The story of currency and why Bitcoin is needed | by JB | Capital | June 2021


In the beginning, it was bartering. Ten sheep exchanged half a kilogram of glass (yes, glass was very expensive at the time). Over time, keeping sheep in your wallet became more and more challenging, so we invented the coin. Initially, their value is the same as the material from which they are made. We use gold, silver, and even salt (the source of the word salary) as payment methods, and everything goes well until it becomes too complicated to carry enough metal to pay, for example, to pay for a house. Then we started to use symbolic representations of these assets, which were accepted to support the value of the currency.

Therefore, the conversion factor contains a soft and elusive component that will accompany us for centuries: trust. The currency object itself is no longer valuable. Nevertheless, an authority guarantees that it can give you a corresponding number of more or less generally accepted tangible goods in exchange for these coins and banknotes. Assume that the person who deposits USD will receive USD.

Therefore, we exchanged specific things with tangible value for colored pieces of paper representing a certain amount of gold and silver. This is why we call silver here. In other words, pesos.

Why now hoard gold to support coins? There, we took another step:

The central bank was born in the 1930s.

Or not so much; it’s a bit complicated. But, in short, the states did not provide gold as support, but instead used themselves as guarantors. The more trustworthy the country (that is, the country’s behavior as such a country), the more stable its currency will be.

If you suddenly see an X-ray about the reason for your currency devaluation, yes, that’s the reason. Bring an extra. When you don’t have to support your coins with gold, you can print all the bills you want. Only in this way, there will be a lot more paper, so a piece of paper is worthless. This is so-called inflation, and we have a pathological tendency to view it as price increases; this is a very practical trend for the United States, because it seems that the culprit of inflation lies in the price setters. Strictly speaking, what happened was a currency devaluation, so a kilogram of flour that used to cost 20 sheets of paper became 40, then 50, and now 64. It is the same, but this translates into more paper details, because each piece of paper is worthless.

But please note that these problems are not as linear as we usually think. The currency issue itself is not bad. The point is its purpose of release. Suppose the state issues investments in things that encourage production (energy, water, roads, railways, etc.). In this case, continuing the previous example, the quantity of flour will also increase, so its price should remain the same. , Although there is more paper, because there is also more supply.

However, without going into details, this is the type of currency we use today; in English, it is legal tender. Fiat is the subjunctive mood of the Latin verb “fio”, meaning not to trust, but to do. Translation: “That’s it.” In other words, get money through statutes. In fact, today we use a currency whose value is determined by law. Of course, if necessary, the law will directly conflict with reality. But we will put it aside, so that we don’t go wrong.

In practice, colored paper is also disappearing. First, they gave birth to the same colorful debit and credit cards, and then simple numbers on computer screens and Internet-based payment methods, such as PayPal. In other words, not only is the value of your money not backed by specific commodities, but your money in the bank does not exist in the form of notes. Sadly, “physics” has become popular, but it is rare in today’s world.

Therefore, a large number of physical assets are suspicious. why? Because it is anonymous and fungible. Remember these two terms, because they will appear again. It is anonymous (no one can track that you paid for the chocolate bar with that particular ticket), and the kiosk won’t ask you where you got the key, and you don’t care how the booth will handle that ticket. More The important thing is: you can exchange a 1000 bill for two 500 bills, and you still have 1000 coins.

Why is physical currency a factor of anonymity and fungibility? Because if you pay by credit card, the transaction will be recorded and associated with your identity. View? the same. Transfer? In any case, you will get stuck. But cash cannot be tracked (actually, but it is challenging). This is why corruption and crime love him. Sometimes you certainly need to clean it; that is, to reintroduce it into the legal cycle in a way that does not arouse suspicion (currency, unless it is false, it always originates from the legal cycle). You can do something with this money in the civilized world (if not, what is the use of being a millionaire committing a crime?). The physique can be washed accurately because it is a consumable. In other words, it can be exchanged for anything else, even other currencies. And because it is anonymous. No one knows who owned it before. He doesn’t care either.

In short, today, the value of the currency we use is regulated by the state and mediated by banking entities we trust, so no one will cheat. This trust is not always respected, just like those who have experienced devaluation,

In fact, the central monetary authority-this system, as it says-is not without problems. For example, fraud. inflation. corruption. However, given the nature of digital currencies, they are a necessary evil. Not me (my opinion is different, below), but Satoshi Nakamoto, the creator of Bitcoin.

