In this article series, we are going to explain what Bitcoin is and why it has the potential to revolutionize the way our society operates. The invention of money is one of the most important developments in human history. Money is the main enabler of highlevel collaboration within our society.
Throughout our history, we have continued to develop new types of money, improving the way we interact and cooperate. The worldwide dominant type of money is called fiat currency. Lets have a look at some challenges that fiat currencies are facing. In 1971, US President Richard Nixon separated the dollar from the price of gold.
This was done in order to prevent a financial crisis and to give the US government more control over the actual value of their currency. Most of the world followed suit. This started the era of fiat money or money issued and backed by governments.
It also put an end to the use of representative money and money types with any form of natural scarcity. Commodity Money, like shells, a collectable, or gold, is naturally limited and has an intrinsic value. Representative Money still represents a limited commodity like gold Nobody could create more shells or gold.
Now, this new fiat currency was unique because it had no physical limitation that would ensure scarcity. With fiat money, the amount of money that is in circulation is regulated by the governments and central banks of the respective countries.
This has put a lot of power in the hands of a few people responsible for regulation. As a result of this, we are required to trust their motives, knowledge and that they wont abuse their power. If governments need money, they can create more. While the money at their disposal rises, the actual value of the currency drops inflation then basically becomes a form of taxation for all currencies holders.
In 2017, Argentina saw an inflation rate of 26, the Congo 42 and in Venezuela even 652. If a Venezuelan stored 652 Bolivars under their bed at the beginning of the year, by the end of the year that pile of moneys value would have been only one Bolivar. In our current monetary system, aside from our own countries government, we are also obligated to trust banks. Everybody who wants to participate in our economy has to have a bank account and trust their bank with the deposited funds. In unstable economies, people often lose their money because banks suddenly go bankrupt.
But actually this can happen anywhere, In the aftermath of the financial crisis of 2007, the people of Greece, for example, were unable to access the money in their bank accounts. This crisis was caused by irresponsible banks that speculated with their customers savings and lost in a big way. In order to prevent the financial crisis from further spreading, even renowned banks had to be bailed out by their governments, with taxpayers money. Although this crisis was finally managed, the next crisis, might not be.
This situation brought to light some of the fundamental flaws in our current monetary system. In the next article, we will discuss how the newest monetary innovation, Bitcoin, addresses these issues.p