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Over the past week I was reading some articles and watched a video about the possibility of Bitcoin being the next world currency. This motivated me to write an article how money developed over the years and what we should look out for in a currency. Furthermore, I will discuss whether Bitcoin can be this promised world currency or whether people should look out for other projects.
History of Money
Before humanity and the civilization had invented money, people just traded with their goods. They traded 10 eggs for a pig and 200 apples for a cow. The problem was that not everybody had a cow or did not want to have 200 apples but just one. To do this you would need to divide your cow into 200 pieces and pay with one. Obviously, the cow would lose its value by doing this and it would have been madness. This is how people came to money. It is essentially a store of value that everybody agrees on and makes trading easier.
In the first stages the value was saved in tokens like sea shells, beats or rare stones. They had the advantage of being dividable and people could easier adjust their prices. The only problem with that was that it worked within one small economy where these kind of tokens could not be easily produced. In history there is this example with the glass beats that an African economy used. During the time when only this African economy used these beats the economy was heathy and developing. The citizens and traders were producing goods and were trading it with the help of these beats which were a rare asset so to speak. When European traders discovered this economy, this economy was destroyed very quickly. So what happened? The Europeans had a way to produce these beats in a very cheap way. This means that those beats were worthless to the Europeans but they could trade those worthless beats against worthful goods from this economy. This way the Europeans took all of the good stuff from this economy and left them with a overfloated market of these beats which now became worthless. This is a good example how an issuer of a currency can benefit from such trades and by having the power and control over the monetary system.
Because humanity is an evolving species it was clear that these stores of value should not be that easy to produce. That is why people chose the precious metals as the next generation of money. Especially gold is a very good example because over the years many alchemists and chemistrists tried to reproduce the molecular structure of gold and always failed. That’s why gold was only obtainable by mining it which also means that it is finite to some degree which also means that it should keep its value to a certain degree. Furthermore, it was possible to divide this metal into smaller pieces. Both of these attributes, scarcity and divisibility, are attributes for a sound money. In a previous article of mine I already mentioned that during the era of gold the economies were evolving at its finest and humanity got the most influential inventions at that time.
With the World Wars and invention of printers the governments started to exchange the gold for paper money. In the beginning each paper was worth a certain amount of gold and it was pegged. This allowed the people to trade easier because gold was heavier than paper and therefore it was not possible to transport a lot of it at the same time. The only problem was that the governments soon began to unpeg the paper from the gold. That means that they started to print more money and hence devaluing the existing paper money. We are now in the fiat money state. There could be analogies drawn to the story about the beats economy where whoever controls the source of money will get all the worthful goods while everybody who gets the currency will be left destroyed and basically robbed. This could be compared to todays time. And while I don’t think that it is the only governments intention to make the people poorer it is certain a development that can be observed.
Current Transactions with Money
Like I mentioned before, we are now in the present and we have the fiat currency. Here, we have essentially two types of transaction types that we can use to pay for the wanted goods and services. First, there is the standard peer to peer transaction. This is our classical microtransaction where you just pay with cash or coins. It is easy and safe and does not involve any trust, because this money we are paying with is government issued. The second type is the digital transfer, for example with a credit card. Because this way is digital it involves a third party, like VISA. This third party is mainly there to provide the service and to make sure that nothing sketchy is going on. Generally speaking, everything digital can be multiplied. That means that this third-party company has to make sure that this money is not duplicated and so on. For this service the third-party company receives a commission fee. And while the second option involves us paying a little bit more it is the more used transaction because it is very convenient and it is possible to transfer money globally without being present. Like I mentioned before, the drawback is that it requires the third-party company.
Bitcoin as Savior
Now what if I tell you we could have something that combines the advantages of the previous two transactions and has additionally attributes of a sound money system. Yes, I am talking about Bitcoin. The advantages a very clearly. Using Bitcoin, it is possible to operate globally without a third party system because the network consisting of the miners are securing it and providing the necessary trust. Without going into much detail, to validate a transaction the Proof of Work consensus mechanisms is used. In another article of mine I already explained how this mechanism works. It incentives the miners to validate only valid transaction because if the whole network would become corrupt BTC would immediately become worthless. Furthermore, it is easy dividable and there is a hard maximum amount of 21 million which makes it the perfect example of a sound money system.
Bitcoin as World Currency?
While the adoption currently is not very high it is accelerating. And yes the price is volatile bus as more people and institutions adopt it, it should get more stable. There are a few concerns out there that should be addressed though. Bitcoin is considered as a very slow blockchain. It can only process around seven transactions per second. This is wide below the current necessary rate. This is why a lot of other crypto projects like Solana are trying to solve this scalability problem. The only problem with these kind of projects is that they are not decentralized. In the worst case scenario these projects can be seen as companies who hide behind a crypto currency and are controlling the supply of this currency. This is not the case for BTC. Furthermore, there is a scalability solution for BTC that is already in use. I am talking here about the Lightning network which is also in use in El Savador.
Generally speaking, El Savador can be taken as an example of how BTC could get adopted more. It will be very interesting to see how the economy in El Savador will change and how the people there will accept it after time. It is too early to tell but it looks like people are getting more used to it.
I think Bitcoin has the potential of becoming a part of the world’s currency system. And while I don’t think it will happen any time soon, I do think that Bitcoin is an inevitable asset which can not be ignored any longer. I also think that other crypto projects will be essential in the future but for them to survive they have to bring a big ecosystem and a lot of utilities. A good example for that is Ethereum. I think that the world is currently on the edge to the next era and it is very exciting to be part of this!
Thank you for reading!
Published by ga38jem on
LeoFinance|Steemit|read.cash
On 4th December 2021
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