A Newbie’s Guide To Cryptocurrency EPISODE 2- Much Ado About Cryptocurrency.
By Sophia Onyeabor-Zema
Last week, I gave a summary of my entry into the realm of cryptocurrency, blockchain, decentralized finance, NFTs, etc. I’ll be explaining these concepts as I learn more about them every week. In this episode, you can expect to learn more about cryptocurrency; what it is, what you can do with it, the history of money and its relationship to cryptocurrency, what problems it solves and a lot more.
To fully understand the idea of cryptocurrency, I had to first understand the evolution of money. I’ll be sharing with you a brief history lesson about money but first what is money? Money is defined as a widely accepted medium of exchange. This means that it has to be adopted by many people. Since it is acknowledged and accepted by many people, it has value and can be used in exchange. With this description, you can see that money has been around for as long as man has been in existence.
The Evolution of Money
Trade by Barter
The trade by barter system was the system of exchange carried out by our predecessors. If your great great great (you get it) grandfather had five tubers of yam and wanted to get rice, he could exchange the yam for the rice. Early versions of money were anything from rice, salt, etc. However, measurement was always an issue. How could you truly know the quantity of rice to give for a tuber of yam?
Gold and Silver Coins
The second era of money introduced gold. The currency era. Somewhere in 600 B.C, King Alyattes of what is now known as Turkey minted the first official currency known as the Lydian Lion. It was a coin made from a mixture of gold and silver. Now, your forefathers could exchange gold or silver for goods or services. People trusted that it had value because it was made of precious metals. After over 200 years of coins, all governments put their hands together and stopped further development. In 1933, the US government issued an executive order forbidding the hoarding of gold coins asking citizens to deliver all golden coins, gold bullion, and gold certificates to banks. The government now had control of gold. There was one problem though, it was hard to transport gold in large quantities, hence the third era. Paper money.
Paper Money (Money Notes)
The paper money era was backed by gold; you were given an equivalent of gold in the form of paper. The paper had value now because the government said so. In 1971, US President Richard Nixon changed the laws that allowed for the dollar to be equal to gold. You could only use paper money. This new system required trust in government, the government could decide how much money could be created, its value, and its purpose (monetary policy).
Fiat currency is any currency that the government has declared legal. The Dollar, Pound, Euro, Naira, Yen, etc are fiat currencies because the government declared them as legal tender. Legal tender is anything recognized by law as a means to carry out transactions and fulfil a financial function like tax payments, legal fines the problem with this system is that it leaves money open to manipulation from the government, they control the supply and the creation. It could only be created by a centralized authority like the central bank.
After a while, the need for a currency that provided solutions to the “problems” that fiat currencies presented arose. In 1984, during an interview, Nobel Laureate and economist, Freidrich Von Hayek predicted the creation of such a currency, what is now known as Cryptocurrency. Friedrich explained that while, thankfully, other paradigms of an institution like law and language have been allowed to develop, money has remained frozen. With government abuse of money and monetary policies have done more harm than good. He pleaded for the “denationalization of money”. When asked how that would work. He said that “while the government can stop people from issuing money, they can’t stop people from opening accounts… After all, in the modern world, hand-to-hand money, coins, and paper money are no longer important. Credit cards are now a substitute. We can forget about existing money and existing banks and open a system of accounts that will displace money”. Chilling, isn’t it? The interviewer referred to his idea as “a fascinating concept”. Not a theory anymore!
In 2008, an individual (or group of individuals) called Satoshi Nakamoto published an article that explained Bitcoin. Bitcoin was the first cryptocurrency and it provided a triumphant solution to all the problems that the fiat currency presented. You might wonder (because I did), why would you want bitcoin, a currency that you can’t touch or see? Technically, you don’t see or touch most of the money you spend now. When you buy something on Jumia or Amazon, you don’t pay cash, you pay with your credit card. A credit card issued by a bank or any other third party like PayPal, asking you to trust them that the card is the equivalent of your money. It’s just that simple.
Do you want to know more about Bitcoin and what makes it such a credible currency, watch out for my article next week!
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