Currency origin and functions
In primitive societies, the process of division of labor by individuals was already perceived. They produced goods and services according to their knowledge and the activity took on importance when other individuals in society could enjoy the wealth generated.
However, the reward for such acts was hampered by the lack of a standardized payment unit. In order for an exchange to take place, it was necessary to exchange the surplus of production, after its own consumption, for the surplus of other people's work. The exchange between objects caused inconvenience, since the difficulty of measuring and after locating needy consumers on both sides was enormous.
The “double coincidence of desire” system was flawed, as one person might have an excess of a certain product, while another would need that same good. But if the latter did not have something desired by the former, no exchange would take place.
However, over time, society at the time was looking for alternative ways to carry out exchanges, and the system of indirect exchanges began to have an effect. Producers and consumers needed an object that was difficult to refuse by other individuals and that was easily accessible. It was as a stage of this selection process that humanity started to use precious metals. (SENNA, 2010)
The advantages of metals have not been overlooked, since such goods can not only be kept with a minimum of loss, but can also be divided and put together again by means of fusion. This feature would not be present in any other available object.
As societies developed in the division and specialization of labor, the use of indirect exchanges through currency gained momentum. The reason for this was that a monetized economy brought greater security to all those involved, in the sense that the productive surpluses of each one could be exchanged in the market, at low transaction cost.
In the minting of the object, a symbol or a shield was often present, which conveyed confidence and the meaning that, the coin holder had the right to withdraw from society a service equivalent to the service provided by him in a given past time. According to Senna (2010), he addresses: “That is, the currency offers freedom of choice to the individual, and he can enjoy this process whenever he wants”.
Over the years, societies were looking for ways to infringe the value of the currency used in each region. It was there that noble metals were introduced as a way of differentiating nominal values. Gold, silver, copper and iron were used by nations to quantify the values of certain transactions. Gold was used for higher value transactions, while silver and copper were limited to lower value transactions. (ULRICH, 2014, p. 11)
Paper money came through goldsmiths who saw the need for customers with large amounts of gold and silver to keep their wealth. In return for the delivery of the assets, certificates were issued as receipts that corresponded to the deposit, which certificates were now accepted in commercial exchanges. This method generated the initial steps of the banking system, as goldsmiths realized that they could use the assets entrusted to them for loans and investments, having only to safeguard a portion for eventual withdrawals requested by depositories. (SENNA, 2010)
With that the foundation of the monetary system that we know was created. And from the social and technological transformations, an unprecedented evolution was seen with Keynesian theories, and the end of the gold standard initiated by the United States in the second half of the 20th century.
Bringing up a globalized financial market, standardized in the US dollar and with the currency backing in the fiduciary system.
Currency classification
The characteristics that determine an object as currency are:
i) means of exchange,
ii) reserve of value and
iii) unit of account. However, these attributes do not appear immediately when a good is used as a medium and exchange. In other words, a gradual process is underway so that a good can adapt to the social environment and thereby become a currency.
Historical records document the most diverse assets that have acted as a means of exchange over time: tobacco, in colonial Virginia; sugar, in the West Indies; salt, in Ethiopia (at the time, Abyssinia); cattle in ancient Greece; nails in Scotland; copper, in Ancient Egypt; in addition to grains, rosaries, teas, shells and hooks. However, over the centuries, two commodities, gold and silver, were spontaneously chosen as money in the free competition of the market, displacing all others of this function. The characteristic common to all these goods is the tangibility. All of these goods are material objects that exist in the physical world with different chemical, physical and even biological properties. (ULRICH, 2014, p.57)
For Ulrich (2014), could we already consider Bitcoin money? Bitcoin is still not money. It will become someday. But it is not yet. Following one of the Austrian School of Economics' definitions, “Bitcoin is not a universally accepted medium of exchange”. Or it is an almost coin.
There is still a lack of universality, the acceptance of all individuals to be considered currency. Obviously, disputes about that thought can be thought of. Since there are several currencies in the world and in different regions of the globe, some are not accepted. The Argentine peso is not accepted by all individuals in China, it is necessary to practice the currency exchange rate for the Chinese currency.
