A blockchain is essentially a trust machine. It is able to gain people’s trust and ensure that some data or information remains unchanged forever. People started talking about the possibility that we can create sound money based on blockchain technology. We know how sound money looks from the economic point of view but we do have not a clear definition of how it should look from the technological point of view. Let’s explore how far we are and what we still have to achieve. We do not know the answers to all possible questions. Do not hesitate to let us know what you think about the topic.
Sound money and gold standard
Sound money is a kind of money that is not prone to sudden appreciation or depreciation in purchasing power over the long term. The stability of sound money is achieved through self-correcting mechanisms that are part of the free market system. We can say that supply and demand determine the purchasing power of sound money.
The concept of sound money evolved in the 19th century as many countries adopted the gold standard. It became associated with commodity money or hard currency. The country currencies or paper money has a value directly linked to gold. Countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. It was always difficult to handle physical gold so that as early as the 19th century, gold served only as an underlying asset for paper and metal money.
For half a century beginning in 1879, Americans could trade in $20.67 for an ounce of gold. The country effectively abandoned the gold standard in 1933 as the Great Depression hit. Faced with mounting unemployment and spiraling deflation, the U.S. government found it could do little to stimulate the economy. To deter people from cashing in deposits and depleting the gold supply, the U.S. and other governments had to keep interest rates high, but that made it too expensive for people and businesses to borrow. So in 1933, President Franklin D. Roosevelt cut the dollar’s ties with gold, allowing the government to pump money into the economy and lower interest rates. The United States followed the gold standard until August 15, 1971, when President Richard Nixon announced that the government…