Nowadays, it is common to see news or information about buying and selling cryptocurrencies, the benefits they offer, and the various applications of blockchain technology. In this article, we are going to know how currencies or traditional money (fiat) work to understand why it is said that cryptocurrencies could replace them.

The history of money

To better understand economic concepts, it is good to go back a little and know their origins. Money arose from the need to exchange one good for another, using a difficult to obtain and destroy; in addition to being able to conserve its value over time, this is how gold and silver begin to be used for this purpose.

The use of these elements as symbols of value and exchange became so popular that there came a time when their use became “impractical,” and the banknotes began to be issued as symbols that the person has that amount of gold in the bank, being able to withdraw it when exchanging it for that bill.

From banknotes to bank accounts

These bills have evolved to be just numbered in a notebook or in a bank account, increasing or decreasing according to the operations that people carry out with those numbers; that is, accounting is money. It is important to note that the State or country that controls the value of the money (the currency) issues it.

The value of money is controlled by a centralized entity. Even if we do not trust the institutions, we are obliged to use that money that they support, where only the banks have the history of all the transactions and access to the records of operations. But what if someone does not trust the institutions? Can you make your own coin? The answer is no because you are only allowed to use one type of legal tender.

Rise of cryptocurrencies

Cryptocurrencies are a technological solution to the problem of mistrust in institutions; this is how in 2009, the Bitcoin White paper was published that proposes a decentralized financial system where the records of all operations carried out by people are in a system common to which everyone has access, that is, everyone has a copy of the transactions that are being carried out, but always protecting the privacy and anonymity of the transactions.

Not everyone can write transactions on the blockchain; for this, they must be a miner, and that miner must undergo a proof of work where they must find a secret code that is encrypted, and only the one who finds that encrypted code can perform the registration.

Blockchain security

It is difficult for someone to falsify these transactions since when they are audited by the millions of users in the blockchain network, it is unlikely that there is a “false transaction” that is registered in all the user’s blocks it is validated.

To what extent is it realistic to think that the future of money is Bitcoin and cryptocurrencies?

There are several reasons to think that cryptocurrencies are the future; for example, one of its points in favor is the great confidence that a “financial system” generates in users that does not depend on any government or private entity, since although Some governments may have certain quality parameters, the problem is that at any moment a government may appear that has irresponsible use of the currency, such as creating new units without justification, causing serious inflationary processes.

Another point in favor of cryptocurrencies is the “proof of work system” that prevents more than 20 transactions per second from being included within the blockchain, generating trust in users.

It must be clear that it is difficult for all states or countries to allow control over legal tender money (fiat) to be “removed”; therefore, in the future, some regulations will have to emerge that allows Bitcoin and other cryptocurrencies to be able to circulate “legally” among the community, in this sense, they may not be a real substitute for fiat money, but rather continue to work together as long as both systems have reliability and support.

What do you think about this topic? Do you think that fiat money as we know it could disappear?

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