Millennials and Cryptocurrencies: A Mutual Trust Issue

    28 Jul 2021

    We have young people growing up today with experience dealing with money like no other generation before them. And while for people of the previous generation money is primarily coins, bills, and maybe also credit cards, in the minds of the youth, the word “money” has a lot more associated with it. Not the least of which are cryptocurrencies.

    The question of developing relationships between millennials and cryptocurrencies has long been of interest to researchers. And there is a good reason for it: considering the growing distrust of traditional financial structures, numerous neobanks, and fintech startups rely on young people as their potential clients.

    eToro surveyed 1,000 online traders. As it turns out, 43% of young traders trust cryptocurrency exchanges more than the stock market. Millennials (Gen Y) who trade cryptocurrencies show more confidence in innovative asset types than in the stock exchange; a third of the respondents who do not trade digital currencies agree.

    On the other hand, most of the Gen X respondents – the older generation – think the opposite. Guy Hirsch, the eToro U.S Managing Director, also believes that this trend is due to a generational shift:

     “We are witnessing the beginning of a switch in trust – from traditional stock exchanges to cryptocurrency exchanges – between generations. At the heart of this change are the types of assets themselves. A younger generation of investors lost confidence in the stock market after witnessing the bankruptcy of Lehman Brothers, – says Hirsch. – Their trust continued to erode as hundreds of billions of US taxpayers’ dollars flowed to major financial institutions, while their own savings evaporated; and as banks received free money through the increase of money supply, while the cost of living rose ever higher. In this context, millenials’ favorable view of bitcoin and its principles looks quite reasonable. And as more investors learn about the benefits of the blockchain, this trend will only grow stronger.”

    There are actually several reasons why the much-talked-about millennials are more supportive of Bitcoin and other cryptocurrencies. One of them is that they compare themselves to their parents. Young people usually understand how the blockchain works, what principles cryptocurrencies are based on, and they are not afraid of high volatility and the danger of full personal responsibility for their money.

    At the same time, millennials see that people of older generations too often reject cryptocurrencies, not for any objective reason but simply because they don’t understand them. Even with all the convenience and innovativeness of crypto, the older generation refuses to accept it simply because digital currencies don’t fit into their way of thinking.

    And how do young people react? Exactly – they riot. As a result, cryptocurrencies, DeFi projects, and numerous payment systems are becoming nearer and dearer for millennials than even the money they use to pay for the cup of coffee.

    But those are all psychological aspects. There is also a more strategic layer of mistrust, not even just in fiat but in the entire existing monetary system. This mistrust has actually been growing for a long time, ever since the abolition of the gold standard. It was then that fiat money became synonymous with government manipulation – the country doesn’t even matter, here all the authorities everywhere behave in about the same way.

    Though even the generation of the not-at-all-young author of these lines’ parents distrusted “state” money, it wasn’t nearly as pronounced as it is among the millennial generation. A study by Facebook IQ found that 92% of millennials distrust traditional financial institutions.

    They were already old enough to have witnessed economic crises and see their impact on their families, their parents. This ruined the trust in the monetary system, as well as in the stock market: today only a third of people born in the late 80s and 90s invest in shares of industrial companies and banks. Simply put, young people are looking for viable alternatives to those traditional financial institutions that would provide stability and financial freedom. And more than that: it is fundamentally important for millennials that the financial technologies they use prevent excessive (read: any) financial control from the authorities, banks, etc.

    Previous generations were born and raised within the same paradigm: money can be created exclusively by the central authority, which also controls them. Geography and politics determined the value of money and the constraints imposed on it.

    Millennials are the first generation that doesn’t conflate money and government. The youth now live in the paradigm of decentralization; they understand that every one of them could create their own currency. For them, the state isn’t as relevant when it comes to finance as Vitalik Buterin; they sincerely don’t understand why you can use dollars, but not DOGE, to pay in a store. Young people don’t get it when some guys in suits tell them from the TV screen that they shouldn’t use Bitcoin because criminals launder money through it. For them, this is such obvious nonsense.

    This phenomenon is still waiting to be researched, but it is already clear today: cryptocurrencies have become for millennials what the gold standard was for our predecessors. It seems paradoxical: gold is a solid standard of value, while cryptocurrencies are supervolatile. But it’s really all about trust. For previous generations, gold was a reference point independent of any authorities, to which any value was tied. For today’s youth, gold is more of an abstraction, but digital money enjoys a high level of trust due to the fact that it is also completely beyond the control of states. Cryptocurrencies are easier to understand for young people, as they usually don’t own any gold.

    For reference, the gold standard is a monetary system in which gold is an economic unit of account for each banknote issued, and the central bank doesn’t interfere much with the mechanisms for the production of new money. Since the central bank does not control the number of bills in the system, it can prevent inflation, thereby causing an increase in the purchasing power of the currency, rather than depreciating it.

    Gold and silver derive their monetary value from market deficit.

    That is not the case with national currencies; on the contrary, central banks print out new money without issue and assign them arbitrary value.

    Classic cryptocurrencies like Bitcoin follow the same rules as gold and silver. Their emission is limited by an algorithm, which makes them a scarce resource in the market. At the same time, modern blockchains provide a lot of opportunities for creating new financial instruments, as we see in the flourishing of decentralized finance.

    The digital freedom that crypto provides makes it the best alternative to the existing financial system. And young people would love to live in a world where every cryptocurrency owner is his own banker. This future is now: Thanks to the peer-to-peer payment network, people can voluntarily make transactions between each other without giving their personal money to third parties, as is the case now.

    Those fintech companies that can “interrelate” cryptocurrencies with traditional financial technologies will become the “market kings” of tomorrow, and millennials will trust them, rather than governments and traditional banks.

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