On Crypto as Currency and Allocation of Resources
As a life student of micro/macro economics, the theory of cryptocurrencies with the objective to create a new, decentralized, financial system in a global economy was bound to pique my interest. The application of the fundamentals of economic theory as applied especially to crypto has become a pastime, a hobby, a passion.
By way of introduction, I studied business in the mid 1980s, with an emphasis on cost accounting and related topics of economics, marketing, business law, and business psychology. My career has been varied—owning several retail firms, holding various accounting positions, and operating a contracting business in the landscape industry.
Currently, I concentrate on rideshare, continue to freelance in the landscape industry, am treasurer for a large church organization, and dabble in business consulting on the side. My original studies have benefitted me in all personal and professional aspects of my life.
My first steps into the crypto arena came when I watched Bitcoin go to $32K and beyond in early 2021. After mentioning it to my brother, a CPA and an alternative investor (read degen), he told me he had bought a ‘few’ bitcoins 10 years earlier, and then promptly forgot about them.
He was stunned about the advancement of Bitcoin and re-entered the space as a researcher and serious investor. So in January 2021, I too entered the cryptosphere, more as a lark than anything else, but with investment as a primary goal.
Yes, I wanted to become a billionaire overnight, just like everyone else. I bought $300 worth of crypto, split evenly between Bitcoin, Ethereum, and XRP. Over the next six months, I stumbled around the space, researching crypto, exchanges, tokens, and various other projects.
It was with the growth of $DOGE (thank you, Mr. Musk) that I seriously started budgeting a small part of my income for crypto investment and acquiring small amounts here and there. Keeping in mind the popular advice not to invest more than you can afford to lose, even today I am nothing but a very small retail investor.
In mid-2021, I learned about SHIB, and when the exchange I was using listed SHIB, I sold everything crypto and went all in on SHIB. Where I have stayed ever since.
I read and re-read “I am Ryoshi.” I was enthralled with his character, his psychological understanding, his scope of vision (which I immediately recognized as beyond my capacity to comprehend), his use of basic logic, and his understanding of economic fundamentals.
And so I adopted his vision of a sustainable, decentralized, autonomous community. I took his advice to “trust the process.” I re-read his Medium, attempting to understand the nuances of the parameters he laid out.
And I followed the progress of the development team as they sought to implement his vision. I was ecstatic because of how close they were to the original proposals by Ryoshi, in the development of protocols, the launching of projects, the alignment in vision, even down to the specific location of the first official ShibaCon, as we were recently advised about.
The main assurance of economic feasibility that I found in his writings was the understanding of currency theory. One of the first and most important economic principles of currency theory is that the value of the medium of exchange must remain very stable.
Volatility in price automatically renders an item as unsuitable as currency. All parties to the exchange must agree on the value of the medium.
And in understanding cashflow principles, were the value to change quickly, especially downward, the value received at the time of exchange would not cover necessary outflows, i.e., if the value decreased by 5-10% within a short time, we cannot pay the rent and employees’ wages… Hence the rise and prominence of stablecoins.
Ryoshi seemed to understand this concept, more so perhaps than some of his contemporaries. For the vision he proposed included the creation of a stablecoin, $SHI.
He never proposed that $SHIB become a general currency, though perhaps he envisioned it as an ecosystem currency, such as using SHIB to buy metaverse lands or Shiboshis, for example. His last lines of the “I am Ryoshi” Medium, “My vision is the core Ecosystem tokens SHIB, LEASH, BONE, and TREAT all performing their utility while SHI slowly but surely becomes the immutable globalized exchange of value,” proves his understanding of the role of ‘the SHIBA’ in real life.
He then gives an example of a fish market vendor in Durbs to illustrate. That he could incorporate this theory into his vision shows a good grasp of economic principles, perhaps something we sometimes forget.
That some establishments will accept $SHIB or any crypto as payment does not negate the theory. Perhaps they have a higher risk tolerance on revenues, and/or have an investment component in their budget. But overall, volatile prices in mediums of exchange will not work.
What about firms that offer different crypto payment protocols? Because of the general economic principles discussed, these payment methods must include instant and automatic conversion to fiat before exchange.
Conversion produces costs and the processor will recoup these costs in some type of service fees. And we will be right back into a traditional finance-type banking system, the transfer of funds at a cost, and then how will crypto be an improvement on the traditional?
