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. In the beginning they were worth as much as the material they were made from. We used gold, silver, and even salt (hence the word salary) as currency, and everything went well until it got too complicated to bring enough metal 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 would accompany us for centuries: trust. The money object has no longer any value in itself. Nevertheless, a certain authority guaranteed that they could give you the appropriate material value of more or less generally recognized value for these coins and notes. Whoever deposited dollars gets dollars, shall we say.
So we exchanged concrete things with tangible value for colored papers that represented a certain gold or silver content. That’s why we call it silver here. In other words, the pesos.
So why should you hoard gold to cover a coin? We have taken another step:
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 instead of offering gold as a basis, the states act as guarantors for the sake of simplicity. The more trustworthy this state is (i.e. the behavior of this state as such), the more stable its currency would be.
If you suddenly see an x-ray of why your currency has devalued, yes, that’s why. With an additional. If you don’t need to back your coin with gold, you can print whatever notes you want. Only after that will there be many more pieces of paper, and therefore each will be worthless. This is called inflation, and we have a pathological tendency to see it as an increase in prices; This is a very functional trend for states because it appears that the price makers are to blame for inflation. Strictly speaking, the currency depreciates and so the kilogram of flour that used to 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 usually 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 maintained. although there are more grades 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” and not to trust. Translated: “so be it.” In other words, money by decree. In fact, today we are using a type of money whose value 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 today all over the world.
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 keep coming up. 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 or worry about what the counter does with that ticket. By the way: you can exchange a 1000 note for two 500 banknotes and 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 out of the legal cycle) in such a way that it does not arouse suspicion. With this money one can do something in the civilized world (if not, what is the use of being a millionaire criminal?). 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 even care.
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. That trust is not always valued as much as the one that has 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. However, we do know that he signed a document published in 2008 that describes a method to become independent from the centralized monetary authorities. In the introduction to this document, Satoshi recognizes that such authorities, despite their shortcomings, shortcomings, and shortcomings, 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, as you could buy different things over and over again with the same 1000 pesos. All you have 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 forged bills, and it would be fake bills that wouldn’t have issued the same anyway – keeping records of transactions and fair play is a problem that has not been resolved except for these centralized authorities . However, according to Satoshi, such a system cannot guarantee 100 percent fair play, so in his opinion this system must be eliminated. For 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’re not going to get 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 are the entries in a paper bookkeeping book. Concatenation in this case roughly means that each block contains the hash of the previous block. What 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 into the block that contains the transaction that we want to intervene in. And that’s difficult for the simple reason that it would require so much computational effort that it would cost more money than it could 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 is 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 using Bitcoins, not just one ledger should step in, 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 make it short. On the one hand, the software (but not the concept of the blockchain) can be implemented poorly and have weak points. This has happened with 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 the 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 this state in particular.
Suppose a state cannot even provide its intrinsic weaknesses (everything in the world has inherent weaknesses), a strong currency. In this case, I don’t know what education, health, border protection and still is ready. I mean it’s just silver boys. 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 the validation and certification of monetary transactions, but also for many other things. Digital works of art, for example, that now take us to the happy NFTs that are so hot right now.