Author: Jacob Wittman
Translation: Block unicorn
What is Currency?
In July 1944, as World War II was nearing its end, representatives from over 40 countries gathered in a small town in New Hampshire to attempt to answer a seemingly simple question: What is currency, and who controls it? The Bretton Woods Conference was not the first time global leaders had explored this question, nor would it be the last. The debates surrounding gold, the dollar, and exchange rates constructed the framework of the modern global financial system.
For thousands of years, every significant currency transformation has revolved around a core question: Where does the value of currency come from? Discussions about the value of currency often involve its sovereignty and scarcity.
Each currency transformation is less about the physical form of currency and more about trust, power, and the rules of the game. Stablecoins are the latest manifestation of this transformation, where trust and power seem to be decentralized. We believe stablecoins are the most influential form of currency.
The Era of Commodity Money
The earliest known forms of currency were commodities such as gold, silver, shells, and salt. These items were used because of their intrinsic or widely recognized value, which stemmed from their physical scarcity. For example, the supply of gold is limited and requires mining, a process that is both difficult and expensive.
Scarcity creates credibility. If you hold a gold coin, you can trust it as a good "store of value" because no government or unscrupulous banker can create more gold out of thin air.
On the island of Yap in Micronesia, currency exists in the form of massive limestone discs, some weighing several tons, quarried from Palau, with their value depending on size, transportation difficulty, and origin. Since ownership is tracked through community consensus rather than physical movement, these stones illustrate that the power of currency comes from shared belief rather than intrinsic value.
However, this form also brought limitations. Commodity money is cumbersome, difficult to transport, and inefficient in a rapidly growing global economy. These physical constraints hindered payment throughput and stifled economic growth. Long-distance trade required a system that could transcend the weight of metals and capital limitations.
The Transition to Fiat Currency
Ultimately, the combination of globalization and industrialization pushed commodity money to its limits. Government intervention introduced fiat currency. Initially, paper money was redeemable for gold or silver, gradually becoming widely accepted as currency itself. The Bretton Woods system established this ecosystem by pegging the dollar to gold and linking other world currencies to the dollar.
This arrangement lasted for about 25 years. However, by the late 1960s, the U.S. gold reserves could no longer support the dollar's global dominance. In 1971, President Nixon suspended the dollar's convertibility into gold, ushering in the era of pure fiat (without physical backing).
In the next phase of currency, value derives from sovereign credibility rather than material scarcity. The dollar is valuable because the U.S. government claims it is, and markets, households, and foreign governments believe it. Trust shifted from a physical basis to a political and policy basis.
This profound change provided nations with powerful tools. Monetary policy became a core lever for economic management and geopolitical strategy. However, fiat currency also brought vulnerabilities such as inflation, currency wars, and capital controls. On some levels, flexibility and stability are in opposition. Today, the central question surrounding modern currency structures is not who can create money, but whether we can trust those in power to maintain the value and utility of currency over the long term.
The Digital Manifestation of Currency
The rise of computers and the consumer internet brought forth an important question at the intersection of electrical engineering and finance: Can currency be represented in digital form as bits?
In the 1990s and early 2000s, projects like Mondex, Digicash, and eGold attempted to answer this question, promising new electronic payment and value storage methods. Ultimately, they failed due to regulatory pressure, technical flaws, and a lack of trust and market adaptability.
Meanwhile, electronic banking, credit cards, payment networks, and settlement systems became commonplace. Importantly, these were not new assets but new manifestations of fiat currency, more scalable and suitable for the modern world. However, they remained subject to the same institutional trust and policy frameworks, and crucially, they relied on closed technological systems and operational networks run by rent-seeking intermediaries.
Enter: Stablecoins
Stablecoins leverage this dynamic but reclaim power from corporations by using open, permissionless infrastructure. Fiat-backed stablecoins are inherently hybrid. They inherit the credibility and efficiency attributes of fiat currency while utilizing programmability and global accessibility.
By pegging stablecoins to redeemable reserves, leveraging the credibility of sovereign nations like the United States, their value becomes predictable. Issued on public blockchains, they can settle instantly, operate around the clock, and cross international borders frictionlessly.
We believe the emerging regulatory framework for stablecoins (its intrinsic part of "monetary nature") should align with our core principles regarding how stablecoins serve users.
Permissionless: Individuals should have control over their finances without heavy restrictions imposed by intermediaries on their accounts.
Borderless: Geography should not determine whether someone can make or receive payments, or how long it takes to send or receive payments.
Privacy: Consumers should be able to engage in commercial activities freely without fear of unreasonable surveillance from governments, the private sector, or other consumers.
Trustworthy Neutrality: Global currency flows should be free from discrimination, allowing people from various backgrounds to freely save and use their property.
Conclusion
Stablecoins represent the next step in the evolution of currency. They rely on sovereign credibility like traditional fiat currency, but unlike previous forms of electronic fiat currency (and their payment systems), they separate trust in sovereignty from trust in corporate power. The best currency assets are based on the best currency technology and networks.
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