There is evidence that Ryoshi thought all of this through before exiting the space.
Exorbitant service fees for transactions that literally cost minute fractions of pennies to execute. By the way, Shibarium, as envisioned by Ryoshi, seeks to break this mold, make transacting affordable to all, with no entity getting rich off ‘teh people’.
Many sellers, in anticipating increased costs and increased risk, will set a hedge by putting a premium on the price of the product, thus making the product more expensive when purchased with crypto than when purchased with fiat. Buyers must be alert to this and to the possibility that it may be cheaper in the long run to convert their crypto to fiat themselves and complete the purchase with fiat.
That Ryoshi understood all of this and incorporated this fundamental economic theory into his roadmap was a decisive factor to me, and thus he gained my full respect and support, and it has not wavered since.
The discussion on crypto as a currency leads to a discussion on the objectives of holders. Is the goal to use crypto as a currency, wherein prices must remain very stable over the long run or as an investment instrument in which the holder hopes the value of the token appreciates overtime?
My life studies and experiences teach me that goals must be specified, recorded, and referred to constantly to guarantee desired progress. So holders must be convinced of their goals before participating in the game.
As such, currency vs. investment objectives are counterproductive. Obviously, the main factor in price is the volume of buys.
Cumulative sells will lower the price of a token. So using a token as currency will effectively lower the price of that token. When you buy other tokens, NFTs, services, or physical goods using $SHIB, you lower the price of $SHIB to some degree.
This brings the discussion to allocation of resources, the number one dilemma that economic theory has been trying to solve since history began. Allocation of resources discussion is the primary focus of economic theory.
It is not rocket science, and the concept is common to every individual, both in personal and professional aspects of their life. Every person must make allocation decisions constantly.
The concept is easy. I have $10. How do I spend it?
Do I purchase another beer at the bar Friday night after the game, or do I spend $10 more on a nicer birthday gift for my wife? Time, skills, and energy are other valuable resources, but as our interest is DeFi, money is a good resource to use as an example for discussion.
So, my opinion is that this discussion, though understood subconsciously by all, is seldom thought about and not always applied in practice.
So the formula is very easy. Sell, the price goes down (however minimal); buy, the price goes up. If you swap $SHIB for $BONE, the price of SHIB will go down, the price of BONE will go up.
The developers were keenly aware of this formula as they designed and implemented the burning mechanism on Shibarium. Since the transaction effectively sold BONE and bought SHIB, positive impacts on one token may be offset by negative impacts on another token. It is not an easy task.
The SHIB ecosystem is growing exponentially, partially due to a steady inflow of collaborations and partners. These are necessary for growth, especially in sectors where they have substantial skills.
We also recognize the importance of many and varied projects using Shibarium, whether they be tokens, swaps, NFT collections, services, or whatever. Shibarium’s success (and genius) will only be seen in its utilization.
ALL projects, platforms, and collections which integrate the Shibarium L2 protocol deserves the ShibArmy’s moral and financial support. However, the downside of expanding support to other projects is the watering down or thinning out of support for the $SHIB token itself as a mirror consequence.
It is critical to keep this in focus as we make our allocation of resources decisions. Zoom out a little bit. I have grown and learned as I wandered the ecosystem. I have survived the June 2022 crypto crash and the subsequent yoyo markets.
I have experienced discouragement and doubts. I have made many great crypto friends that have gone out of their way to teach me, and to assist me, and make my path easier, who I cannot appreciate and thank enough.
I have vehemently fought with the scammers, the fudders, and the haters. I have been slapped in the face and insulted by the best. I have attempted at all times to remain cordial, respectful, and professional, and will continue to do so.
I am not wealthy, and I have few tech skills or talents to offer, but I will go on with my primary goals to defend, promote, and encourage the brand and all those who walk with us. I do not present myself as an expert or an authority, but as a committed enthusiast.
The past three years that I have been an active Shibizen, a proud member of ShibArmy, and an even prouder qualified candidate to introduce myself as ‘I am Ryoshi’ have been extremely satisfying. I have honored the Shiba and will continue to do so. I look forward to what the near and distant future holds for our Shiba state, our community.
I continue forward with two very important reminders as mantras (ty friend):
“Evil is everywhere. Be Ryoshi.”
“Real, not tcefrep.”
