In first grade, my daughter had a class project where she asked the teacher what her parents did at work. I was a consultant. Most adults can't tell you what management consultants do — forget about six-year-olds. “He puts the money in the boxes,” my daughter answered. “I'm not allowed to touch her.”
To be clear, I am not a drug dealer, money launderer, or any of the other jobs that might be associated with putting money in boxes. The “job” my daughter described is more than just a hobby. I collect old American paper money. I used to bring my daughter when I put my latest belongings in my safe deposit box. Today, you say I'm “unemployed” because that's easier to explain than “mostly retired.”
What does collecting old paper money have to do with cryptocurrencies? More than you might expect. If you are trying to understand where money is headed in the future, you may want to explore the money of the past.
Admittedly, this is strange for cryptocurrencies. I don't expect you to sell your bitcoin and buy fiat money. This is not a pump-and-dump operation orchestrated by a group of eccentric numismatists. I'm simply asking you to think about what cryptocurrencies are and how they fit into the history of money.
You don't need to track Bitcoin. My daily conversations tell me whether the price is high or low. When prices rise, I can't go 24 hours without someone mentioning cryptocurrencies. When prices drop… cockroaches.
A few years ago, I went down the rabbit hole. The market cap of cryptocurrencies was approaching $3 trillion, and even people who couldn't explain what a “block” was on a blockchain were evangelizing about DeFi and Web3.
Did I miss something?
Not real. Don't get me wrong, you can make money with cryptocurrencies. Many people have – at least on paper. I just wish people would treat cryptocurrencies as what they are: a collectible. It is not an investment. It's not money. She's the Beanie Baby who loves the tech bros and the finance bros.
If you buy cryptocurrencies, what do you own? Your hard-earned dollars buy a line on the distributed ledger, confirming your stake in the future of money. As of today, $50,000 buys you the right to claim One From 21 million bitcoins. For the price of a mid-size luxury crossover, you could buy 0.000004762% of all the Bitcoins that will ever be mined.
I use Bitcoin as an example, but it is not the only cryptocurrency. New coins are minted all the time. One way or another, nearly $12 billion of global capital is tied up in Dogecoin.
Collecting cryptocurrencies is not about owning an asset. It's about giving the middle finger to the finance industry. It's about getting rich quick without the social stigma of lottery tickets. It's about imagining a future where esoteric cryptographic algorithms are a force for good.
In short, cryptocurrencies are fueled by hopes and dreams. This kind of sounds like when we collectively decided that pieces of paper were an acceptable store of value and medium of exchange. On the surface, cryptocurrencies are the logical next chapter in the story of money.
Is paper money a solid investment? Not real. Collectible assets tend to underperform productive assets such as stocks in the long run. So why would I spend my current dollars on past dollars?
First, it's rare. Encryption is not rare. I mean it's actually rare. Many of the notes I own are one of a few dozen. In few cases are the examples I have mentioned more beautiful than those behind the glass at the Smithsonian and the Federal Reserve.
Secondly, they are beautiful. Unconventional designs, intricate details and bold colors make them miniature works of art. I'll share a few examples in this article, but the most beautiful pieces are beyond my budget.
Finally, the stories are incredible. Cryptocurrency stories are better, but it's science fiction. Maybe they are honest, maybe they are not. In the case of paper money, stories are part of our national identity.
Remember when I said $50,000 could buy 1 Bitcoin? Let's look at what half that amount buys in the world of paper money. Along the way, we'll explore the revolutionaries promoting cryptocurrencies, whether decentralization makes sense, and what it will take for cryptocurrencies to become the future of money.
Before the founding of the United States, there were thirteen colonies. The people in those colonies needed to trade, but there was a problem. There was a shortage of gold and silver coins. Any coins that came to the colonies quickly flowed in exchange for imported goods.
If you've ever bartered, you know it hurts. How many horseshoes do you want for this pig? In 1690, Massachusetts became the first colony to issue paper money. Well, sort of. They issued bonds of credit payable in gold which served as legal tender for paying taxes.
Benjamin Franklin was a fan. Here is what was written in it A modest investigation into the nature and necessity of paper currency Published in 1729:
As abundant currency will be a great cause for the advancement of this province in commerce and riches, and the increase of its population; which, though it would not sensibly diminish the population of Great Britain, would cause a vent and a much greater demand for their goods here; And as the Crown is all the stronger because its subjects are increasing in wealth and number, I cannot think it to be the interest of England to oppose us in amassing here a large sum of paper money, as we, the best judges in our country, are. Special necessities, find convenient.
Franklin was the brother of cryptocurrencies in the 18th century. He was not simply exaggerating with paper money. He put his money where his mouth was…literally.
If you look closely, you can see the words “Printed by B. Franklin” on the back of a 1759 Pennsylvania banknote. Paul Revere was also in the paper money business, engraving plates in Massachusetts and New Hampshire.
