CryptoK$h
May 24, 2022

Bitcoin and Cryptocurrency

What is cryptocurrency and bitcoin

Cryptocurrency and its first born bitcoin is simply digital money but it is not your father's digital money. In order to understand it we need to go back some few centuries and see where this money thing began.

History of money.

People then as now could not be entirely self sufficient. That is for example you may have grain but no animal skins for clothing therefore you needed to exchange grain for some animal skins. The first logical thing was to find someone with animal skins and exchange for grain, as in do barter trade. This though had its drawbacks since the person with animal skins might not need grain or the value of the grain might be less than the skin and so rose need for a medium of exchange also called money.

There were many forms of it earlier, like salt or shells, but gold came to rule them all.

Gold as money

Gold was a really good form of money since it was

  • Relatively portable.
  • Relatively divisible.
  • Retain value for a very long time.
  • Scarce and precious (you had to spend time and resources to mine it).

Time went by and people began to store there gold in banks for safe keeping etc, and they would in turn get a receipt or bill ( dollar bill ) for gold stored. Humans always looking for ways to make work easier started exchanging the receipts among themselves instead of going back to the bank, this led to governments standardizing receipts/bills, forming central banks and issuing currencies. This currencies though were still gold backed.

The banks being banks saw an advantage in this and started to gamble with fractional reserve practices, loaning the paper money to as much as ten times the value of the gold backing it. This could go on as long as people would not redeem there money for gold at once. Enter the great depression and people did just that and countries had to unpeg there currencies from gold.

The era of fiat money

Fiat means by decree, therefore fiat money is issued by decree or law, it is also called legal tender. This currency is backed by the trust in the government issuing it. If for example that government falls its currency becomes worthless.

Its characteristics is that

  • It is centralized ( depending on your viewpoint this may be an advantage or disadvantage).
  • Backed by government authority.

The rise of digital currency.

As communication became easier and through the rise of the internet so rose digital money. Examples are mobile money, credit cards etc. This though was still fiat currencies under the hood. That is until a pseudo-human called Satoshi Nakamoto released bitcoin and thus cryptocurrency was born.

Differences between fiat digital currencies and bitcoin.

Centralization

Fiat digital currencies are issued by a central bank. Bitcoin on the other hand is mined that is the blockchain (a special database) rewards you for lending your machine for its storage.

Anonymity.

Fiat is not anonymous because in order to send funds the bank must know who you are and who you are sending to. Bitcoin on the other hand is anonymous. Nobody can know whether you sent money or not.

Ledger Confidentiality

Fiat currencies use a confidential ledger but bitcoins ledger is transparent and you can look and see what is going on at any time.

Ritwa Ryakwa

Ritwa Ryakwa

Just a guy passionate about Crypto

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