Few would deny that we’re currently in the eye of a perfect economic storm, one that is fraught with skyrocketing levels of inflation coupled with mass layoffs being conducted at an earth-shattering scale. Creative freelancers may be used to dealing with seasonal work, poorly defined job scapes, and delays in payment, but there comes a point where people have to put their foot down and say, enough is enough. Is there a way for freelancers to tap into technological developments to establish income flows that are faster, safer, and more secure?
At Freelancer Nation, we have not been shy about our advocacy for Decentralised Finance (DeFi) as an alternative mode of payment. While we definitely recognise the high level of risk and uncertainty within the world of DeFi and cryptocurrency, its potential as an alternative store of value during these volatile times cannot be ignored. That’s why we’ll be exploring how creative freelancers can integrate DeFi modes of payment (safely) into their cash flow.
The depreciating value of fiat currency
Fiat money as it is used today is a collectively accepted representation of value that does not have any intrinsic value in itself. It was first introduced in the 1970s as an alternative to commodity money that was created from gold and silver, as well as representative money that were tokens that could be used to claim said precious metals. The decoupling of fiat money from precious metals, however, has since forced its value to be tied tightly to decisions made by governments, central banks, and the confidence of the masses instead.
To illustrate this point, consider what you can purchase with $100. Most people would agree that what could be purchased with $100 today has much less value than what it could be purchased with 50 years ago. General consensus also says that $100 will fetch you far fewer things 50 years into the future. In other words, fiat currency, while our most stable method to store value, is almost guaranteed to be devalued over time.
Of course, governments and central banks can slow down the depreciation process through a slew of strategies. Some of the most common ones include guarding against counterfeiting, managing money supply by printing conservatively, adjusting the interest rates for borrowing, all of which raise or lower the value of a nation’s fiat currency.
While it works well within most jurisdictions, history has shown us that the results of ineffective monetary policy can prove devastating. For example, when Zimbabwe lost 99.9% of its currency value in the 2000s, even printing notes in denominations of as high as 100-trillion Zimbabwean dollars wasn’t enough to save the currency, which eventually led to foreign currency being circulated within the territory instead. More recently, Sri Lanka experienced a hyperinflation crisis after decades of frequent borrowing which depreciated the Sri Lankan currency.
And while stable economies are unlikely to experience such catastrophic levels of hyperinflation, recent responses to Covid-19 such as money injections to stimulate growth also play a small part in the rising cost-of-living. Of course, factors such as political instability and disruptions in supply chain play more significant roles, but suffice to say governments and central banks have their hands tied when it comes to controlling the absolute value of fiat currencies.
Advantages fiat currency
We’re not asking anyone to throw away fiat cash altogether. Doing so would obviously be very challenging in a world that quite literally runs on fiat. Clearly, there are intrinsic advantages of the prevailing system that allows it to achieve widespread adoption, the most notable ones of which include:
- Accessibility: Most paying clients continue to use fiat as their primary form of payment, making it the easiest way for freelancers to receive payment not just in Singapore, but all across the globe.
- Stability: Despite the aforementioned criticisms, fiat undeniably remains the most stable form of currency in today’s economy. Storing a significant proportion of your wealth or business fund as fiat will therefore provide predictability needed for both freelancers and solopreneurs to perform financial projections and budget for business expenditure.
- Security: The bulk of cybersecurity developments circle around protecting fiat payment systems and the banks which store our savings. With good cybersecurity hygiene, most fiat transactions carried out through trusted banks are reliable for the most part.
Are cryptocurrency-based DeFi systems an alternative to fiat currency?
For all its advantages, fiat is certainly not the first form of monetary exchange handled by mankind, and it likely won’t be the last. The earliest civilisations bartered for items of their desire with livestock, before phasing them out for cowrie shells as a more portable form of money. Given the intrinsic limitations of fiat, could the next form of currency be upon us?
Cryptocurrency promises to circumvent the weaknesses of fiat by distributing the power and control that governments and central banks have to decentralised blockchain networks. Instead of relying on singular government or financial bodies to come up with the right policy, DeFi policies are determined by consensus mechanisms and written within transparent protocol codebases.
This means that cryptocurrency exchanges can be validated and recorded by a decentralised network of participants, much like informal bartering systems of the past. By extension, the value of goods can also be determined by what a particular community deems it to be worth, instead of being susceptible to large economic forces outside of one’s control. In simple terms, the value of each crypto unit depends firmly on prevailing crypto market prices that are largely independent of the external economy.
The advantages of cryptocurrency and DeFi
None of this would mean anything if there wasn’t general consensus on cryptocurrency’s worth. Just like how Monopoly money has no perceived value outside of the game, cryptocurrency’s impact as a currency is only as large as the community that is willing to accept it.
The good news is that unlike the early days of 2009 when many were hesitant to accept cryptocurrency as a store of value, far more people, and governments, around the world have started to integrate cryptocurrencies and their associated technologies into their nation systems. El Salvador was the first nation to adopt Bitcoin as legal tender in 2021, and China has been reported to be developing a digital version of its national yuan currency.
Payment systems that traditionally only facilitate fiat transactions have also begun to offer cryptocurrency exchange services. For example, in 2020, PayPal began offering U.S. account holders trading services for cryptocurrencies such as Bitcoin and Ethereum.
And unlike fiat, cryptocurrencies don’t require government backing for value. This means that the potential for cryptocurrency to spread beyond borders is far greater than any national currency in existence. The fact that there’s a limited supply of cryptocurrency to go around also means that it has greater potential to go up in demand, and is far less likely to be devalued by oversupply.
Some other advantages of cryptocurrency include:
- Decentralised escrow: De-Fi based escrow solutions use smart contracts to automate transactions, ensuring that funds are securely held and released upon the completion of predefined milestones. This is great for freelancers who are used to waiting indefinitely for payments on big projects. By breaking up payment into stages within a transparent system, freelancers can be compensated fairly and timely for their work.
- Enhanced security: In a digital scene fraught with cyber criminals lurking in every corner, Blockchain technology that underpins DeFi offers heightened security through tamper-proof ledgers that ensure that transactions remain transparent and immutable.
Financial inclusion: Perhaps the greatest potential of DeFi is that it can be accessed with just a phone and internet connection. This means unlocking talent within freelancers in underbanked populations and providing them with an opportunity to participate in the global economy.
A hybrid future for freelance payments
At Freelancer Nation, we are committed to helping our freelancers stay ahead of the financial and digital space by staying at the forefront of technological advancements.
We plan to do this by combining the relative stability of fiat payments with the security, transparency, and borderless nature of DeFi, and creating a safer and more efficient future for both freelancers and clients. It is our vision for hybrid payment systems to foster a thriving remote work ecosystem where transactions are secure and hassle free, so that freelancers and clients alike can focus 100% of their attention on creating exceptional work.
If you’re curious to learn more about DeFi, why not join our Web3 community on Discord where we frequently gather to talk about the latest developments in the future of finance.
We’re also running an all-exclusive Web3 community that taps into the power of blockchain technology to create an independent channel for freelancers to connect with like-minded individuals from all over the globe. Slots are limited, but you can join our waitlist here! Signing up means you stand a chance to grab one of 1000 NFT access passess that will help you unlock an entirely new ecosystem of jobs, networks, mentorship opportunities, career resources, and more!