What's Bitcoin?

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3 years ago
Topics: Bitcoin

What’s Bitcoin?

Bitcoin (short: BTC) has been the world’s first crypto currency. All subsequent crypto currencies are referred to as Altcoins (alternative coins). Bitcoin is both a currency and a means of payment. In contrast to Fiat money, e.g. the euro or the US dollar, there is no central bank that prints the money and regulates the cash flow. At first glance it seems absurd that something intangible, a digital currency, should have a value. However, there is a logical answer to how Bitcoin gets its value. To understand this, it is necessary to understand how the euro or US dollar maintains its value. Both currencies are based on an illusion, a mental construction, that a coin or banknote has a value of 1, 2 or even 50 (Euro or USD). According to Modern Monetary Theory, this value is based solely on the fact that a government determines these values and the government calculates its claims (e.g. taxes and other levies) in this currency. In history, paper money did not acquire any real value until it was linked to gold. However, the Bretton Woods treaty, which made the US dollar the world’s reserve currency and obliged the USA to hold an ounce of fine gold for 35 dollars, was cancelled by US President Nixon in 1971. The value of money was thus placed on trust in governments. Money became an instrument of economic policy. The exchange rates became free, the value relative. Governments and central banks have started printing unimaginable amounts of money to finance crises. Since 1971, the price of gold has risen to well over USD 1,000. Paper money has thus lost almost 97 percent of its value compared to gold. Liberal economists therefore doubt that Fiat currencies can fulfil a core function of money, that of a store of value. This is where Bitcoin comes in. Bitcoin is mined similar to gold. However, the number of Bitoin is limited to 21 million BTC, so there can be no inflation. Bitcoin is therefore a perfect value memory.

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