In 2008, the bankruptcy of America’s fourth largest investment bank, Lehman Brothers, triggered the worst worldwide economic downturn ever since the Great Depression. This completely shattered the mentality that large centralized banks are thought of as being “Too Big To Fail” and thus can be trusted with one’s money. This trust is to expect that the money one deposits to a bank can be transacted at any time of their desire, yet this trust can be easily compromised, making the banking system fundamentally flawed. As a direct result of this terrible economic crash, an anonymous user under the name Satoshi Nakamoto wrote a white paper, titled Bitcoin: A Peer-to-Peer Electronic Cash System, on the possibility of “A purely peer-to-peer version of electronic cash that would allow online payment to be sent directly from one party to another without going through a financial institution". On the 3rd of January, 2009, the mining of the very first block of the bitcoin blockchain, or the genesis block, created the existence of bitcoin, and in its input coined the words: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”, referring to a headline of an article in The Times magazine published on the same day, criticizing the centralized banks’ use of fractional-reserve banking. At the time of writing, the bitcoin blockchain accounts for 346,289 transactions per day, and is valued at $60 billion dollars of all bitcoin in circulation. The creation of bitcoin inspired many other blockchain-based cryptocurrencies with different use cases, allowing far more functionality with monetary value, all while allowing the owner to maintain full control of their value with their digital signature. The transparency, scalability, and decentralization of cryptocurrencies displays significant capabilities for the future of money, suggesting cryptocurrencies are a better replacement for the current stores of value, such as the U.S. dollar or gold.
Bitcoin and similar cryptocurrencies are digital assets that are recorded through a shared public ledger, known as blockchain. Blockchain is a ledger that keeps transactional data compacted into blocks and distributed throughout the system of nodes that run the core software. Blocks store information of which entities are involved with transactions, hidden under a unique “digital signature,” somewhat similar to a username. New blocks are always stored linearly and chronologically. After a block has been added, it is very difficult to go back and alter its contents. Furthermore, transactions are verified by a network of computer nodes, including its time, dollar amount, and participants. Blockchain networks have implemented tests for computers that want to join and add blocks to the chain, known as consensus models. As an example, bitcoin uses a proof-of-work (PoW) consensus model, which requires the computers to prove their legitimacy through doing intensive work on their graphic card or CPU. For this reason, the security of the bitcoin blockchain cannot be corrupt as its data is verified with all computers that comply with the consensus model. In fact, it is impossible to censor or block the blockchain from operating without shutting down the world’s computers and wiping out their storage, thus this structure provides the backbone for the entire cryptocurrency market in which bitcoin has inspired. Using this technology, a cryptocurrency by the name of Ethereum, co-founded by Vitalik Buterin and many others, thought of the idea to replace bitcoin’s more restrictive language with a language that allows developers to write their own programs. Cardano, another blockchain-based project, focuses on privacy and regulatory compliance while also hosting smart contracts and running a secure proof-of-stake (PoS) consensus model, where the stakeholder who will form the next block is randomly selected, proportionally to the size of the stake that they have, according to the blockchain ledger, which allows less energy consumption and faster scalability. Other blockchain-based projects also spurred off of this technology, such as XRP, a solution for financial institutions use to settle cross-border payments with speeds comparable to the VISA system at a fraction of a penny, and Monero, a PoW coin that utilizes ring signatures, a type of digital signature that lets any member of a group to perform a transaction without revealing which one of them it was, which makes its transactions hidden from the public eye. There are endless possibilities with what we can do with money, but as fiat currencies are not easily programmable or in a standard and certifiable digital form, it is hard to develop an digital applications that utilize money without support from central entities. With currencies like Ethereum and Cardano, they enable decentralized apps (dApps), such as decentralized exchanges, digital collectibles, and token creation on existing platforms, which allows money to have more functionality. The utilization of blockchain technology offers a uncensorable, untamperable, and decentralized system of value in which the people are in the control rather than banks, thus giving people the ownership of their money.
Over the past year or two there were many negative press on cryptocurrencies, as critics against cryptocurrencies claim such digital assets are just “magic internet money” which don’t prove any value whatsoever while being susceptible to hacks, though this is extremely false. No one has the power to force a cryptocurrency user to part with the coins that they own without revealing their private key. In fact, quite the opposite is true of fiat currency, especially when kept ‘secure’ in a bank account. Elite financiers, bankers, business magnates directly control the value of fiat currencies, while in the contrary, with cryptocurrencies, its decentralization takes global financial control from the elite few and restores it to the masses. When one uses a centralized system, there are possibilities for another malicious entity to attack the central entity, therefore allowing authority over another’s money; centralized systems can cause less distribution of wealth as a majority of fiat are under the hands of an elite few, controlling the fluctuation of value for the fiat currency, as such an issue is explicitly evident through the situation in Venezuela, where its central bank has caused an upwards of 100,000% hyperinflation of the Venezuelan Bolivar. In fact, it can be argued that one’s money is more secure and valuable when they store them as cryptocurrencies instead, as they would have complete control of their value without worrying about a sudden inflation or devaluation. On the flipside, many critics are also concerned over cryptocurrencies’ involvement in money laundering and fraud. The use of cryptocurrencies in criminal uses are inevitable, as for any other currency such as the U.S. dollar. In reality, it is easier to trace cryptocurrencies than fiat currency as cryptocurrency transactions are easily accessible to the public through block explorers, while physical dollar bills can be transacted under more anonymity. Block explorers may also provide additional information and features which include links to the previous and next transactions that involve an input and output, a list of all transactions at a particular address, existing and historical balances at a particular address, a search feature that can be used to search for addresses, transaction or blocks, and feature to track the transfer history of the virtual coins. Using block explorers, authorities are able to track the origin of the coins that were transacted from, as these transactions leave a digital footprint throughout the entire blockchain. By knowing details of a single transaction or account, anyone is able to discover where the assets of an address are stemming from. This proves the transparency of the bitcoin blockchain, as anyone is able to explore the blockchain of bitcoin. The above quotations exemplify that arguments against the adoption of cryptocurrency are tremendously flawed, and are easily disproved through the transparency of the blockchain.
The censorless, robust, and distributed nature of the shared ledger infrastructure a blockchain is run on displays major advantages against its centralized counterparts, thus making cryptocurrencies a more efficient replacement for the current stores of value. Through addressing the common concerns and use cases of a financial structure built around blockchain-based assets, it should be clear that the access of money using cryptocurrencies offers authority of assets to its rightful owner, allows more applications with the assets, and uses a system that cannot be affected by a decision of one person. Nakamoto proposed a system for electronic transactions without relying on trust, and with such a high transaction throughput to this day, this displays the need for a decentralized monetary system (p.8). With the current economy running on a centralized fiat currency banking system, how devastating would it be for another recession?
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