As the Fourth of July 1776 approached, independence was on the horizon – and our currency. The frontispiece of the 1775 Maryland Warrant shows Britannia receiving the petition of the Continental Congress while George III stomps the Manga Carta and carries a torch to an American port. precise.
Paper money is closely linked to the story of independence. I hear similar rumblings in cryptocurrency circles. Promoters say cryptocurrencies will free people from government control. It will allow us to move money freely and escape the tyranny of inflation.
There is one problem. Most cryptocurrencies are not held by people who would benefit most from freedom and independence. It is not controlled by Syrians fleeing violence. It does not withstand the crushing inflation of Venezuelans. It is not occupied by the Rohingya people fleeing persecution.
It's held by people like Michael Saylor. I don't know the guy, but he looks more like George III than Benjamin Franklin or Paul Revere.
The US currency was not always centralized. In an attempt to monetize the federal debt, the government chartered more than 12,000 banks to issue paper money from 1863 to 1935. Decentralization is not a new idea.
National banknotes were issued under three charters. The first charter memoirs were printed primarily in the North as the South was still recovering from its failed revolution. The Second Charter Notes were released around the country and included “The Brownbacks,” some of my favorites. The third charter notes came in various designs and sizes, including types as small as the currency printed by the United States government today.
I own five dollars from the Fifth National Bank of Cincinnati. The bank later merged with the Third National Bank of Cincinnati to form the unimaginably named Fifth Third Bank. I guess marketing wasn't that important for banks in the 1920s.
Each bank used slightly different designs, including a charter number (for example, 2798 for the Fifth National Bank of Cincinnati). The banknotes were initially signed by the bank president and cashier until they got tired and started stamping their signatures.
Decentralization was a great idea, but you probably remember something terrible that happened in the 1930s. National banknotes were not responsible for the Great Depression but fell victim to the Banking Acts of 1933 (Glass-Steagall) and 1935. It's not easy to stabilize the financial system when you have 12,000 banks issuing currency.
There are already more than 9,000 cryptocurrencies in the world. Do you honestly believe we can formulate effective fiscal and monetary policy in a fragmented system? Me, no.
This may be why cryptocurrencies are already on the path to centralization. The largest exchange, Binance, is roughly ten times larger than the second-largest exchange, Coinbase. Exchanges determine who can trade and which coins people can easily use. For a currency based on the concept of decentralization, cryptocurrencies seem more centralized every day.
Is centralization through exchange different from the US government wrestling for control of paper money? It looks similar. The difference is that the Fed has held for 110 years. FTX barely managed third place.
Let's do a thought experiment. You can buy one bitcoin. Tomorrow, Bitcoin will suddenly become worthless. how do you feel? Do you take solace in being able to ensure that your Bitcoin still exists on the distributed ledger? Probably not.
If the value of my paper money drops to zero, I will feel sad. However, I won't throw it away. In fact, I will buy more. I will buy 1890 Treasury bills with the intricate “dollars” and 1896 silver certificates with their “Education Series” motifs.
Paper money was necessarily decorated. It is more difficult to reproduce a complex design than a simple one. Today, anti-counterfeiting features greatly reduce the visual appeal of cash. I'm not sure Franklin would be a fan of the obnoxious security tape that sits uncomfortably close to his face on the current $100 bill.
Encryption takes security one step further. It does not even exist in the physical world. Then again, most money today does not exist in the physical world. It's not as if JPMorgan Chase & Co. You hold the actual dollars on my behalf. My net worth lies in an ecosystem of crypto databases.
Blockchain technology is promising, but cryptocurrencies are a poor application of the technology. Cryptocurrencies fail to take advantage of the best aspects of blockchain (e.g., low cost) and make what should be incredibly secure vulnerable (I'm looking at you, North Korea).
Cryptography is the solution in search of a problem. This is rarely a recipe for success.
I am not against financial revolutions. I am not against decentralization. I'm not even against blockchain as a technology.
I don't like cryptocurrencies because they are a collectible that masquerades as money. It's a simplistic solution designed by lazy entrepreneurs to extract resources from people worried about technology. Unlike artificial intelligence, there is little substance behind the hype.
When cryptocurrencies effectively function as money, I'll buy some. I'm not married to the US dollar. We will look back and realize that there is some truth to the crypto science fiction being spread today.
Until then, I will continue collecting paper money. They are the most beautiful, rarest, and have done something useful for the world.
If you're passionate about cryptocurrencies, you've probably stopped reading and are writing an angry response along with the US history buffs you've also upset. If you're still reading, I have one piece of advice.
Predicting which collectible assets will appreciate in value over the long term is a fool's errand. Collect what you like, not what you think others will like. If you like looking at your crypto wallet, more power to you. If not, you may want to consider a new hobby.
I heard that paper money will go to the moon.
