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Evolution of Cryptocurrency

By VARINDIA    2017-09-16

Bitcoin, a radical notion

Money and the idea of money has journeyed through time and until the 20th century, a currency coin or note offered exchange value. Tangible value such as a precious metal, the gold standard being prevalent across Europe and the Americas. Today, the dollar bill only offers the backing of the US government’s word.

In this uncertain world, a programmer or a group of programmers going by the pseudonym Satoshi Nakamoto published a paper describing digital currencies in 2008 and the next year, Bitcoin was launched as a digital currency. Unlike government-backed currencies, Bitcoin has no central backing and anyone with a computer can create a Bitcoin. With no banks and no bankers, Bitcoin is fast, cheap and easy. The blockchain technology on which Bitcoin is built offers a decentralized, transparent and programmable platform for transacting, radically redefining commerce in the 21st century.

With opinions varying from “greatest technological breakthroughs since the Internet” to a “black hole where money disappears”; Bitcoin is a phenomena that cannot be ignored anymore. Here’s how Bitcoin offers the edge in seamless transactions.

* Counterfeit resistant code

* Verifying every transaction through a distributed ledger or a blockchain to prevent double spending

* Limited supply and the ability to subdivide a single unit into countless fractions

* Instantaneous and irreversible transfers bypassing the need for a trusted third party

* Decentralized network offering security and transaction verification

* Public knowledge of transactions on a global network

* Personal data encrypted by public-private key combination

* A dedicated team of developers and miners who support and improve the code, easing and securing transactions

Blockchain:

The underlying technology behind Bitcoin and other cryptocurrencies; blockchain is the ledger that keeps a record of all transactions that take place across the network. This technology allows participants to transfer assets across the Internet without the need of a central third party. A buyer and seller interact directly without a trusted third party intermediary. Identifying information remains encrypted; transactions are hence pseudonymous and not anonymous.

The end of traditional money?

Gold has long served as an established means of exchange as well as a commodity since 550 BC. The following attributes describe the strength and value of a currency. In this instance, gold.

 

Traits

Gold

Interchangeable

High

Non consumable

High

Portability

Moderate

Durable

High

Divisible

Moderate

Secure

Moderate

Easy to transact

Low

Scarce

Moderate

Sovereign

Low

 

With the development of human civilization came the development of commerce, increase in volume and transaction complexity. Keeping in mind the moderate divisibility of gold, fiat currency appeared with the Chinese officialising fiat, aka paper currencies.

Fiat currency fulfilled critical traits to a level much higher than gold. Paper was more portable and easier to transact but lacked durability. This lack of durability, the inability to be scarce, has caused inflations of humongous proportions, the Deutsche mark in the 1920s and more recently, Zimbabwe.

However, these fiat currencies were backed by sovereignty, backed by a fixed amount of gold in exchange for the currency when traded. In 1971, this gold standard was dropped and the only backing that the fiat currency possessed was the word of the government.

Traits

Fiat

Interchangeable

High

Non consumable

High

Portability

High

Durable

Moderate

Divisible

Moderate

Secure

Moderate

Easy to transact

High

Scarce

Low

Sovereign

High

 

Currencies until now have had one feature in common; they were issued by centralized authorities.

The invention of blockchain technology has added two new traits to a currency’s measurement.

Traits

Gold

Fiat

Cryptocurrency

Interchangeable

High

High

High

Non consumable

High

High

High

Portability

Moderate

High

High

Durable

High

Moderate

High

Divisible

Moderate

Moderate

High

Secure

Moderate

Moderate

High

Easy to transact

Low

High

High

Scarce

Moderate

Low

High

Sovereign

Low

High

Low

Decentralized

Low

Low

High

Programmable

Low

Low

High

 

Fiat currencies now enter a dynamic paradigm, a world where money is decentralized and programmable. Furthermore, these dynamic currencies are in a state of hyper-evolution where they continually develop traits that set them apart from one another in their competitive environment. Sovereignty, which was once the defining element of money is now out of favour, centralized failures such as the 2008 US financial crisis and the Zimbabwean hyperinflation have only weakened public trust in fiat currencies backed by sovereigns.

And in this age of the Internet, cryptocurrencies usher in a new definition of currency and economics.

 

Vishal Gupta
Co-founder & CEO, SearchTrade.com

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