Money Redefined: Why Crypto is “People’s Money”

For many people, money is a measure of power, and a result of offering valuable solutions to society. Thus, a common thinking is that someone who is powerful must have taken some risk to provide solutions that empower others.

In reality, money is not always a true measure of an individual’s or a group’s contribution to society. There are, for example, many middleman and intermediaries who get in the way of people seeking the most efficient solutions. 

We see this in the banking industry. At times, a transaction fee for a particular remittance can be exorbitant. This is because the transactions have to go through multiple network barriers, where intermediaries are waiting to take the fees for themselves. 

Money that distributes power

Cryptocurrencies offer a way to transfer value in a person-to-person way without involving centralised entities. Although we must still pay fees to “third parties” who keep the network secure through decentralisation, the fees are usually low or even non-existant. 

As a result, this payment system is incredibly efficient, in the sense that the paid fees are only enough to keep the network running. Users save money on fees, and feel empowered as the network is open, permissionless, and omnipresent.

Cryptocurrency is money that distributes power to its users. This is because cryptocurrency itself is not a measure of power, in the same sense that fiat currency. It is, rather, a form of information.

Crypto is more than money — “a database for resource allocation”

Tesla CEO Elon Musk opined in an interview with Lex Fridman that money should be viewed “through the lens of information theory”. He refers to the fact that cryptocurrencies are arbitrarily priced, and that it is essentially an information about debt and credit of an account.

Tokens or currencies to measure debt and credit get circulated in the most transparent way. This allows users to know, for example, exactly how much currency is in circulation, or which account owns the most supply.

Musk said, “Think of [crypto] money as a database for resource allocation across time and space. In what form should that data system be most effective.” 

He referred to the open-source, distributed, and immutable ledger that is the blockchain.  He also said that the technology behind crypto assets is most effective for recording the movement of resources.

Elon Musk: Comparing Bitcoin with Dogecoin

As clever a technology as cryptocurrencies, they are not yet perfect and are not the ultimate solution to today’s financial inefficiencies. 

“I’m not saying that it is the ideal system for a currency, but I think it actually is just fundamentally better than anything else I’ve seen,” Musk said. Indeed, the reason why there are so many cryptocurrencies today is that many of them are building and improving upon the limitations of past crypto networks. The “ultimate currency” is yet to be discovered.

Speaking of fundamentals, two cryptocurrencies that are often actively discussed by the eccentric billionaire are Bitcoin and Dogecoin. Many serious investors consider Bitcoin to be the “gold standard” of all cryptocurrencies. As the longest-running network, Bitcoin is provably secure, and offers a great long-term store of value for many investors. 

Apart from Bitcoin, Elon Musk has often praised Dogecoin in public, from which his nickname “Dogefather” came about. He even stated that he’s “a pro Doge” in a Twitter conversation with Dogecoin creator Billy Markus.

This may come as a surprise, given that Dogecoin was initially created as a joke, claimed the creator. However, it seems that Musk has found an overlooked fundamental value in the humorous cryptocurrency.

“[Dogecoin] does have much higher transaction volume capability than Bitcoin. The cost of doing a transaction (the Dogecoin fee) is very low,” he said. “If you want to do a Bitcoin transaction, the price of doing that transaction is very high, so you could not use it effectively for most things.”

Dogecoin price surged 20% up to 22 cents on 14 December after Elon Musk announced that Tesla will accept it as payment for merchandise. However, this was still only 30% of the price of its all-time high of 74 cents in May 2021, before the Dogecoin bubble popped.

The takeaway

Elon Musk provided an interesting point of view of what money could be, instead of a shallow representation of power. If small amounts of resources, energy, and labour can be precisely measured, it can be priced, sold or bought fairly and transparently.