WHAT IS CRYPTOCURRENCY BITCOIN
In 2008, an anonymous programmer using the pseudonym called Satoshi Nakamoto, developed what we now call Bitcoin. "The objective is to carry out commercial exchanges through a currency that avoids interference from third parties such as electronic payment systems, commercial banks and even the State that controls and regulates the means of financial exchanges". (NAKAMOTO, 2008, p. 1)
Bitcoin is a virtual currency developed by a programming mode that is also defined as mining. The programmers use the energy and operating power of the machines to process codes and algorithms that make up bitcoin and so the programmers themselves are rewarded with payment in virtual currency for the effort made. Assuming there is a line of code 9345y06dx7432.76 A Bitcoin is 5y06dx. Each user has a code that identifies him in the Bitcoin system. Thus, if the user 984fT3 mines and finds Bitcoin 5y06dx, that Bitcoin is found in the system as 984fT35y06dx, therefore belonging to the user who "mined" it.
Technology used
Users of the Bitcoin system can be divided into three classes: the miners, that is, those who programmatically produce new Bitcoins by removing them from the parent code and putting them into circulation; there are customers, who use Bitcoin only as a means of payment for the most diverse transactions, and there are verifiers who use Bitcoin system for every financial transaction, analyzing programs 24 hours a day, giving endorsement for the realization of exchange and thereby receiving your payment through BTC fees
With the advancement of mining, the algorithms found by the programmers become more complex and with this the procedure of obtaining new Bitcoins becomes more and more difficult, until reaching the system code limit, which is determined at 21 million Bitcoins. “So, just like real-life mining, which is limited according to the resources of metals disposed in nature, Bitcoin mining will also come to an end: it is estimated that the last Bitcoin will be mined around the year 2140 ”. With this an important detail for the Bitcoin system is explained in this fact, because there is a production control and, therefore, a circulation limit for the cryptocurrency, the tendency is for the currency to deflate. (FOBE, 2016, p. 22)
The Bitcoin Cryptocurrency network records all transactions and they are verified to avoid the problem of double spending with public-key cryptography, even without having an intermediary agent between transactions.
This technology refers to the Peer-to-peer network (peer-to-peer or P2P) and all transactions
they are part of a register, a kind of public ledger, available for any user to have access to the financial movements carried out. This public registration site is called a blockchain (chain of blocks), an internet domain with servers programmed to register transactions and thereby avoid the problem of double expenses. (ULRICH, 2014)
Double spending has always been a difficulty to be circumvented by agents who wished to carry out financial transactions without the presence of third parties (Pay-Pal, Mastercard, Visa and etc.), since without the system of these large companies, which debits and credits the values of transaction according to the wishes of each party, the same money could be used twice. If we imagine that the money is similar to a computer file, a subject could send a certain amount by email in the form of an attachment, just as it is done with other files, but that would not exclude that a copy of that file still remained in the indexer record . Payment in the Bitcoin system
To be clearer, let us imagine that individual A seeks to make a purchase of a good from individual B through Bitcoin. It is necessary at first to register a digital wallet, since it will store the Bitcoins of each user. Individual A, therefore, converts from real currency to virtual currency, through exchange sites on the internet that sell Bitcoin blocks and inserts in this digital wallet the desired amount of cryptocurrency.
Therefore, the good that individual A intends to buy from individual B costs 20 BTC and the first has in its portfolio the value of 30 BTC. The transaction fee is established between the parties, a fee that is not required to be paid, but as miners are responsible for which transactions will be processed, therefore, the higher the fee, the greater the interest and the faster the transaction will be confirmed.
Individual A is willing to pay 0.01 BTC of transaction fee and with that the next step is to create a transaction message, with defined inputs and outputs. The entry will be the 30 BTC that individual A has in his wallet, and the exits will be: 20 BTC for subject B and 0.01 BTC fee, leaving 9.99 BTC for individual A. of values between individuals.
