In the beginning, it was barter. Ten sheep in exchange for half a kilogram of glass (yes, glass was very expensive at the time). As time went by, it became increasingly challenging to carry sheep in your wallet, so we invented coins. Initially, they were worth the same as the material from which they were made. We used gold, silver, and even salt (where the word salary comes from) as forms of payment, and everything went well until it became too complicated to carry enough metal to pay, say, a house. We then began to use a symbolic representation of those assets that, it was accepted, supported the value of money.
Thus, the conversion factor incorporated a soft and elusive ingredient that would accompany us for centuries: trust. The money object ceased to have value in itself. Still, a certain authority guaranteed that it could give you the corresponding amount of some tangible good of value more or less universally accepted in exchange for those coins and bills. Whoever deposited dollars will receive dollars, let’s say.
Thus, we exchanged concrete things with tangible value to exchanging colored pieces of paper that represented a certain amount of gold or silver. That is why here we call silver. In other words, the pesos.
Now why bother hoarding gold to back a coin? There we took another step:
Central banks were born in the 1930s.
- The United States separated the dollar from gold.
- Nations began to establish the value of money arbitrarily.
Or not so much; it’s a bit more complicated. But, simplifying, instead of offering gold as backing, the states put themselves as guarantors. The more trustworthy that State was (that is, the behaviors of that State as such a State), the more stable its currency would be.
If you suddenly see an X-ray of why your currency is devalued, yes, that is why. With an additional. When you don’t have to back your coin with gold, you can print all the bills you want. Only after doing that will there be many more pieces of paper, and therefore, each one will be worthless. It’s called inflation, and we have the pathological tendency to see it as an increase in prices; This is a very functional trend for the States because, said like this, it seems that the blame for inflation lies with the price makers. Strictly speaking, what happens is that the currency loses value, and therefore, the kilo of flour that previously cost 20 pieces of paper becomes 40, then 50, and now 64. It is the same, but that translates into more paper details because each piece of paper is worthless.
But beware, these issues are less linear than we usually think. The monetary problem is not bad in itself. The point is what it is issued for. Suppose the State issues to invest in something that encourages production (energy, water, roads, railways, and so on). In that case, the amount of flour, to continue with the previous example, will also increase, and as a consequence, its price should be maintained. , despite the fact that there are more pieces of paper, because there is also more supply.
But, without going into details, this is the type of currency we use today; in English, it is fiat money. Fiat is the subjunctive of the Latin verb “fio”, which does not mean to trust but to “do.” Translated: “so be it.” In other words, money by decree. Indeed, today we use a type of money whose value is established by decree. Of course, if necessary, the laws collide head-on with reality. But we’ll put that aside, so we don’t get sidetracked.
In practice, colored papers have also been disappearing. First, they gave rise to debit and credit cards, no less colorful, and then to simple numbers on computer screens and internet-based means of payment, such as PayPal. That is, not only is the value of your money not backed by specific goods, but your money in the bank also does not exist in the form of bills. The “physical,” as it has sadly become popular, is scarce in the world today.
Therefore, in large quantities, the physical assets are suspicious. Why? Because it is anonymous and fungible. Remember these two terms because they will appear again. It is anonymous (no one can trace that you paid for that chocolate bar with that particular ticket), and the kiosk does not ask you where you got the key from, nor are you concerned about what the booth is going to do with that ticket. What’s more: you can change a 1000 bill for two 500 bills, and you still have 1000 coins.
Why is it a factor that physical money is anonymous and fungible? Because if you pay with your credit card, that transaction is recorded and associated with your identity. Check? The same. Transfer? Anyway, you get stuck. But cash can’t be traced (actually, it can, but it’s challenging). That is why corruption and crime love him. Sometimes you need to wash it, of course; that is, to reintroduce it into the legal circuit (the money, unless it is false, always originates in the legal circuit) in such a way that it does not arouse suspicion. You can do something with that money in the civilized world (if not, what’s the use of being a millionaire delinquent?). The physique can be washed precisely because it is expendable. That is, it can be exchanged for anything else, even other currencies. And because it is anonymous. No one knows who had it before. He doesn’t even care.
In short, today, we use money whose value is decreed by the States and mediated by banking entities in which we place our trust so that no one cheats. That trust is not always honored, as those who went through devaluations,
Indeed, the centralized monetary authorities — the system, as it is called — are not without problems. Fraud, for example. Inflation. Corruption. But, given the nature of digital money, they are a necessary evil. Not me (my opinion is different, and it is below), but the creator of Bitcoin, Satoshi Nakamoto.
