What is soft and hard money
There are different interpretations of so-called soft and hard money, which can be reduced to two main directions: economic and political. Within the first, “soft money” are those that do not have any physical backing. This includes any modern fiat currencies, the issue of which is not limited. “Hard money” refers to any commodity that is in short supply: Bitcoin, gold, silver, and so on. Not all cryptocurrencies belong to the latter type, since many of them have unlimited emission (Ethereum, Solana and others).
One often comes across the concept of “soft currency” rather than “soft money”. In an economic environment, the terms will mean the same thing, and in general these concepts are interchangeable. The term “soft currency” is most often used to refer to countries that are experiencing economic problems of one kind or another.
From a political perspective, hard money is sometimes considered to be money that goes to support a specific candidate. And they are called that because their use is strictly limited and controlled. In contrast, soft money is used to finance not a specific candidate, but an entire political party. They do not have the same target orientation as hard ones, and may often not achieve the goals that were originally stated.
Why hard money is better than soft money
Hard money is generally a defensive asset against inflation. They provide some kind of stability and predictability, since they do not depend on anyone’s will. Hard money can usually be easily exchanged at a fairly clear rate for something that backs it.
“Soft money” does not protect against anything. Moreover, their number is determined only by the issuer’s desire to use the printing press with one or another (usually greater) intensity. By and large, soft fiat money will last as long as the citizens of a particular country believe in the leadership.
What does the use of soft money lead to?
Economies in a variety of countries may have problems: in the US, several banks went bankrupt in the spring of 2023, the Turkish lira continues to break depreciation records, and the ruble is worth about one cent. Since the issuance of any national currency is the prerogative of the state, excessive emission leads to a decrease in people’s involvement in political decision-making and increases the role of voluntarism in the actions of the authorities, undermining market foundations and mechanisms. In economics, unlimited money printing leads to the following problems:
Inflation. The more banknotes, the less valuable they are. Public money is not the only example. The organizations behind unlimited emission cryptocurrencies are essentially doing the same thing.
When an asset depreciates in value, it triggers the fear of losing everything. People are trying to save at least something through investments. Often this happens completely unconsciously and people lose everything, well, or almost everything.
Growing inequality among people. If only a small group of people can print coins, then they will benefit.
If so, social tension will increase. Ultimately, users may turn away from a particular currency/cryptocurrency completely.
All of the above leads to uncertainty and disruption of life plans. Coins are becoming too volatile: today they have one price, tomorrow they are 70% cheaper, and the day after tomorrow they are 170% cheaper.
In politics, soft money leads to corruption.
The range of the problem is quite wide. States have to constantly change the rules of the game: introduce new laws, raise and lower interest rates of central banks. Hard money is more practical. Of course, cryptocurrencies deserve special mention.
Cryptocurrencies as hard money
All the problems described above make it clear: the assets that are currently in circulation on the planet are far from perfect. A solution, hypothetically, could be, for example, cryptocurrencies. However, a caveat must be made.
Cryptocurrencies were originally intended to be something decentralized and private. However, the evolution of digital assets in less than 15 years has taken many of them far from their original concept. Many are no longer completely decentralized, a number of cryptocurrencies have unlimited emission, and some projects are modified according to the decisions of the developers, which opponents of such updates can hardly influence.
A striking example: Ethereum, which was originally based on Proof-of-Work (PoW) consensus, and now runs on Proof-of-Stake (PoS). Competition in PoW systems exists at the hardware level: miners must consider the relevance of their technical capabilities, and not just hold a significant share of coins, like a bank deposit on their balance sheet. Conceptually, the whole PoS mechanism is about this: in such a system, the voting rights are higher for the validator who has more cryptocurrency.
From a hard and soft money perspective, cryptocurrencies like Solana, Avalanche, and Cardano are clearly not going to be a new currency that will eliminate all the problems inherent in fiat currency. Within the framework of this concept, cryptocurrencies of the early period, such as Bitcoin and Litecoin, as well as other “classic coins” that have features similar to the historically first coin, look more interesting.
This material and the information contained herein do not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.
I am an experienced journalist, writer, and editor with a passion for finance and business news. I have been working in the journalism field for over 6 years, covering a variety of topics from finance to technology. As an author at World Stock Market, I specialize in finance business-related topics.