In the beginning it was barter. Ten sheep for half a kilogram of glass (yes, glass was very expensive back then). Over time, it became more and more difficult to carry sheep in your wallet, so we invented coins. At first they were worth as much as the material they were made from. We used gold, silver, and even salt (which is where the word salary comes from) as currency, and everything went well until it got too complicated to take enough metal with you to pay for a house, for example. We then began using a symbolic representation of the assets that were believed to support the value of money.
The conversion factor contained a soft and elusive ingredient that was to accompany us for centuries: trust. The money object has no longer any value in itself. Still, a certain authority guaranteed that in exchange for these coins and bills it could give you the appropriate amount of material value that was more or less generally accepted. Whoever deposited dollars gets dollars, shall we say.
So we exchanged concrete things with tangible value for colored pieces of paper that represented a certain amount of gold or silver. That’s why we call it silver here. In other words, the pesos.
Now why bother hoarding gold to cover a coin? We took another step there:
Central banks were born in the 1930s.
- The United States separated the dollar from gold.
- Nations began to set the value of money arbitrarily.
Or not so much; it’s a little more complicated. But to simplify matters, instead of offering gold as a base, the states set themselves as guarantors. The more trustworthy this state is (i.e. the behavior of this state as such), the more stable its currency would be.
If all of a sudden you see an x-ray of why your currency has been devalued, yes that is why. With an additional. When you don’t have to back your coin with gold, you can print any notes you want. Only after that will there be many more pieces of paper, and therefore each will be worthless. It’s called inflation, and we have a pathological tendency to see it as an increase in prices; This is a very functional trend for the states because, put so, it seems that the price-makers are to blame for inflation. Strictly speaking, the currency is depreciating and therefore the kilo of flour that previously cost 20 pieces of paper turns into 40, then 50 and now 64. It’s the same, but that means more paper details because every piece of paper is worthless.
But be careful, these problems are less linear than we normally think. The monetary problem is not bad in itself. The point is what it is spent on. Suppose the state says it is investing in something that promotes production (energy, water, roads, railways, etc.). In this case, to continue with the previous example, the amount of flour will also increase and consequently the price should be kept. , although there are more notes because there is also more offer.
But without going into details, this is the type of currency we use today; in English it’s fiat money. Fiat is the subjunctive of the Latin verb “fio”, which means “to do” rather than trust. Translated: “so be it.” In other words, money by decree. In fact, today we are using a type of money, the value of which is set by decree. Of course, the laws collide head-on with reality if necessary. But we’re putting that aside so we don’t get distracted.
In practice, colored papers have also disappeared. First there were no less colorful debit and credit cards, then simple numbers on computer screens and internet-based payment methods such as PayPal. This means that not only is the value of your money not covered by certain goods, but your money in the bank also does not exist in the form of bills of exchange. The “physical”, as it has unfortunately become popular, is in short supply in the world today.
Therefore, the physical assets in large quantities are suspect. Why? Because it’s anonymous and fungible. Make a note of these two terms because they will come up again. It’s anonymous (no one can track that you paid for that candy bar with that particular ticket), and the kiosk won’t ask where you got the key from, nor worry about what the counter does with that ticket. By the way: you can exchange one 1000 note for two 500 banknotes and you still have 1000 coins.
Why is physical money anonymous and fungible? Because when you pay with your credit card, this transaction is recorded and assigned to your identity. Check? The same. Transfer? Anyway, you’re stuck. But cash cannot be traced (actually it can, but it is a challenge). That’s why corruption and crime love him. Sometimes of course you have to wash it; that is, to reintroduce it into the legal cycle (the money, unless it is wrong, always comes from the legal cycle) in such a way that it does not arouse suspicion. You can do something with this money in the civilized world (if not, what’s the use of being a millionaire delinquent?). The body can be washed accurately because it is dispensable. That means it can be exchanged for anything else, even for other currencies. And because it’s anonymous. Nobody knows who had it before. He doesn’t care either.
In short, we are using money today, the value of which is determined by states and mediated by banking institutions that we trust so that no one is cheating. This trust is not always valued as those who have been devalued
Indeed, the centralized monetary authorities – the system, as it is called – are not without their problems. Fraud, for example. Inflation. Corruption. But given the nature of digital money, they are a necessary evil. Not me (my opinion is different and it’s below), but the creator of Bitcoin, Satoshi Nakamoto.
