Beginners guide to Blockchain
Technology & Cryptocurrency
History of Cryptocurrency
Prior to the conventional monetary system, transactions were conducted on a trade-by-barter model, in which a person who owns a valuable decides to exchange it with another person’s valuable through mutual agreement. This used to be the norm, but the system had numerous flaws.
● In order for a person to get what he desires through the trade-by-barter system, he must find another person who has what he wants and is interested in his property. This can be exhausting, if not impossible at times.
● Furthermore, because there is no absolute metric for quantifying a person’s property relative to another person’s, an individual may have to sacrifice more as a tradeoff in order to get what he wants.
● Aside from the fact that the period was primitive and there was no good mechanism to transport a good to another person sometimes the property is simply not moveable. In the case of land, houses, and so on.
People began exploring alternative methods of transaction that would be beneficial to everyone and be widely acknowledged as a solution to these issues and others like it. As a result, gold became a legal tender at the time. People were able to pay in gold and keep their other possessions instead of transacting using a trade-by-barter model and having to give up their valuables merely to receive what they don’t need. Due to its scarcity and durability, gold was adopted; nevertheless, there are some complications with it as well:
Gold is a hefty item that is difficult to keep or transport; in fact, if a person has a lot of it, he would have to hire people to safeguard it.
Additionally, carrying a large amount of gold can be laborious and requires transportation facilities, and security, among other things.
With this, there was a need for a less demanding mode of transaction, and it was decided that the United States Treasury would hold all the gold in reserve for people and then issue a receipt stating the amount of gold each person had in the treasury, and they, the people, could go about spending that receipt instead of a physical gold
With this, there was a need for a less demanding mode of transaction, and it was decided that the United States Treasury would hold all the gold in reserve for people and then issue a receipt stating the amount of gold each person had in the treasury, and they, the people, could go about spending that receipt instead of a physical gold
The receipt can then be presented to the US Treasury to obtain physical gold as needed. This became the norm until a bank run occurred and people flocked to the Treasury to claim their gold in large numbers but were denied.
The treasury was discovered to have loaned out their gold, and there was no gold to give everyone, ushering in the fiat monetary system. The US Treasury began issuing paper money to the public that was not backed by gold.
This quickly spread around the world and evolved into the conventional monetary system we have today, in which banks can print an infinite amount of money, loan money into existence, and so on.
This model is obviously flawed because total monetary power is concentrated in the hands of a small group of people. Some of the flaws of the conventional monetary system are:
● The banks get to print an infinite amount of money, causing the currency to depreciate and inflation to rise.
● People’s funds are loaned out and the banks operate on a fractional reserve model, so in the event of a bank run, the people lose.
● The community must rely on a select few and a centralized ledger that can be manipulated.
● The system has a single point of failure
The 2008 financial crisis exemplifies these shortcomings, as the US economy collapsed due to banks’ excessive leverage. Because of the opportunity they saw in the housing market that they could potentially profit from, the banks lent out more money than they had, and when the borrowers defaulted, the banks had no money to pay depositors, resulting in a bank run that crashed the financial markets and the economy as a whole.
This resulted in the emergence of cryptocurrencies. As a result of the clearly flawed system of operation in the banking system, a random person or group of people known only by the pseudonym Satoshi Nakamoto created the first cryptocurrency, bitcoin, which is intended to replace the banking system and create a peer-to-peer digital currency on the blockchain.
Next Page
