Crypto, Monetary Policy, and Global Trade

Apologies for being reclusive over the last couple months. I've been a little busy relocating. Lets discuss some of my favorite topics: monetary policy, global trade, and (you guessed it) cryptocurrencies.

First:

Hyper inflation, bad... very bad. very very very bad.

controlled inflation, ok.

Inflation has taken a beating throughout the blockchain community. Mainly from Bitcoin Maximalists. Scarcity, along with supply and demand, creates value. However, scarcity also leads to a decrease in the velocity of money, and lead to hoarding. Why?

When resources are scarce, humans conserve. Think of the price of oil. When the price of oil is high, the price of gas is high. When the price of oil is low, the price of gas is low. You can see the correlation by comparing the next two graphs.

The price (USD) of oil per barrel. Chart by MacroTrends

The price (USD) of a gallon of gas. Chart by Gas Buddy

When oil is abundant: supply goes beyond demand (most recent 2014), and prices fall. Consumers consume more oil and gas. Even power plants adapt by switching to cheap oil. As prices fall, demand for oil continues to increase.

When oil is scarce: supply falls short of demand, prices for oil and gas increase. This reduces demand for gas as consumers shift towards driving less and opting for cars that consume less gas. Scarcity creates value, but when a good is too scarce, we hoard.

In one post, I argued for a scarce cryptocurrency (Bitcoin). Arguing that the scarcity behind bitcoins will create demand for BTC. Thus creating competition (which is good) amongst builders, creators, farmers, innovators... industry in general. Here I am going to argue for an inflationary coin, Dogecoin. 

Why Dogecoin? The coin that everyone laughs at? Well, why Litecoin? The current cost of transacting in Litecoin is 25 times higher than Dogecoin. At its peak, it cost 170 times more to transact in Litecoin. The opportunity cost to use LTC is far greater than to use Dogecoin. I am sure some twitter kid who put up an "[LTC]" next to their twitter name will try and argue with me, but I don't really care.  Why? Cause this:

And in a downward market that we are in, we all need to look towards the Doge for inspiration, and hope. Plus there are hilarious Dogecoin memes that brighten my day.

*Also, the devs are friendly and working on interesting things while enjoying life.

Back to the point. Why inflation? Inflation creates incentives to build wealth. If you know that your currency is slowly being devalued by your central bank with an inflation target of 1-2%. You will invest your money in other things that will create value. Whether you take your money and invest in a savings account or a CD. These mitigate your risk, and providing a modest return.

Or... you can take the risk. You can invest in real estate or in your human capital. You can invest in a start up, much riskier, but higher reward potential. Controlled inflation creates incentives to build your wealth, be innovative, and compete. With out those, you wouldn't be reading this.

In a cryptocurrency run world, the choice is ours on which currency to use. If the network or the crypto's governing body decides to increase its inflation rate, increase its money supply, or something that you don't approve of; then you can swap that crypto for one that isn't. Cryptocurrencies provide us with the freedom to choose.

Scenario:

You sell your house just before hyperinflation hits. The hard work you put in to build your wealth disappears. What do you do when you are left with pennies from dollars? 

Instead, you do your research to select a cryptocurrency that holds its value. You are reading good things about Dogecoin; and opt to sell your house for dogecoins. 

Months pass, you have mitigated your risk by doing light reading and getting notifications from the crypto-communities you are a part of. You start seeing the Dogecoin community dwindle, and stop doing charitable deeds. The devs focus too much on drinking good beers than working towards a continuously disruptive and innovative Dogecoin Network. You hear talk of CHI/CHX (The coin that represents Chicago innovation). 

Years ago, Chicago wanted to be more. They opened the doors to cryptocurrency and blockchain tech, and is now a major hub for innovation. They are a leader of industry while creating wealth for their community and the world. Their coin is used globally to trade and transact. The velocity of CHI/CHX coin is now closing in on that of Dogecoin. 

So you pull out your inexpensive phone/computer and swap your dogecoins for Chicago coins.