The Prospect of Digital Currency

In terms of money and the response to COVID-19, the global short-term answer has been to print money and lots of it (QE).

It is becoming clear that the current monetary system is very fragile and the current crisis we are all facing, could tip it over the edge.

Our Chancellor, Rishi Sunak has pledged billions to help soften the impact of COVID-19 in the UK and has given assurances to businesses and millions of workers.

Personally, I am very happy the UK Government are willing to pay 80% wages for employees (up to £2,500) that don’t have the option of work as well as many other measures. The money will help people pay bills and keep the food on the table for many households.

That isn’t the full story and there are some workers up and down the country that have fell through the crack’s when you look at the support that will be given by the state.

My heart goes out to anyone who is struggling and thinking about our financial future and our FI is very relevant in todays frightening world.

Looking at the bigger picture…

Money pumped into the Global Economy year after year is papering over the cracks. With the value of money decreasing all the time, the general public is losing faith in the current banking system. Not to mention the fact that Bankers are widely blamed for the last financial crisis.

Our money is starting to look outdated in today’s digital and technological age.

The basics of the traditional banking system are debit and credit. This is a ledger system called double-entry bookkeeping.  In other words you go to the bank for credit. Then you pay the bank back with interest (debit). To ensure this system works, middlemen are used and that’s where the banking system kicks in.

Before the 70’s, the Global Economy relied on the Gold Standard. After the financial crisis of 1973, the US removed the currency’s connection to Gold and this enabled currencies around the World to fluctuate freely.

Over the last few decades, the entire monetary system (Global) has been based on the dollar as the main currency for trade. This means that the UK and other countries are directly affected by policies made in the US for the US.

There are a few whispers that the IMF (International Monetary Fund) will have more influence in the Global Economy going forward. In theory, they would introduce monetary policy that would look after the needs of the entire world (not just the United States).

Is our financial system getting ready for a big reset? What is the alternative?

The current monetary system is unstable and unpredictable (and that was before COVID-19). I can only see major changes to the entire Global Monetary system and it is very possible that we will go digital in the not so distant future.

Satoshi Nakamoto (pseudonym) developed Bitcoin (BTC) in early 2009. This decentralized digital currency was developed because of a lack of faith in the banking system.

Instead of using a bank, BTC uses a database called Blockchain. The Blockchain is a giant public ledger that stores all existing BTC (and other digital assets) and all transactions that have been made. It is a digital ledger where monetary transactions are recorded.

Where the current banking system uses debit and credit, blockchain has three elements: debit, credit and verification. This effectively removes the middlemen. The trust and security, are built in to the system and apparently, it is very hard to hack.

On the other hand, I feel the security side of things is a work in-progress as I have read stories over the last few years of crypto currencies and exchanges being hacked.

As bitcoin is yet another form of investing that I have crashed and burned, I put it to the back of my mind until the last few months.

What I have found with my relationship with money is that I am very emotional. And my experience with crypto currency is no different.

Since my 1st investment in crypto currencies in 2017, I am approximately £6000 down. This led me to bury my head in the sand again and just put it down to another loss. My dark cloud kicked in yet again.

What I have come to realize is that learning the fundamentals has been worthwhile. I am familiar with different exchanges (where you trade digital currency for other assets) and have practiced sending BTC to different addresses. The small amount of BTC I own has been transferred from my exchange account, to my Trezor wallet (secure vault for digital assets). I have even read Bitcoin for dummies…

I honestly feel that digital currencies are going to be the new standard. With the fallout from COVID-19, that may be sooner rather than later.

Although it is anyone’s guess as to how things are going to play out economically, we can at least try and protect ourselves by diversifying our assets.

DIVERSIFY:

GOLD (and other commodities) – Many experts recommend holding Gold and some suggest silver. I have neither. If I had the resources, and a big fuck off safe (buried in the garden) I would invest in silver.

PROPERTY – Bricks and mortar is a no-brainer in my opinion as houses will always be valuable regardless of the currency.

STOCKS AND SHARES FUND – I have a Vanguard fund that tracks the markets. It has an 80/20 (shares/bonds) ratio and is spread across assets in various parts of the world.

CASH – If you are a contractor (like me), it is recommended to have a few months worth of expenses in cash to cushion the blow of unemployment.

CRYPTO ASSETS – Last but certainly not least. I have lost money in Crypto currencies but I have still got an investment that I may make money on. Even if you only have a small amount to invest, I would invest in Crypto to get familiar with digital money.

Now BTC may come and go, but the prospect of digital money being the new standard is very real.

As well as diversification, I would also recommend reading up on digital currency and what many believe is the future when it comes to money.

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