We have no idea who Satoshi Nakamoto is and everything indicates that he is not an individual but a team of people. We do know, however, that he signed a document published in 2008 describing a method to become independent from the centralized monetary authorities. In the introduction to this document, Satoshi acknowledges that such authorities, despite their shortcomings, flaws, and flaws, are necessary.
Why are these authorities necessary? Because everything digital can be reproduced and the original and copy are identical. This is not a good idea with the money, because you could buy different things over and over again with the same 1000 pesos. All you need to do is make copies of those 1000 digital pesos on your computer. Everything you want. Tempting, but the system would collapse in minutes.
This digital money problem is known as “double spending”. While this would be impossible with physical money – unless you fake bills, and it would be fake bills that wouldn’t have issued the same thing twice anyway – it’s a problem that has not been resolved, with the exception of these centralized authorities that Keeping records of transactions and ensuring fair play is upheld. But, according to Satoshi, such a system cannot guarantee 100 percent fair play, so in his opinion this system must be eliminated. To do this, the trust-based electronic payment would have to be replaced by one based on cryptographic evidence.
I know it sounds like esoteric poetry, and we won’t go into that much now. However, the truth is that the double spending problem was the stick in the wheel of decentralized digital money until Satoshi (genius or great team, whatever) came up with the idea of creating Bitcoin. Here we go.
How is it ensured that the same bitcoin is not used twice? Through a technology known as blockchain. The transactions are settled in a kind of digital bookkeeping book, the blocks of which are linked to the others, as is the postings in a paper bookkeeping book. Concatenation in this case roughly means that each block contains the hash of the previous block. This, which seems completely indigestible, means something very simple: in order to change a transaction and, for example, use the same bitcoin twice, all subsequent blocks must be hacked to the block that contains the transaction that we want to intervene in. And this is difficult for the simple reason that it would require so much computational effort that it would cost more money than it can to get, hence the need for cryptographic evidence. Satoshi makes this clear in his contribution: The system is inviolable as long as the attackers do not have more computing capacity than was required to calculate the hashes of each block in the chain.
Also, instead of a single copy of the ledger, there are thousands of copies of that ledger on the Bitcoin network, and these records are public. It’s a little more complicated, but don’t get lost: If someone wanted to commit fraud with Bitcoins, not just one ledger should intervene, but thousands. There are an estimated 10,000 nodes on the Bitcoin network, although some speculate that the number is closer to 100,000.
I know I skip a lot of questions, but in order not to get dizzy, when they work, cryptocurrencies solve a historical problem: double spending. And they solve it with open source software and a decentralized ledger called blockchain, which guarantees that any billed entry will remain intact once the network validates it. The blockchain concept dates back to 1982, and its first concrete application was Bitcoin, with Satoshi’s paper in 2008. In 2009, Bitcoins were used in the real world. So to speak.
Okay, what do we know so far? That Bitcoin is the first fully digital form of money that does not depend on any central monetary authority.
It is not all gold that glitters, however, and here we could devote several pages to several problems that cryptocurrencies have been shown to suffer from. But we’ll cut it short. On the one hand, the software (but not the concept of the blockchain) can be poorly implemented and have weak points. This has happened to electronic wallets that many people have lost a lot of money.
But there are also conceptual questions. The whole idea behind Bitcoin is based on the fact that you need to decentralize money. My doubts about cryptocurrencies don’t have to do with blockchain technology, but with the idea of decentralizing money. Seriously, it’s a question: why do we need to get rid of the system and decentralize money? While cryptocurrencies are more transparent, it is also true that we pay tons of taxes to states and one of their missions is to provide a solid currency. If a state is unable to do this, the problem is not centralized money in general, but that state in particular.
Suppose a state cannot even provide its intrinsic weaknesses (everything in this world has inherent weaknesses), a strong currency. In this case, I don’t know what’s ready for education, health, border defense and still. I mean it’s just silver guys. Anyway, we can discuss it until tomorrow, and regardless, cryptocurrencies will still have to replace traditional money if they ever do.
Ideologies aside, the most interesting thing about Bitcoin, at least in my opinion, is the blockchain. Because as you might already suspect, blockchain technology could be used not only for validation and certification of monetary transactions, but also for many other things. Digital works of art, for example, that now bring us to the happy NFTs that are so hot right now.