Do you believe that, within the classic monetary system, your money is in good hands? Do you trust your money to be a future-? Proof store of value? If the answer here is no, then the decisive question will be what alternatives are there?
Conceivable contenders for value storage and payment means would be material assets and
cryptocurrencies. Material assets as a means of exchange are relatively secure, but are actually quite difficult to exchange. Crypto money, in contrast, is easy to exchange, but are cryptocurrencies more secure than printed notes or virtual euro entries on your bank statement?
With a comprehensible introduction to the world of Bitcoin & Co., this article will tune you in to the possible future of money.
Why do cryptocurrencies exist - The purpose of money
Money has served for thousands of years as a means of exchange and as a store of value for maintaining that present value until the service fulfilments of the future arise. Since the departure of interplay between actual money supply and commodities, only a subjective trust now represents the true exchange value.
In regard to the meaningfulness of crypto money, it is important to understand:
Amongst the FIAT monies, whether cryptocurrency, dollar or euro, there is no real equivalent value. The value is set by a belief of being able to buy something in the future with that money.
Creating monetary trust - Central bank or self determination
The creation and maintenance of monetary trust is the most important task of central banks. It is for this reason that they own the lawful monopoly on money. Whether the central banks of the world actually still fulfil their duties needs to be seriously questioned. In times of currency crises, no interest returns and haphazardly perceived monetary policy, the trust in the viability of those traditional monies fades.
Dwindling confidence in classic currencies, taking into account the modern possibilities of the Internet, is the reason for the emergence of cryptocurrencies. Crypto money provides the means for depriving the ruling elites of their power over the future of money. Instead of the intelligence of just a few “select decision makers”, uninfluenced “collective intelligence” will determine monetary policy. Clear and irrefutably established rules will control the expansion of money supply.
Bitcoin - The symbol of over 3,000 cryptocurrencies
The cryptocurrency of Bitcoin (BTC) is the pioneer of modern monetary policy and the archetype for the currently 3,000-? Plus different cryptocurrencies.
The five most important cryptographic currencies are:
- Bitcoin (valued at around 6.1 billion US dollars)
- Ethereum (valued at around 397 million US dollars)
- Ripple (valued at around 292 million US dollars)
- Litecoin (valued at around 142 million US dollars)
- Dogecoin (valued at around 30 million US dollars)
How does crypto money generate trust?
The idea of making financial transactions more secure using a “peer-to-peer electronic cash system” first originated with the “Satoshi Nakamoto” group. They presented their Bitcoin in 2009 to an as yet uninterested public. Crypto money was to be “secure” from all influences that could impair its currency confidence.
State influence through digital traceability and the correlation of money to a physical individual or company is eliminated by cryptocurrencies due to their anonymization. A decentralised storage on all systems simultaneously also reduces the risk of manipulation by “hackers”. The risk of a “single point of failure” does not even exist. Neither central banks nor governments, or indeed even the originators themselves, are capable of interfering in the system for purposes of manipulation.
Accounting and inflationary protection
Inflation is eliminated from cryptocurrencies by strictly limiting the issuance of new money. In the simplest of terms, the influx of new money is decided upon by “competition between computers”.
Following the principle of “proof-of-work” and “proof-of-stake”, all participants receive either more or alternatively less influence over the entire system. All participating computers in the network provide processing power and continuously solve arithmetic tasks.
Viewed in their entirety, these interlinked computers perform the task of book keeping. The more processing power a participant provides, the greater becomes his influence. The chances increase during this process for the “most influential” participants to win a new issue of money and to profit from its subsequent transaction fees.
Single point of failure - illusory security
The ‘single point of failure’ is the major weak point of traditional monetary systems. At just one central location, even one single person can undermine trust in the payment method or bring about devaluation through inflation. The best examples of the individuals who can rock the entire system are the presidents of the FED and the ECB.
But still, the euro does not need to be rescued again, so that the weaknesses of the ‘single point of failure’ strategy are revealed. As recent history has shown, confidence in the ability to reliably pay amongst the banks has become an illusion. Manipulations and careless financial transactions have even brought many prominent institutions into difficulties.
Cryptocurrencies virtually beyond manipulation - Why?
Manipulation and the wrongdoing of individuals are counterbalanced in crypto monies by the intelligence of the masses. Those masses have influence through their book keeping over data blocs, which in turn fuse together to form a verified chain.
Each data bloc is verified through its predecessor and stored on an individual page of the accounts. A complete documentation is then provided by “hash values”, which any participant can check for authenticity without problem.
The system can only be manipulated when the masses of participants are all collectively mistaken. There is no system that offers total protection. But the probability of the majority all deciding incorrectly is significantly smaller than the risk of a bad decision within a key institution.
Will cryptocurrency determine the future of money?
Whether cryptocurrency really will determine the future of money is to be decided by trust. If things should continue as previously, then nobody will need to be a prophet to recognise the urgent need for major change.
For certain is that cryptocurrencies are gaining ever more in influence, since the classic currencies are clearly and obviously failing.