Real Money vs Cryptocurrency

By Paul VanRaden

December 7, 2025

History of real money

Money lets people buy or sell their products and labor instead of needing to trade their goods or labor for someone else’s goods or labor. Gold or silver coins of standard size and purity made trading easier than exchanging other goods or labor. Later, paper currency was easier to carry than coins and safer to trace and verify using its unique serial numbers. Checks were even easier and safer because recipients had to show an identification card at a bank to cash or deposit the check.

Electronic payment systems are now much faster than checks and often even safer using secure, encrypted, password-protected transfer of information between computers or phones of banks, customers, and sellers. Cryptocurrency is an attempt to do the same thing but using privately generated money instead of government generated money and replacing bank fees by extra computing fees. Transactions use multiple copies of the accounting entries stored at many locations instead of bank-to-bank transfers.

Exchange rate changes cause extra risk and confusion when doing business in more than 1 currency. In smaller countries, most goods may be imported or exported instead of locally produced. For stability, Panama, Ecuador, and several other smaller countries and territories directly use US$ instead of creating their own currency. After extreme inflation, Zimbabwe recently tried to use US$ but gave up because that country had too few US$ for its transactions. Argentina tried to keep its peso equal to $1 US from 1991-2002 but had to give up, and the peso fell from a value of $1 to about $0.34 a year later. In December 2025, their peso is now worth $0.0007 US. Instead, Argentina could have fully converted with help from the US.

Many countries in Europe agree to retire their local currencies and convert those into brand new Euros in 2002. Since then, they do not worry about exchange rates within the Euro zone. The initial target exchange rate of the Euro and U.S. dollar was 1.0. Rates across all 25 years ranged from 0.83 to 1.58, but with a narrower range from 0.97 to 1.24 in the last 10 years. Currently, $1.16 will buy 1 Euro. Similarly, in the last 10 years the conversion of Canadian to US$ ranged from 1.21 to 1.45. Exchange rates between many major currencies are stable if governments have similar policies because their land and population sizes are stable.

The opposite can happen even with major currencies such as the Soviet ruble, which split into the Russian ruble and 16 other currencies in 1993. Soon after that the Czechoslovak krona and Yugoslav dinar split into several new currencies, but some regions later switched to the Euro. Instead of a market economy, the Soviets had fixed prices and a command economy that fell part quickly. The new nations with taxpayers on land previously controlled mostly by Moscow had to create new currencies quickly. The United States had 2 different currencies from 1861-1865. The Confederate dollars used in the southern states were valued at $1 in 1861 but only $0.03 near the end of the civil war and then fell to $0.00 after the states reunited.

Within a country, states must balance their budgets and cannot decide to use their own currency and just print more of it. Greece’s financial troubles and high debt in 2015 almost caused it to leave the Euro zone but Europe and the IMF helped rescue it to preserve trust in their whole currency. In a few cases, cities have declared bankruptcy such as Detroit in 2013, but no U.S. states have become bankrupt, other than the whole southern Confederacy when the north stopped it from printing dollars and owning humans.

Currency is usually a natural monopoly within countries, making prices easier to compare and buying or selling simpler. “A powerful argument for the one country – one currency pattern is that it is difficult to negotiate national budgets if sub-groups have a choice of currency in which to pay taxes or receive expenditures.” National governments usually govern well defined areas of land and do not need to hold gold because they can tax the people, property, and services on that land and require them to use their national currency to pay those taxes. When everyone uses the same currency within a country, their main worry is about inflation or deflation causing future prices of real goods or labor to change unexpectedly.

Inflation rates in different countries tend to rise or fall together across much of the world because linked economies affect each other. For example, many governments rediscovered in 2022 that prices go up if you give everyone more money without more stuff available to buy. Inflation rose to 7% in USA, 7% in Canada, 8% in Mexico, 11% in Europe, and 12% in Russia. The worst inflation rates that year were 92% in Argentina, 156% in Venezuela, and 244% in Zimbabwe.

The most recent inflation rates in 2025 are 3.0% in USA, 2.2% in Canada, 3.6% in Mexico, 2.2% in Europe, and 7.7% in Russia. Inflation is now 31% in Argentina, 172% in Venezuela, and 19% in Zimbabwe. Brain-dead politicians and news reporters always ignore the world and report that Biden had 7% inflation, but Trump has 3%. The real news is that USA had a little less inflation than most countries in 2022 and a little more in 2025, and inflation rates are tied more to the world than the local economy.

The International Monetary Fund acts as a reserve bank for the world, analogous to the US Federal Reserve Bank. It can lend to national banks an index of 5 major currencies known as Special Drawing Rights, analogous to mutual funds of stocks. In 2021, IMF loaned the equivalent of half a trillion US$ and in 2009 loaned a quarter trillion US$ after the 2008 global financial collapse. Some inflation in 2022 was likely due to that extra money. Federal banks and world banks are supposed to lend new money in emergencies to prevent bank failures and panic that led to the Great Depression. In the 1930s, bank failures, deflation, and unemployment also affected much of the world at the same time.

