Crypto currencies were a hype in the 2010s: their original purpose was to propose an alternative currency that would be able to make a transaction between two parties without the intervention of a government.

In this article, I will explore how trade has evolved and where crypto could have helped us.

This article will not explain how crypto works, or our financial institutions do: I would suggest you check Investopedia in order to bridge your eventual gaps of knowledge.

Money was originally used as a token in order to facilitate trade. It helps to quantify and fix the price of a resource between different merchants rather than just rely on barter and metal coins could be stored and used at a later time.

A chicken would have the value of some shiny coins that could be stored and transported much easier than if I would exchange against a big amount of potatoes.

Little by little, civilizations rose and started to regulate the manufacture of coins. At that time, the value of the coin was owed to the precious metal it was made of (during the roman republic, a sestertius was made out of silver).

Later, with the advent of banks and the creation of financial transactions (since 200 BC), the physical value was transferred elsewhere (to simplify we should say to the national banks, but it’s not completely true and goes beyond the scope of this article) and we transact with paper and coins, called as well as fiat currency, whose value is only the faith we give to the government that issues it

Today, a cash transaction is rare: we prefer to use debit / credit cards, checks or bank transfers. Because of convenience we do not trade with goods through physical fiat currencies that often anymore, so as not to carry the weight or a justification (e.g. in Europe you can’t carry more than 10’000 euros without some bank paper trail).

But what seemed as a benefit was still plagued by multiple pain points for the end-user:

• Slow: for years, banks were not able to show you instantly your card transaction and bank transfers or cashing in a check took weeks.
• Insecure: checks and cards are still forged (“yes cards”).
• Highly regulated: cards have limits, transferring high amount of money from account to account will trigger internal alerts.
• Expensive services: banks fees for transactions were high.

That opened a path to the raise of crypto currencies in the 2010s, which promised instant secured transactions with no middlemen; the only low fees would be paid to the groups maintaining the infrastructures, called miners, on a per transaction basis. On top of that, there would be no regulations and almost guaranteed anonymity.

At the beginning this looked great on paper: maintaining my electronic wallet would cost nothing on the long run, my crypto currency would not face the burden of inflation as it would not be pegged by a fiat currency and should be auto regulated by barter.

After a couple of years, prices of products and services would be the same for all the users of the same crypto currency. As an example, one hour of website programming could be worth 10,000 BTC worldwide and a pizza would cost 5’000 BTC.

But things did not go in that direction: the new electronic coins started to be traded on the financial market and thus depended on the worth of fiats.

As with any novelty on the market, a tulip mania started which killed the electronic currency platform for petty trade: transaction cost to miners raised to around $50 dollars, making it uneconomical to buy products and services

Some crypto currencies were know just used for speculation and, as it was not backed up by any hard assets but just good will, it eventually crashed: the hype on crypto currency died (and a lot of late investors lost their fiats).

Still, the basic idea was good and the central technology, the blockchain, got more secure over the last 10 years.

Using this technology, we could back up the tokens with an asset from a company or a natural person and invest in that entity without passing by a regulated institution.

The next hype goes in this direction: crypto assets are tokens that are backed up by assets from a company. This should make crypto assets as stable as a fiat currency on a market exchange.

Let’s look at the different asset classes that a crypto asset could be backed up:

• Current Assets: since they are composed of cash and market securities, the token would be pegged to a fiat currency: it would defy the purpose of not being dependent to a regulated financial institution and thus would not make sense.
• Fixed Assets: they are anything that a company owns and cannot transform into liquidity fast.That means that you would own, via your token, a percentage of heavy machinery, a building or land.In this case the token will suffer from depreciation and amortization, but it is still a nice way to invest in a company.The token can also be used as a “smart contract” stating who owns a share of the fixed assets.
• Intangible Assets: this asset class is composed of Intellectual Properties or assets that are hard to value on the market (e.g. art pieces).

As for fixed assets, anybody could invest in them without a middleman involved. Here, depreciation and amortization are not taking place. This could actually be the best use for crypto assets.

In my opinion crypto assets will target intangible assets of a company and that’s great. The only issue, as for a crypto currency, is how do I trade my token back into a fiat currency in order to enjoy a slice of pizza?

If I need to pass by a bank, I will have to pay an exchange fee; then again, I could as well invest in a bond in order to possess part of an IP or part of the artwork.The only advantage would be speed and anonymity.

I might be wrong, but for the last 10 years I am seeing that the people are falling for the marketing around crypto: we focus on the tool rather than its purpose. It will always be a hype of the moment and investors that are late to the party or do not understand the technology or the financial tools will eventually lose of lot of their fiat money.

For me, on a short range, crypto currencies and assets can’t escape nor replace regulated institutions: I see the future in upgrading banks with blockchain technologies in order to create faster, cheaper and safer ways to use current financial.