The battle of cryptocurrencies isn't going to crown a victor for how useful it is as spending money. Tokens don't meaningfully maintain their store of value. Looking at variance over the last year, Bitcoin has a 152.99% standard deviation around its base value. That's great if you're on the upside of the curve and ruinous if you're on the downside.

For comparison, the S&P 500's standard deviation typically hovers around 15-20%. And the dollar is far lower still. That's as-intended: the dollar is benchmarked against purchasing power parity, not intended IRR. The level of volatility alone makes crypto fundamentally unsuitable for everyday transactions.

Money conventionally needs 3 things to have staying power: a medium of exchange, a store of value, and a unit of account. The problem is that cryptocurrencies are trying to fulfill all three roles simultaneously while operating outside traditional financial frameworks. This creates fundamental tensions that haven't been resolved. A grocery bill can't fluctuate by 50% week to week, or trying to make payroll when your treasury's value can halve overnight. When they do (see Argentina in 2022), it creates a lot of pain and people end up leaving the Peso and switching to the US Dollar.

But there's a distinction here: accepting cryptocurrency as payment that has a value itself, versus accepting money that's proved and programmed on the blockchain. Enter: fiat currencies. Fiat tokens are backed by 1:1 reserves of the underlying currency. Just like USD used to be back in the gold standard days. If you have a fiat token, you can redeem it for the underlying currency at any time. That keeps its value in the market stable: if there are ever market fluctuations away from its underlying value, there's a fail-safe arbitrage strategy to bring it back to parity.

Cryptocurrencies are going to separate winners from losers based on how easy and reliable their APIs are to trade fiat money from other sources. This is where the real innovation lies - not in replacing traditional currency, but in making it programmable. The cryptocurrency projects that succeed will be the ones that create robust, developer-friendly interfaces for moving and manipulating money programmatically, while maintaining compliance with existing financial regulations. Maybe that's on a blockchain with proof of stake or maybe it's a centralized system that's still open to the world.

Blockchains

Most tokens try to be everything to everyone.

Bitcoin in this world is a gold equivalent. It's scarce and hard to produce. Because it's on the blockchain paid for by its own demonination, it's also increasingly expensive to trade. It doesn't attempt to be easily tradable and useable as currency. This is actually one of its strengths - by focusing solely on being a store of value (debatable as that may be), it avoids the complexity of trying to play different roles. The Bitcoin network's deliberate limitations and focus on security over programmability reflect this singular purpose.

Ethereum, on the other hand, is valuable in so far as it can be used to facilitate transactions that are recorded on its chain. Its true innovation isn't in being a currency, but in being a platform for programmable financial interactions. Smart contracts, DeFi protocols, and tokenization all leverage this programmability. Yet it's still traded and treated as an appreciating asset, which in turn makes it more expensive to use as a medium of exchange.

Human inputs aren't an oracle

Stripe charges merchants 2.9% + $0.30 per transaction. Visa charges 2.25% per transaction. Companies either eat into their profit margins or tack on added fees to consumers to cover the cost of these transactions. These fees aren't arbitrary - they represent the cost of maintaining the traditional financial infrastructure, including fraud prevention, chargebacks, and compliance. But they also represent an opportunity for disruption through programmable money systems that can potentially operate with lower overhead.

The world isn't trust-less and can never entirely be. This is a fundamental limitation that no blockchain can overcome. The crypto world's obsession with removing trust from the equation is misguided - what we really need is better ways to manage and validate trust.

You're buying a house and have locked the money in a smart contract escrow, conditioned on it passing a professional audit. An auditor investigates and determines the home doesn't pass on three criteria. The owner offers to fix the issues and a few weeks later it passes the inspection. The decision to release or not release escrow needs real world input from the auditor, which means you're still placing trust in an outside party. This example illustrates a crucial point: smart contracts can't eliminate the need for trusted human judgment - they can only help structure and formalize how we handle that trust.

Jurisdiction

No matter how well-written a contract is, you need some level of outside interpretation to make it meaningful. That's what court systems are for. Smart contracts don't eliminate this need - they just shift where and how human judgment enters the system.

Most individuals interact with a bank that is accredited in their region, which also means that the bank needs to abide by the laws of the region. You're guaranteed you're protected from downside by courts that can enforce the contract and can reason about the intent of the contract with a reasonable observer. This jurisdictional framework, while it sometimes gets things wrong, provides essential protections and clarity for personal property.

It also gives people an escape hatch when things go south: there's someone to sue, and someone else to consider the initially unconsidered. Your average person likes knowing there's something to be done instead of digging in a dump for years on end.

Ambiguity is a feature, not a bug, of conventional financial systems. There's nothing inherently wrong with that.¹

The Federal Reserve

It's not the ambiguity of legacy finance that's holding it back. It's the legacy tech stacks that banks work with. The trading and technical innovation of blockchain is thriving in part because of it's outside of the legacy structures (and legislation) that banks must operate within. Try getting an API key to move around vanilla USD. I'll wait.

The primitive of exchanging dollars is simple in theory. You have money somewhere² and you need to move it somewhere else. It's a simple (to, from, amount) tuple. But the reality is that the dollar is a complex system that's built on top of a complex system that's built on top of a complex system. SWIFT is built on FTP files. ACH is transferred in batch jobs every 24 hours. All this logic and waiting to just change floating points in the Fed (or TCH) database. That's not even discussing modern stock trades that need to track cost bases and ownership interest.

We're still stuck in a world where we think that money is a physical object that's moving from one place to another. It's not. And we could do wonders of innovation in financial systems without abandoning legacy money if we just embraced that fact. The Fed is long overdue for a well thought-out API, accessible to startups and big banks alike.

The future of money

The future of money isn't about eliminating traditional financial systems or human judgment - it's about making those systems more programmable while maintaining their essential protections. The winners in this space will be the ones who figure out how to bridge the gap between programmable money and institutional trust, not those who try to eliminate trust entirely.