The Road to Sound Money: Tracing from Aristotle to Cryptocurrencies
Since the time of Aristotle, the pursuit of sound money has been a fundamental quest of economists and monetary theorists. Aristotle defined sound money as having durability, portability, divisibility, and intrinsic value. These principles have guided our understanding of currency for millennia and continue to inform our modern monetary system. Yet, with the advent of digital currencies, these principles are being reevaluated through the lens of thermodynamics, economics, and information theory. Today, we delve deeper into this fascinating journey, the tenets of sound money, and how some cryptocurrencies are outpacing others in achieving these principles.
Sound money, at its core, has four main tenets. Durability ensures that money maintains its value over time. Portability allows it to be easily moved and exchanged. Divisibility guarantees it can be broken down into smaller units. Lastly, intrinsic value refers to the inherent worth of the money itself. It’s not merely a representation of value but is valuable in and of itself.
In the age of information, thermodynamics and information theory play a significant role in our understanding of sound money. The laws of thermodynamics underscore the value of energy expended in the creation of money, as demonstrated by the mining process in cryptocurrencies. Information theory, on the other hand, frames money as a means of communicating value within an economy, offering a fresh perspective on the role of money in societal structures.
Increasingly, privacy and fungibility are being recognized as crucial features of sound money, and cryptocurrencies like Monero and Wownero have taken the lead in this area. Unlike transparent chains such as Bitcoin, these privacy-centric cryptocurrencies protect user information, making them more acceptable and fungible. They can be easily exchanged without the fear of “taint,” a phenomenon where coins used in illicit activities or sanctioned by governments can lose value due to their compromised reputations. The inherent privacy features in Monero and Wownero shield them from this kind of debasement.
However, privacy alone does not a sound currency make. Other cryptocurrencies with privacy features such as Zcash and Decred fall short of being sound money. Despite their privacy attributes, the presence of instamines, ICOs, premines, and developer taxes indicate a deviation from the fair distribution of wealth — a cornerstone of sound money. They fail to answer the question of who receives the currency first once it’s minted, suggesting a system of uneven wealth distribution that contradicts the very principles of sound money.
With these insights, we can form an axiomatic formula for sound money: Durability + Portability + Divisibility + Intrinsic Value + Privacy + Fungibility — External Influences (like instamines, ICOs, premines, and dev taxes) = Sound Money. This formula provides a straightforward approach for assessing the potential of any currency, whether it’s a commodity, fiat, or crypto, as a viable solution to the complex problem of money.
In conclusion, as we move forward in this age of digital currencies, our understanding of sound money evolves. It’s imperative that we keep these guiding principles in mind, evaluating emerging currencies against them. Only then can we hope to develop a monetary system that upholds the tenets of sound money, thereby creating an economic structure that is robust, fair, and capable of withstanding the test of time.
