Thread: Origins of Cryptocurrencies and Bitcoin

Bitcoin and the Future of Money.



What is Bitcoin? It's a question that many people ask themselves these days, but not many can manage to understand the answer, since explaining and unraveling a cryptocurrency like Bitcoin, is to talk more about technical aspects that are not so common for most people. However, to talk about Bitcoin is to debate about the future, since in the present, what we actually see, is only the tip of the iceberg of what is to come: a slight hint of the new era of finance. But in order to understand the present and the future, it is important to understand the past and what we will [surely] leave behind sooner or later.

Definition of “Money”.

Usually, the term "money" itself has no intrinsic value; its value is merely symbolic, since it conveys the importance of what people give to it: a seashell, a grain of rice, a weight of salt, a piece of a precious metal, or a piece of paper. Therefore, the "value" of money lies in the virtue of its functions: as a means of exchange, as a unit of possession, and as a store of wealth.

A curious thing that can be noticed is that the terms "money" and "currency" are not identical: "money" is an intangible concept (it cannot be touched, its virtues give it value), while "currency" is tangible (physical, it can be touched, like a piece of silver coin). Even so, both concepts are totally interchangeable and have merged over time to give manifestation to the weight of value.

A Brief Chronology of Money.

Neolithic. Bartering: the first form of exchange, which is the action of giving one thing and receiving another in return. The oldest form of trade: [direct] negotiation of goods and services between two parties. Preposition of "value" as the principle and birth of money.

3000-2500 B.C. Merchandise/Weight: creation of value patterns as an exchange system. Reference units such as weight and quantity for the basis of trade. Salt, rice, wheat, seashells, cocoa beans, used as tools to facilitate trade.


Image source: Wikipedia Commons.

1000 B.C. Coins: objects or replicas in the form of a circle to replace large objects. The first coins were found in China, and consisted of metal "seashells" as instruments of exchange.



700-600 B.C. Minted coins: the first ones were found in Lydia (present-day Turkey) with a subsequent adoption in Persia and Greece, and then spread throughout Europe and Asia.



9th century A.D. Paper currency: In China, paper is also implemented as a currency, which gives birth to the term "banknote", as we know it today (a piece of printed paper representing a certain amount of money).

16th century A.D. Paper currency is implemented all over Europe. Terms like "certificate", "letters" and "promissory note" are common as deposit letters (in vault) of the heavy coins. Banking is crystallized.


Image source: Wikipedia Commons.

1250-1400 years. Crystallization of the commercialized bank debt, defined as a set of loans or commitment of obligatory payment between two entities (person, company, institution, country) and repayment of the same.

1800-1900 years. Rise of the gold standard. With the impulse of centralizing the monetary issue, gold begins to be established as a support standard, which guaranteed that any citizen could convert a paper currency in a prefixed amount of gold. Establishment of the main European central banks, and the subsequent creation of the FED (Federal Reserve System) in the United States.



1940's - End of World War II. Fall of the gold standard. The so-called fiat money emerges, which has value due to its declaration as money by the state and also backed in credit and trust (faith that it is respected and accepted), rather than being backed by the gold standard. Due to devaluations and inflation from wars and crises, the need for gold to give value to money becomes inefficient (due to the scarcity of the precious metal too). Because of this, people's perception of money and its value changes again. Only the dollar maintains the gold standard and emerges as the dominant currency in the international system.

Year 1971 - Fall/Breakup of the gold standard of the dollar. Since then, the American currency joins the "fiat" team but maintains its unique reference at a international level. The gold backing guarantee already ends and is replaced by the belief in the "faith and credit" of the United States government.


Gold replace by "faith and trust". Literally.

Up to this point in our journey, money is nothing more than a relationship of trust, and its value is purely determined by purchasing power. In other words, money is created by a kind of perpetual interaction between real and tangible things, our desire for them, and our abstract faith in what has value. Money is valuable because we want it, but we only want it because it can get us a desired product or service.

From now, it is possible to create more paper money (printing) in an almost unlimited way, without the backing of gold as a guarantee, but bringing a bad consequence: the imminent danger of a financial dark age (due to the abuse of that "trust and faith"); that's why so many countries and entities are working tirelessly to ensure this never happens.


"Brrrrrrrr..." doesn't fix a real economy.

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I don't think this is the right thread for this post. There are relevant sections for it.




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