The core reason for the rise of the decentralized currency world was the need for financial freedom. The ability to control one’s money was at the center of the emergence of cryptocurrency. This principle was voiced, coupled with a bold prediction, by the Chief Executive Officer of Binance, CZ.
Changpeng Zhao, or CZ as he is popularly known in the crypto-world, stated that due to the nature of fiat currency creation at the will of the government, cryptocurrency will, one day, surge one thousand times against sovereign currency. His tweet failed to specify if this difference would be in value or the number of users.
“#Crypto will increase more than 1000x (against fiat) simply due to the printing alone…”
CZ’s tweet was in reply to a tweet by Anthony Pompliano, quoting Alan Greenspan, the former chair of the Federal Reserve of the United States. Many financial analysts had earlier claimed that Greenspan and his lax regulations against the big banks were fundamental in the Financial Market Collapse of 2008.
Alan Greenspan had once stated this about US’ debts at NBC’s Meet the Press in August 2011:
“The United States can pay any debt it has because we can always print money to do that.”
Although the ‘printing power’ may allow a country to ‘pay any debt’, the eventual decrease in purchasing power of the currency in question will decline. As more of a currency is printed, the currency becomes less scarce, leading to its value to plummet.
This action, taken at the whim of a government, in this case, to repay a debt, will lead to several externalities. Most notably, the currency of the people will fall and hence, inflationary pressure will rise, leading to a possible economic slump.
CZ, and others in the cryptocurrency world see this defining principle as the fundamental reason why decentralized currency will take over the world, according to his tweet.
Bitcoin [BTC] has the “halving” protocol in place to avoid situations like these, especially because there is no centralized intermediary. According to this protocol, the reward distributed to miners for block production decreases by half its value, with the production of every 210,000 blocks.
During its early days, in 2009, the mining rewards were approximately 50 BTC per block. The first halving in 2012 saw the rewards decline to 25 BTC per block. Currently, the rewards stand at 12.5 BTC per block, following the 2016 halving. The third halving is scheduled for May 2020 and will see the rewards reduce to 6.25 BTC per block.
The halving protocol ensures that the supply cap of 21 million Bitcoins is maintained and that inflationary pressure is kept in check, not by a supervisory authority, but by the principles of supply and demand.
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Graduate of Finance and Economics, interested in the intersection of the world of decentralized currency and global governance.