Current financial system, digital currencies and Bitcoin
Let’s dive into the current centralized financial system, its flaws, and also about how cryptocurrencies can change our perception of current standards.
Standard monetary system
The Central Bank controls the nation’s money by lending the government with interest. That produces long term debt and increase of prices.
Consider the money that the government owes to the bank, and the fact that the Central bank has a monopoly on money production , makes them even more powerful than is healthy. Long term debt only keeps increasing. That means that your money never goes up in value, the value only steadily decreases. There are no assets to back up this debt. It used to be gold, but there isn’t any gold standard anymore. That means that the Central Bank can keep printing money as they see fit — more supply — inflation.
And now back to our topic — is there a chance we could deal with this outside of the regular financial system?
Cryptocurrencies
Cryptocurrencies run on the blockchain. It’s a digital currency that uses cryptography in order to secure each and every transaction. We touched on cryptography in the previous article when I mentioned that data stored in blockchain can’t be changed without changing a hash in the following transaction. Hashing function is what keeps everything secured together with public and private key cryptography. Easily explained — your wallet where you store your cryptocurrencies has public keys (wallet address) and private keys that you must keep for yourself at all times, because they grant access to your funds.
Lots of people use the argument that it is “just a digital thing”, nothing you can physically hold. Well — remember how we discussed that regular currencies aren’t backed by anything either? It is the same thing. All you hold is a piece of paper that has value only because we give it to it. You mainly hold digital currency and not much will change — except…
The main purpose of cryptocurrencies is to solve problems that traditional currencies have. It’s owned by people, not owned by the government and not covered by debt. Your wallet is owned by you with all assets in it and no one else can touch them as long as your private keys are safely kept by you.
Let’s talk Bitcoin — what is it?
Bitcoin is a decentralized digital currency.
Whitepaper was published in 2008 and Bitcoin was implemented in 2009 by Satoshi Nakamoto. Satoshi Nakamoto is only pseudonym of the creator, until today, we do not have any information about who’s the real person standing behind this project. We can only guess.
Bitcoin is an electronic cash system without any borders and also without any centralized system. Your Bitcoin is only yours — no central authority can touch it and you can easily transfer it or take it with you anywhere you go. That’s the benefit compared to regular gold and that is also a reason why Bitcoin is often called “digital gold”.
Even if you are from less developed countries, Bitcoin is still accessible to you. It is accessible and can be used by anyone. It’s up to you whether you use it for investing, sending money internationally or just buying stuff as with regular money.
Bitcoin runs on blockchain — all points mentioned in the previous article about the functions of blockchain also apply to Bitcoin.
What are altcoins?
Altcoins stands for alternative coins. They are all cryptocurrencies other than Bitcoin.
The most famous would probably be Ethereum but by March 2022, there are already over 18 000 cryptocurrencies.
In the following article we will learn more about altcoins and also how to choose the right ones to invest into.