Economic Liberalism
The importance of money for society is so great that several renowned economists tried to approach monetary economics in their studies. It is a fact that the monetary system of private and governmental institutions has reached a point where stability is of vital importance so that the community can be concerned with other segments of society, such as education, security, public health, among other demands. Following this line of reasoning Keynes says: “There is no more subtle or safer way to overthrow the base of society than to pervert the currency. The process meshes all the hidden forces of economic law on the side of destruction and does so in such a way that not one man out of a million is able to diagnose ”(Keynes, 1936, p.343).
The reasoning is that the State must constantly control and govern economic activities to avoid imbalances that destabilize a nation's economy, affecting the society involved. However, other economists follow a different theory and share the concept of state non-interventionism or its minimal participation in the economy, giving freedom for economic agents to act according to their wishes. Names like Milton Friedman, Friedrich Hayek, Ludwig Mises and others of the Austrian School mainly, work in their studies arguments that defend their opinions regarding the theme and specify the tendencies towards economic liberalism. As you can see in the following excerpt, what Hayek says about government participation:
A government should not be able - just as individuals (at least in times of peace)
- take whatever you like, but, on the contrary, should be strictly limited to the use of the means made available to you by the representatives of the people and be prevented from expanding your resources beyond what the people allowed you (HAYEK, 1990, p. 37).
Even the opinion of Friedman (1985), who states that the problem is to establish institutional organizations that allow the government to exercise responsibility for money, while limiting the power thus given to the government to weaken a society.
This prerogative demonstrates the concern in relation to the State's monetary control and the consequences of it. And this when it comes to the government's participation in the economy, if you have the vision of Mises that deals with this matter emphatically when stating that:
Those who advocate limiting parliamentary prerogatives in matters of budget and taxes, or even replacing a representative government with an authoritarian one, are deluded by the chimerical image of a perfect head of state. This man, as benevolent as he was wise, would sincerely devote himself to the promotion of the lasting well-being of his subjects. In reality, however, this warlord would be a mortal man with everyone else, and he would be, first of all, concerned with the perpetuation of his power and that of his family, his friends and his party. As far as it can, it will resort to unpopular measures just to meet those goals. It does not invest or accumulate capital; build fortresses and equip armies. (MISES, 1949, p.959)
That said, the basic concepts for the formulation of the Bitcoin ideology are offered. The economic liberalism desired by such aforementioned economists, is put into practice with miners and individuals who carry out virtual financial transactions and with that endeavor to expand an ideology that for centuries has been debated in academic institutions by masters, doctors and specialists in the field. Obviously not all users participate in the system and carry out financial activities that have the intention of developing and making reality what was designed by the creators or creator of the Bitcoin cryptocurrency, in fact, this portion is the majority within the statistics. But in any case, many believe that in the future the Bitcoin virtual currency will be established and will be part of society's daily life.
According to Ulrich (2014), the process is gradual and goes through phases before confirming the currency formation process, it is impossible for any type of object, whether physical or virtual, to establish itself quickly as a means of financial exchange; a good can only achieve this status if it has already obtained some value as a commodity. It is necessary to have had some use as a commodity, only then to start functioning as a means of exchange. There must be a value of use prior to the value of the medium of exchange.
CRYPTOCURRENCIES BITCOIN IN NUMBERS
To demonstrate the strength and potential of the cryptocurrency, data and information have been compiled that prove that the Bitcoin system has been reaching impressive user marks and constant rates of financial movement. Over the past few years, society has shared news about a new virtual payment system and from this, the interest and curiosity to discover this new tool has led individuals to promote physical and virtual structures to expand the Bitcoin system. Companies specializing in foreign exchange were formed, as well as websites and online forums specialized in transmitting information about bitcoin, thus generating content for this expansion to take place. It is possible to see in Graph 1, that the number of users of wallets in the integrated Bitcoin system,
had an expressive boom reaching the mark of approximately 7.8 million users.
Image from: Blockchain.info (2016)
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