Milton Friedman was a very respected economist who wanted to limit government but concluded in 1962, p. 30, that: “Government responsibility for the monetary system has long been recognized. It is explicitly provided for in the constitutional provision which gives Congress the power ‘to coin money, regulate the value thereof, and of foreign coin.’ There is probably no other area of economic activity with respect to which government action has been so uniformly accepted.”

Cryptocurrency

Cryptocurrencies are developed for use across national borders and controlled by independent computers rather than by central banks or national governments. Business has become more global and exchange rate changes still cause some risk. Thus, a global currency could reduce risks, but no global government exists to issue the currency. Creating a useful global government and replacing national currencies by a more global currency such as Earthos is a better long-term strategy than creating many new cryptocurrencies. Values of cryptocoins can rise or fall very quickly because the computers that generate them possess no real assets, only transaction tables recording purchases and sales of electrons.

Bitcoin prices in U.S. dollars change up and down more than 20% almost every month with very huge changes across the 10 years of existence. For example, during the month before I wrote this (November, 2025) the price rose to 106,000 on Nov 10 and then fell to 82,000 on Nov 21. Bitcoins are receipts for computing previously done. They have no real value but are designed to have speculative value. The original paper makes an analogy to mining gold, but gold has real value. “Mining” a new bitcoin requires many hours of computing and most of the cost is electricity rather than hardware. Some of the computing is useful to ensure that transactions are recorded securely, but banks secure their money and their transactions without wasting resources. Governments and the IMF can issue money and provide liquidity when needed to prevent panic.

Competing cryptocurrencies may each become popular for a while and gain value or become unpopular and lose value very quickly. They can lose 100% of their value, as Confederate dollars did. Deposits of real currency in banks are mostly regulated, stable, well run, efficient, and insured. During my 50 years of banking, whenever I asked and showed my ID or logged in with a password, banks always gave me my deposits and savings back, plus interest. About 10-20% of bitcoins were lost because people lost their password or died with no way for beneficiaries to access their secret money. Credit card companies charge small transaction fees to help resolve mistakes and detect fraud, whereas cryptocurrencies are preferred by people who commit crimes and fraud.

A blockchain stores copies of information in a series linked across time. Each next block contains information about the previous blocks. Modifying any block makes it disagree with the next, but in theory, a major government or a very large company could attack the blockchain with many computers at once and take over its majority rule system. China and several other countries have made the use of or mining of cryptocurrencies illegal. If you already hold cryptocoins and your government makes them illegal to use, can you sell them? I am not sure.

The U.S. government now promotes cryptocurrency only because the U.S. President’s family now makes huge profits from selling cryptocoins, which are an excellent way to disguise illegal gifts and bribes. Elected leaders are supposed to work for the taxpayers instead of running their own for-profit businesses or being paid by others. The U.S. Constitution forbids a president from receiving any foreign gifts. Elected leaders, their families, and politicians could get rich by buying cryptocoins, then using taxpayer dollars to buy more cryptocoins and drive the price up, and then selling what the politicians own. They could repeat the cycle by buying a different cryptocurrency or selling what the taxpayers own to drive the price back down, buy cheap, and sell high several times again to get filthy rich at taxpayer expense.

Conclusions

National currencies have served most nations very well. Nations can work together as in the International Monetary Fund to make their currencies more stable. Nations can also retire and replace their individual currencies with a new, joint currency such as many nations in Europe did to create the Euro. A real global currency (Eartho) much larger than the Euro and created by more nations in a global government seems more sensible than adding cryptocurrencies. More importantly, a global government could solve many other, more severe problems that individual nations and the United Nations are not solving and not capable of solving.

Maintaining many national currencies plus using multiple cryptocurrencies makes money harder to understand and creates more exchange rates that are less stable. Values of cryptocurrencies could go up or down very much. They have little purpose and seem like routine gambling, but they waste much more energy than our current monetary system. I do not gamble and so I will not buy or use any cryptocoins, only stable, real money from banks and governments with decades of experience and stability. But someday your currency and my U.S. dollars could be replaced by a real global currency that we all can use, created and managed by a global democracy elected by Earth’s citizens. That will be real progress.

References

Confederate States dollar - Wikipedia

Bank Holiday of 1933 | Federal Reserve History

Convertibility plan - Wikipedia [Argentina]

Dollarization in Argentina - Federal Reserve Bank of Chicago

How Many Countries Use the Dollar as Their Currency in 2025?

Zimbabwe's New Currency: Why It Ditched the US Dollar

Currency Union and Disunion in Europe and the Former Soviet Union

Post-Communist Transition and Monetary Disintegration

Inflation Rate - By Country

What is the IMF?

What is the SDR?