Revenge of the Bank Note and the Rise of Crypto — Everything Old is New Again
If you think the foundation of cryptocurrency began in 2008 with the Bitcoin creator Satoshi Nakamoto (that’s the alias he uses, and no one really knows who he is), you’re mistaken. The same principles that drive the growth of cryptocurrency actually began much earlier — like nearly 200 years ago with President Andrew Jackson, who is often referred to as “Old Hickory.” He was known as the champion of the common man who opposed the concentration of power in the hands of a small group of privileged people. He objected to the national bank’s political and economic power and lack of oversight.
As president, he announced the shutdown of the country’s national bank in 1833, known as the Second Bank of the US, and redistributed the funds to state banks. In doing so, Jackson decentralized banking, which gave the public more options and also provided flexibility to the states for a period of time. In fact, in 1835, he became the only president to pay off the national debt. Today it’s more than $30 trillion, which amounts to $90,000 per person in America.
Jackson died in 1845, and some of his policies were divisive. This article, however, focuses only on the connection between Jackson’s values behind the decentralization of money and how it relates to the evolving cryptocurrencies of today. And it comes down to this: A key force behind the popularity of cryptocurrency and other digital assets is the flexibility and privacy from government intrusion.
While we don’t know exactly what changes crypto will bring, here are some things that we can learn from history.
The death of the banknote and the battle for currency domination
Let’s take a step back in time to understand where we’re headed with crypto and how it’s going to continue to transform the way people pay for goods and services and make investments. During the 19th century, as gold and silver evolved into more portable, local banknotes, states had their own private currencies that enabled them to support transactions as they conducted business.
With banknotes, people no longer needed to carry as many heavy gold and silver coins. Banknotes were considered an innovative form of payment at that time and created a sense of flexibility because people weren’t beholden to a single issuer of currency. Sound familiar?
With the National Currency Act in 1863 the US government began to centralize banking at the time of national chaos — the Civil War — and issued fiats, paper money, to pay soldiers and suppliers for the war. The new law attempted to convert state banks into national ones with standardization and more restrictions. It would hardly be possible to centralize such power if it were not for the fog of such an important and consuming war.
When many of the local banks were reluctant to switch, in 1865 Congress issued a 10% tax on the notes of state banks, which caused most of the state banks to fade away for a while. However, state banks actually re-emerged and eventually outnumbered national banks by 1900 by offering what their customers wanted — more service options. The Federal Reserve System was created in 1913 and the last banknotes were issued in 1929.
Back to Present — The Spirit of Flexibility and Innovation in Currency
While the U.S. banknote may have “died” long ago, it’s back now in a much more modern, flexible, and innovative form — cryptocurrency. That’s right. Cryptocurrency is the new banknote, but this time it’s more effective, transparent, and has the potential to achieve a much brighter, sustainable future. As the rise of digital assets like cryptocurrency become more mainstream, banks and other businesses will need to continue to adapt or risk missing out on this revenue opportunity.
Flash forward to where we are today with the proliferation and the growing acceptance and growth of cryptocurrencies, where the blockchain and cryptocurrency are disrupting financial services due to their scalability, convenience, efficiency, low-cost per transaction, speed of cross-border payments, and opportunities for growth.
During this tumultuous time of disruption, driven by the pandemic, economic realities, climate change, war, social unrest, and other factors, it makes sense that many people and businesses would increasingly look for ways to take greater control over their lives. We expect greater personalization in how we conduct transactions, shop, save, invest, and get paid. Control can also be about having more options and the freedom to choose the currency we prefer to use or invest in and have it delivered when we want it at lightning speed on-demand anywhere in the world, securely, and safely.
Digital assets can meet those needs. A recent global blockchain survey of financial leaders by Deloitte describes how digital assets could even replace fiat currencies in the next five to 10 years. Their survey respondents expect to see a positive impact from a variety of digital asset types, including stablecoins or central bank digital currencies, algorithm-driven stablecoins, and enterprise-controlled coins.
Cryptocurrency, by relying on code to manage issuance and transactions, reflects the freedom and movement toward decentralization of money and choice because it doesn’t rely on a centralized issuing authority. It uses blockchain technology that leverages computers to track transactions as they grow. Without a central computer or server that monitors crypto, money is transferred without a middleman. Cryptocurrency, as well as crypto tokens ensure that assets are authentic and eliminate counterfeiting.
An advantage of Bitcoin, the most popular digital asset to date, is that it’s finite — there are only 21 million bitcoins and all but about two million are left to be mined. Because it’s finite, it can’t be scaled during a financial crisis, and governments can’t manipulate bitcoins.
We’re already seeing many uses of cryptocurrency by corporations, banks, art dealers, real estate companies, and other entities. PayPal, for example, is exploring the launch of its own stablecoin. Ally Bank offers funds that own crypto. The list goes on and on.
Numerous states are already at the forefront of embracing the power of cryptocurrency. According to the National Conference of State Legislatures (NCSL), Thirty-seven states and Puerto Rico have pending legislation regarding cryptocurrency, digital or virtual currencies and other digital assets in the 2022 legislative session. In addition, some other states have already enacted legislation.
Regulations, Digital Assets, and the Future
The OCC recently announced that performing custodial services for cryptocurrency by national banks is allowed, so banks can store digital wallet codes for customers. This is a big shift that will spur the adoption of cryptocurrency.
There hasn’t been much federal guidance on crypto until recently. On March 9, 2022, the White House Issued an Executive Order for digital assets. The order starts the process of creating regulations for digital currency. This acknowledges that crypto is no longer just a niche technology. In fact, according to that order, in November 2021, non-state-issued digital assets reached a combined market cap of $3 trillion, up from approximately $14 billion in early November 2016.
“The message I take from this [executive order] is that the federal government sees cryptocurrency as a legitimate, serious, and important part of the economy and society, and I think it’s a good signal to serious people who’ve been holding back from getting involved,” Jerry Brito, executive director of the DC-based crypto think tank Coin Center, said in a tweet.
Decentralization provides confidence and trust in monetary systems by reducing the risk of a major systemic failure, like the collapse of a Wall Street bank that needs a major bailout. An article in Inc Magazine on Three Important Advantages of Decentralization describes how the rise in cryptocurrency’s value “also reflects people’s skepticism of central banks and government planners’ motives, ethics, or competence. And their underlying protocol, decentralization, is an antidote to too-big-to-fail.”
For banks, according to the Deloitte blockchain survey, the future of digital assets is bright for financial services. Money is fast, movement of money is cheap, access to funding sources will expand, and the overall velocity of economic activity will be exponential. Banks and other industries must embrace that change.
The last few words that Jackson said to his children on his deathbed were, “…strive to be ready when change comes.” When the situation seems most dire with conflict or crisis and the world is moving through the thickest fog of war, prepare for a change. And so, the spirit of Old Hickory is alive and well in the battlefield of cryptocurrency and the power of decentralization. It’s time to recognize his resolve in this fight.
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