In the world we now live in, where almost everything we need is facilitated with a few clicks on a computer keyboard, whether on a laptop or a mobile phone, nanoseconds speed of verifiable access to money, or stored assured value, is the constant denominator that is required. Along with the digital transformation of everything around us, digitized money is, of course, now the civilized norm for the exchange of values.

The manner of trade for one’s needs against another person’s wants has evolved for man over eons of civilization. An orderly barter or an exchange of products or services of equal value for another has always been how societies have thrived without having to resort to an unlawful, forcible possession of another man’s ownership of earthly goods or ability to provide a service.

The practice of an equal exchange of values, although ideal in theory, was not entirely without its difficulties. What if the perceived values are deemed to be grossly unequal? Or what if the timing of one’s need did not coincide with another’s want? Or what if the desired exchange extended beyond one’s community? Who or what would ensure that the promised exchange would be faithfully carried out?

To cope with such difficulties, thus, man early on started to resort to currencies to denote reserved values, from small shiny objects such as cowrie shells due to their durability and aesthetic appeal, to, over time, precious metals such as bronze, silver, and gold used to mint coins stamped with symbols and seals to denote authenticity and value.

Eventually, sometime in the 9th century in China during the Tang Dynasty, to facilitate ease of trade and transport of the exchanged objects of value, paper money guaranteed by the Emperor that it was backstopped by reserves of precious metals became the norm of exchange, the forerunner of government-issued promissory notes.

Interestingly, even back then, like today, concerns about the ability of the issuer to make good on the promised value, fluctuations in value, the authenticity and counterfeiting of the notes, as a consequence, hounded the practice of using the promissory notes. (Source: History Cooperative)

These very same disquieting problems gave rise to the evolution of various modes of exchange to determine the value of a currency, such as the silver and gold standards pegged to the US dollar to today’s maze of different virtual digitized assets, or cryptocurrencies, which promise to some degree, speed of exchange, reliability of values, and authenticity driven primarily by blockchain technology.

Blockchain is a secure, decentralized, distributed ledger, or database of transactions, meaning no single entity but all the users collectively are in control of the data, and once the transactions are recorded, they become immutable and visible to everyone in the chain.

Currently, the apparent go-to crypto rapidly gaining in acceptance is stablecoins. For the uninitiated in cryptos like yours truly, and probably for the majority of the world’s investing population, what, in fact, are stablecoins and why has it gained momentum?

Stablecoins are digital tokens which are representations of underlying values, pegged and backed up by reserves of stable virtual or tangible assets, such as a country’s fiat currency (still very much the US dollar), a basket of precious metals like gold or silver, or US government-issued treasury bonds, or by algorithmic mechanisms (a system design meant to achieve desired self-interest outcome using game theory principles: source–Britannica).

A significant feature favoring stablecoins is that peer-to-peer counterparties can directly settle remittance transactions in minutes compared to the lengthy timeline typical of traditional bank remittance channels, and for significantly lower fees. This is especially important for countries such as the Philippines with significant overseas workers who regularly remit funds back home.

Bypassing the intermediary banks using stablecoins would indeed be a boon, but educating users and regulating the providers are critical prerequisites for stablecoins to truly take off.

Until next week… OBF!

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