We have no idea who Satoshi Nakamoto is, and everything indicates that he is not an individual but a team of people. Still, we do know that he signed a document published in 2008 in which he describes a method to become independent from the centralized monetary authorities. In the introduction to that document, Satoshi admits that such authorities are necessary, despite their flaws, vulnerabilities, and flaws.
Why are these authorities necessary? Because everything digital can be duplicated, and the original and the copy are identical. That, with the money, is not a great idea, because you could use the same 1000 pesos to buy different things over and over again. You would only have to make copies of those 1000 digital pesos on your computer. Everything you want. Tempting, but the system would collapse in minutes.
This problem of digital money is called “double spending”. While it would be impossible with physical money — unless you counterfeit bills, and they would be fake bills anyway, not the same thing spent twice — it is a problem that is not had found a solution, except for these centralized authorities who keep records of transactions and ensure fair play is maintained. Only, according to Satoshi, such a system can’t guarantee 100 percent fair play, so, in his opinion, that system has to be eliminated. For that, he says, you have to replace trust-based electronic payment with one based on cryptographic proof.
I know it sounds like esoteric poetry, and we will not delve much into that now. Still, the truth is that the problem of double-spending was the stick in the wheel of decentralized digital money until Satoshi (genius or great team, it does not matter) came up with the idea to create Bitcoin. Here we go.
How is it guaranteed that the same bitcoin is not used twice? Through a technology known as the blockchain. The transactions are settled in a kind of digital accounting book whose blocks are linked with the others, as are the entries of a paper accounting book. Chaining, in this case, roughly means that each block contains the hash of the preceding block. This, which seems completely indigestible, means something very simple: to alter a transaction and, for example, use the same bitcoin twice, it is necessary to hack all the subsequent blocks to the one containing the transaction that we want to intervene. And this is difficult for the simple reason that it would consume so much computation that it would cost more money than is possible to obtain, hence the need for cryptographic proof. Satoshi clarifies this in his paper: the system is inviolable as long as the attackers do not have a computational capacity greater than what was needed to calculate the hashes of each block in the chain.
Also, instead of there being a single copy of the ledger, there are thousands of copies of that ledger on the Bitcoin network, and those records are public. It is a little more complicated, but not to get lost: if someone wanted to commit fraud with bitcoins, not just one ledger should intervene, but thousands. There are an estimated 10,000 nodes on the Bitcoin network, although some speculate that the number is closer to 100,000.
I know I’m skipping many questions, but in order not to get dizzy, if cryptocurrencies work, they solve a historical problem: double-spending. And they solve it using open-source software, and a decentralized ledger called a blockchain that guarantees that each entry that is settled will remain intact once the network validates it. The blockchain concept dates back to 1982, and its first concrete application was Bitcoin, with Satoshi’s paper in 2008. In 2009 bitcoins began to be used in the real world. So to speak.
OK, what do we know so far? That Bitcoin is the first entirely digital form of money that does not depend on any central monetary authority.
However, not all that glitters is gold, and here we could dedicate several pages to several problems that cryptocurrencies have proven to suffer from. But we will abbreviate. On the one hand, the software (but not the concept of blockchain) can be poorly implemented and have vulnerabilities. This is what happened with electronic wallets that made many people lose a lot of money.
But there are also conceptual issues. The whole idea behind bitcoin is based on the fact that you have to decentralize money. My doubts about cryptocurrencies do not have to do with blockchain technology but with the idea of decentralizing money. Seriously, it is a question: why do we have to eliminate the system and decentralize the money? True, cryptocurrencies are more transparent, but it is also true that we pay tons of money in taxes to the States, and one of their missions is to provide a solid currency. If a state is unable to do so, the problem is not centralized money in general, but that State in particular.
Furthermore, suppose a state cannot even provide its intrinsic vulnerabilities (everything in this world has inherent vulnerabilities), a strong currency. In that case, I do not know what is left for education, health, defense of borders, and still the ready. I mean, it’s just silver, guys. Anyway, we can discuss it until tomorrow, and regardless, cryptocurrencies still need to replace traditional money if they ever do.
Ideologies aside, the most interesting thing about Bitcoin, at least in my opinion, is the blockchain. Because, as you may already be suspecting, blockchain technology could be used to validate and certify not just monetary transactions but many other things. Digital works of art, for example, which, now, brings us to the happy NFTs, so fashionable at the moment.