've got more power for you. If not, you may want to consider a new hobby.
I heard that banknotes will go to the moon.
