*Final Question: Hayek and Crypto

Question 1

What school of economics did Hayek belong to?

Answer 1

Hayek belonged to the 20th century Austrian School of Economics!

Question 2

VERY IMPORTANT: What were Hayek’s 5 Ideas relevant to crypto?

Answer 2

Hayek’s ideas relevant to crypto:
1. Anti-gov’t intervention in economy

2. Anti-inflation
3. A stable money system can only come from individual self-interest in the market
4. Denationalizing money is the only way to achieve price stability
5. Market info

Question 3

What was Hayek’s first idea relevant to crypto: Anti-gov’t intervention in economy?

Answer 3

Hayek was anti-gov’t intervention in economy bc:

1. he thought it would lead to loss of freedom and totalitarianism
2. he thinks the gov’t will always fail at supplying stable money

Question 4

What was Hayek’s second idea relevant to crypto: Anti-inflation?

Answer 4

Hayek thought that inflation would lead to the “road of serfdom”

Question 5

What was Hayek’s third idea relevant to crypto: A stable money system can only come from individual self-interest in a free market?

Answer 5

He proposed the THEORY OF SPONTANEOUS ORDER, which says that order in the economy comes spontaneously from individual self-interested actions

Question 6

What was Hayek’s fourth idea relevant to crypto: Denationalizing money is the only way to achieve price stability?

Answer 6

Because he thought this would pave the way for establishment of private fiat money whose price/value is linked to a basket of commodities and is therefore safe from inflation!

Question 7

What’s fiat money vs. private fiat money?

Answer 7

1. Fiat money = traditional money that’s issued/managed by the gov’t
2. Private fiat money = alternative money issued/managed by private institutions, proposed by Hayek!

Question 8

What does denationalizing money mean?

Answer 8

Denationalizing money means removing gov’t monopolies from issuing/managing money by allowing private institutions to do the same, via PRIVATE FIAT MONEY!

Question 9

What’re the 5 properties of private fiat money?

Answer 9

1. It can maintain its value and counter inflation by linking its value to price of basket of commodities
2. Has same 4 properties as traditional (fiat) money: Liquidity, Store of Value, Unit of Account, Medium of exchange/contracts

Question 10

Give example of how private fiat money works to counter inflation when tied to basket of commodities

Answer 10

Let’s say we have a private fiat money currency called Hayeks.

The price of the basket of commodities its tied to increases by 10%, therefore the value/price of Hayeks increases by 10% too!

Question 11

What were Hayek’s intended benefits of private fiat money?

Answer 11

1.Counter inflation, unlike fiat money

2. Gives choice
   
   • allows ppl to choose what currency they use/save
3. Limits gov’t intervention in the economy
   
   • Bc it prevents gov’t from spending money + increasing welfare -> less gov’t debt

Question 12

What’re the properties of traditional fiat money? (4)

Answer 12

1. Liquidity
2. Store of Value
3. Unit of Account
4. Medium of Exchange/Contracts

Question 13

What’s the “Store of Value” property of traditional fiat money?

Answer 13

It maintains its value over time

Question 14

What’s the “Unit of Account” property of traditional fiat money?

Answer 14

It’s used to price goods and services

Question 15

What’s the “Medium of Exchange/Contracts” property of traditional fiat money?

Answer 15

It’s used to exchange g/s between parties OR used in contracts that require payments

Question 16

Compare crypto to the traditional properties of money

Answer 16

Crypto:
1. Liquidity
- ✅ Yes crypto’s liquid

2. Store of Value
   
   • ❌ Crypto’s value is volatile over time
3. Unit of Account
   
   • ❌ g/s are still priced in traditional fiat money, but some merchants accept the current exchange rate of crypto
4. Medium of Exchange/Contracts
   
   • ✅ Yes some merchants accept crypto as payment for g/s, and some employers pay employees in crypto

Question 17

What was Hayek’s fifth idea relevant to crypto: Market Info?

Answer 17

Hayek thought that the press should report daily info on how institutions are managing their currencies!

Question 18

How are Hayek’s ideas SIMILAR to others?

Answer 18

1. Anti-gov’t intervention in the economy
   
   • Idea shared by Adam Smith and Physiocrats’ “laissez faire” attitude
2. Individual self-interest in a free market leads to efficiency
   
   • Idea shared by Adam Smith’s “invisible hand”

Question 19

How are Hayek’s ideas AGAINST others?

Answer 19

1. Anti-socialism and central planning
   
   • Idea went against Marx

Question 20

VERY IMPORTANT: What was Hayek’s impact on crypto? (2)

Answer 20

1. His ideas inspired the decentralization of money and crypto!
2. BUT as of now, we still don’t have a private fiat money/crypto tied to basket of commodities like Hayek proposed
   • BUT if there’s significant inflation, someone might create it to counter inflation

Question 21

Tell me about the 21st-Century Crypto Industry

Answer 21

The 3 most popular cryptocurrencies are
1. Bitcoin
2. Ethereum
3. Tether

Question 22

Tell me about Bitcoin

Answer 22

Bitcoin
1. Biggest crypto, makes up about half of crypto assets

2. Has a limited supply of 21 million, currently at 20 million and its release is slowing down
3. Founded by Satoshi, who published a white paper on Bitcoin’s system

Question 23

Tell me about Ethereum

Answer 23

Ethereum is more like the token for an arcade slot machine, bc it gives you access to the Ethereum platform and gambling on odds of something occurring (like the Presidential election winner)

Question 24

Tell me about Tether

Answer 24

Tether is a STABLE crypto! Bc the value of a token is TETHERED to the value of the US Dollar

So its value always remains $1!