There is a type of coin within crypto ecosystems that generate a lot of controversy. They are extremely useful and much like the ideal version of ordinary money: the stable crypto-currencies known as “stablecoins”. However, many holders of cryptocurrencies use stablecoins as if they were something other than fiat money.
Users may subconsciously think all stablecoins are ‘Cryptos’ that magically manage to maintain a stable price. As a result, these magical coins deserve the label of “Cryptos”. However, there might be a serious psychological misperception playing a trick on us here. Maybe not all stablecoins are Cryptos. Some could be plain fiat.
One of the infinite number of research fields that articulates how to be the underlying scientific fundamental of the study of “value” as it happens in Cryptocurrencies is that of Crypto Psychology. As one kind of objective Psychology, this field will have the task of explaining how the phenomenon of value-emergence or value-experience takes place.
Also, it will be a natural task for Crypto Psychology to explain the tricks that happen within our minds that make it possible for greedy people to scam us of our values or convince us to give our value to them without them paying us back with a fair benefit in exchange, even in a lawful way .
One of the tricks in ours minds that such people actually use is the cognitive bias that let us consider the possibility that a stable token cannot be fiat because it is on the Blockchain. Since it works on top of this sacred technology, maybe even fueled by the divine technology of Proof-of-Work, it simply doesn’t not look or feel like fiat.
It cannot be fiat. How can legitimate real fiat penetrate inside a Blockchain? This is not possible. The Blockchain is pure transparent water. Fiat is oil. Oil could never dilute in a hydrophilic medium. Oil is hydrophobic. It would be repelled. It is tempting to believe that fiat is oil. Well, let’s consider a few facts that can make us doubt our own minds and suspect some stablecoins are wolves disguised as sheep.
Our minds, as crypto-indoctrinated believers, are trained to think that Blockchain is a fiat-killer. We are psychologically biased to think that the Blockchain cannot work as a fiat-promoter, a fiat-booster or just a new type of fiat-platform. But, even our biased emotions of passionate blockchain lovers are capable to turn things around a little and see them from a different perspective.
If one dedicates a few minutes of research, it represents an easy task to realize how a certain type of value is born in a centralized or a decentralized way, and how this value can be represented in one way or several. We tend to see Bitcoin as fairly decentralized, XRP as less decentralized and US Dollars as totally centralized depending on how they issue and control value.
Also, a dollar is a dollar no matter how it is represented. Its origin is a centralized power and a centralized system of value management: the Federal Reserve of the United States of America. You do not mind much if one dollar is expressed physically as one dollar bill made out of paper, as 10 dimes, as one coupon provided by a national institution, as a check signed by your boss or as electronic data embedded in your debit card. One dollar is one dollar. It’s value under the issuance and control of the Federal Reserve.
Who can’t remember the Traveler’s Checks that were so prevalent in the past? A TC is a means of exchange that serves to pay for goods and services. It is not exactly a dollar or a euro issued by an official central bank. However, it is equally valid and can be used in place of a strong currency. TCs are usually denominated in one of the main world currencies. There are TCs representing dollars, euros, yen and many other official currencies. TCs are valid and protected by the laws of many countries.
How does a basic TC work? A ticket that has a value of 100 USD, for example, is backed by 100 real US dollars locked in an audited bank account in the United States. This ticket is a representation of those real 100 USD that exist in the audited account. When one transacts with this ticket out in the world, they are actually doing so using the value of the 100 dollars locked in the U.S. bank account.
You are using value issued and controlled by the U.S. Federal Reserve. Your TC by itself is just a piece of paper. Its value is based on that contained in the original 100 dollars issued by the government of the United States. For TC users, it has always been easy to understand that those tickets were not a different kind of currency, in the same way you don’t get confused with the electronic dollars that you have in your debit card; respectively, they each represent regular paper dollar bills issued by the U.S. Federal Reserve.
Stable cryptocurrencies fully backed by fiat, then, are fiat. The value of one crypto dollar backed one real dollar, is value under issuance and control of the United States. Sociologically speaking, it is not ‘Crypto’ even if it is fueled by the cryptographic algorithms of a Blockchain. Engineers have created Blockchains that are totally open and public. Anybody can build on top of a Blockchain, even those who transact with value under the control of centralized authorities similar to fiat money.
Probably the most common example is Tether token, USDT. This is a token whose value is pegged to the US Dollar. Each USDT is backed by one real US dollar locked in an audited bank account in the United States. Tether tokens are stored in the Bitcoin Blockchain through a technology called OMNI Protocol. If you have Tether tokens, you can transact with them and your transaction will be stored like that of a Bitcoin transaction processed by Bitcoin miners.
However, we should not let our minds believe that being part of Bitcoin’s transactions means that the value of a Tether token is derived from the technology of its Blockchain. On the contrary, one could argue that Tether tokens are leveraging Bitcoin’s technology while paying only transaction fees as contribution.
Tether uses Bitcoin’s Blockchain, but their tokenized dollars are 100% US-issued value. Tokens live inside the Bitcoin Network, but the value they carry is not intrinsic to its Blockchain. The value of this tokenized fiat is linked only to the power and legitimization of its issuer, the United States.
What makes fiat “fiat” is the source of its value, not the paper that represents the value or the electronic data on the internet. When one buys one Bitcoin, one is investing in the technology and the vision of a decentralized financial system. When one buys a Tether token or any other USD-backed stablecoin, one is investing in the centralized authority who issued the original coins and in the vision of that issuer.