We don’t know who Satoshi Nakamoto is, everything shows that he is not a person, but a group of people. However, we do know that he signed a document issued in 2008, which described a method independent of the central monetary authority. In the introduction of the document, Satoshi acknowledged that such permissions are necessary, despite their flaws, loopholes and flaws.

Why do we need these authorities? Because everything digitized can be copied, and the original and copy are the same. With money, this is not a good idea, because you can buy different things over and over again for the same 1,000 pesos. You only need to copy the 1000 digital pesos on your computer. All you want. It’s tempting, but the system will crash in a few minutes.

This problem of digital currency is called “double spending”. Although it’s impossible to use physical currency—unless you counterfeit banknotes, they are all fake banknotes anyway, not the same thing was spent twice—this is a problem for which no solution has been found, except for these central institutions that keep records. Trade and ensure fair competition. However, in Satoshi Nakamoto’s view, such a system cannot guarantee 100% fair competition, so in his view, this system must be eliminated. To this end, he said, you must replace trust-based electronic payments with electronic payments based on password proof.

I know this sounds like esoteric poetry, and we will not go into it now. Nonetheless, the fact is that until Satoshi Nakamoto (whether a genius or a great team, it doesn’t matter) came up with the idea of ​​creating Bitcoin, the problem of double spending has always been the wheel of decentralized digital currencies. it has started.

How to ensure that the same bitcoin is not used twice? Through a technology called blockchain. Transactions are settled in a digital accounting book whose blocks are connected to other blocks, as are the entries in the paper accounting book. In this case, linking roughly means that each block contains the hash value of the previous block. This seems completely indigestible, but it means very simple: to change a transaction, for example, to use the same bitcoin twice, all subsequent blocks must be cracked into blocks containing the transaction we want to intervene. This is difficult, and the reason is simple, because it consumes so much calculation that it costs more money than possible, so it requires a password proof. Satoshi Nakamoto clarified this point in his paper: As long as the attacker’s computing power does not exceed the computing power required to calculate the hash of each block in the chain, the system is inviolable.

In addition, there are thousands of copies of this ledger on the Bitcoin network, rather than a single copy of the ledger, and these records are public. It’s a bit complicated, but don’t get lost: if someone wants to commit fraud with Bitcoin, they should not only interfere with one ledger, but also thousands. There are an estimated 10,000 nodes on the Bitcoin network, although some speculate that this number is close to 100,000.

I know I skipped a lot of questions, but in order not to get confused, if cryptocurrencies are effective, they will solve a historical problem: double spending. They use open source software and a decentralized ledger called blockchain to solve this problem, which can ensure that each settlement item remains intact after network verification. The concept of blockchain can be traced back to 1982, and its first specific application was Bitcoin, a paper by Satoshi Nakamoto in 2008. Bitcoin began to be used in the real world in 2009. you can say so.

Okay, what do we know so far? Bitcoin is the first currency in a completely digital form that does not rely on any central monetary authority.

However, not everything that shines is gold. Here we can use a few pages to discuss several issues that have been proven to exist in cryptocurrencies. But we will abbreviate. On the one hand, software (but not the concept of blockchain) may be poorly implemented and have loopholes. This is what happened to the e-wallet, which caused many people to lose a lot of money.

But there are also conceptual issues. The whole idea behind Bitcoin is based on the fact that you have to decentralize funds. My suspicion of cryptocurrency has nothing to do with blockchain technology, but with the idea of ​​decentralized currency. Seriously, this is a question: why do we have to eliminate the system and decentralize the currency? It is true that cryptocurrencies are more transparent, but it is also true that we pay a lot of taxes to the United States. One of their tasks is to provide a reliable currency. If a country cannot do this, the problem is not the general currency concentration, but the country.

In addition, suppose a country cannot even provide its inherent vulnerability (everything in this world has its inherent vulnerability), a powerful currency. In that case, I don’t know what else can be used for education, health, border defense, and readiness. I mean, it’s just silver, guys. In any case, we can discuss until tomorrow, in any case, cryptocurrency still needs to replace traditional currencies.

Ideology aside, at least in my opinion, the most interesting part of Bitcoin is the blockchain. Because, as you might have suspected, blockchain technology can be used not only to verify and prove currency transactions, but also for many other things. For example, digital art works, which now let us see happy NFTs, are so popular nowadays.

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