The recent year one’s been hearing a lot about bitcoin and mining, blockchain and crypto currency, ICO and tokens, from early morning till late night… Thus a lot of ordinary people expanded their vocabulary as much as six words! While dollar and euro are eating their hearts out as bitcoin hits growth records, we know almost nothing about other crypto-currencies, despite they are already more than one thousand…
By the way, recently my vocabulary has been enriched with one more word combination — “fiat money”. This is not the amount for which you can buy a product of the most famous Italian car manufacturer … :))))
I think I should start this conversation about crypto-currencies from the beginning, with a little digression into the past.
The Latin word “fiat” is literally translated into English as “Let it be so” or, if shorter “decree, ordinance.” Put it bluntly, the money that is issued by the government or the central bank of any country or Federal Reserve System is not tied to the gold standard or any other commodity security — that is what economists call fiat money. It was our favorite gift since childhood, we simply did not know the correct term for it! 😀
Of course a few centenarians remember that long time ago these pieces of paper were secured with gold… Then most of the countries of the world decided that it would be much more practical to have money secured not by gold, but simply by the authority of the state. Bold decision, isn’t it? 😉
In this case any government when necessary can turn on a printing press and print as much money as it takes to cover the budget deficit. If ordinary people suffer from an inflationary shock — that’s the problem of their own!
It seems strange at a glimpse, but bitcoin is a much more honest monetary unit in this regard! In the bitcoin protocol, the final value of 21 million coins is clearly specified. According to the mathematical calculations of its creators, the last bitcoin will be mined in 2140.
Actually bitcoin would have never appeared without so-called blockchain technology. In simple words blockchain is literary but a chain of information blocks. All data about all transactions are linked in it. The blocks are constantly updated and their database distributed among a whole bunch of users. And since the system constantly compares its copies among them, none of its members can secretly scoop the pool because the system will notice forgery at once! If desired, each user can track transactions in the system, while he can not use this information for a con game. To make a transaction, you must have access to the source code that is registered in the owner’s wallet while in the common database only the public key is reflected.
Once again we’ve got convinced that all ingenious is simple. But only after it is explained in plain words and for a couple of times … 😛
What else requires an explanation is the launch of so-called tokens or ITO (ICO). But this is a topic of a separate conversation…