What is money and how is it created?
From a modern world perspective, money is an economic tool that acts as a medium of exchange for goods and services. This tool can be earned as a reward by individuals for their services to society. This reward is unfair and unjust for many due to the nature of centralized monetary systems.
Before the economic tool of money, people would barter to obtain the goods and services they needed. With modernization, simple bartering doesn’t provide the same levels of scalability, transferability nor divisibility. To solve these problems, society used commodities as money such as gold, silver, salt and other minerals, and even silk. Eventually the same issues of scalability and interchangeability hit these raw materials so society associated checks, lines of credit, and fiat money as an easy placeholder to represent value. The American dollar was a commodity money before 1971, backed by gold. As a result, foreign governments were able to take their U.S currency and exchange it for gold with the U.S.
The Fiat money system we know of and use today was introduced because gold is a scarce resource. Economies growing quickly couldn’t always mine enough gold to back their money requirement, carrying a danger that whoever produced the token money (paper currency) might be able to “get something from nothing”. In an ideal system, this must be ruled out as well to combat runaway inflation such as what we saw with the Venezuelan Peso and the Zimbabwe Dollar.
The Italian Professor of Economics, Augusto Graziani has stated that three basic conditions must be met for something to be called “money”:
A) The money has to be act and represent itself as a token currency(otherwise it would give rise to barter for consumption and not necessarily to act as a monetary store of value);
B) The money has to be accepted as a means of final settlement of the transaction (otherwise it would be credit and not money)
C) money must not grant privileges of seigniorage to any agent making a payment.
The only way to satisfy those three conditions is to have payments made by means of promises from a third agent, typically a bank within today’s context.
In general, we all tend to think of exchange as a transaction involving two parties. In reality, there are three parties involved—a seller, a buyer, and a note issuer commonly governments defer this operation to banking institutions. The transaction also involves just one commodity, which is exchanged in return for a transfer of the bank’s promise to pay from the settling assets of the buyer to the settlements account of the seller. Therefore, all transactions are triangular, involving at least three agents, the payer, the payee, and the bank involved in settlement.
Money is simply a third party’s promise to honor the value of the payment of the note used to facilitate the exchange of goods or services. This promise is commonly referred to as the full faith and credit of the issuing government and as stated earlier, is executed on their behalf through various federally regulated banking institutions.
That’s simple the nature of money: it is not backed by anything physical, and instead relies on trust. Of course that trust can be abused—and frankly this happens quite often through issuing too much money “out of thin air”. Banks create money by issuing a loan to a borrower; they record the loan as an asset and the money they deposit in the borrower’s account as a liability. This is no different to how the Federal Reserve creates money.
Ultimately, the whole financial system is built like pyramid, with each institution above issuing more money out of thin air to cover the rest and is clearly unsustainable! The U.S. Federal Reserve System is at top of this pyramid and can create their owncurrency at will. How much, you ask? As much as they please! Of course, keep in mind that the Fed must still adhere to some form of accountability through their own internal rules and regulations, but who makes those rules? To further muddy accountability, the Fed uses a fancy phrase to justify it: it’s called Quantitative Easing.
The lower levels of this financial pyramid are the central banks of different countries. Even lower on this list sit the local branches of these aforementioned national banks. The Fed has direct relation to ordinary people of all countries because dollar is the defacto global currency. No one Central Bank can print its currency in desirable quantity without permission of the U.S Federal Reserve Commission. As soon as the country supplied its resources to the USA, they are granted authorization to print the local currency in the amount equivalent to those resources traded. Failure to adhere to agreements will cause problems later such as being turned away from the IMF (International Monetary Fund) and even economic sanctions against them by the Offices of Foreign Asset Control – also an American government agency. Being turned away from the IMF will certainly cause a currency devaluation for a country in addition to restricting the potential borrowing power of said rejected nation.
In 2009, Satoshi Nakamoto proposed a solution to unfair, centralized, and unjust financial systems with advent of open-source software called Bitcoin. Bitcoin enables instant payments to anyone, anywhere in the world, with very low transaction fees. It uses peer-to-peer technology to operate independent of any central authority, managing transactions and issuing new bitcoins are carried out collectively by the network through cryptography and proof of work encryption hash schemes.
How bitcoin created?
New bitcoins are created as a reward for verifying transactions on the network. This activity is known as mining and uses specialized computers to record transactions onto a shared ledger, called the blockchain. Solving new blocks will record transactions, collect those transaction fees, and collect the newly minted bitcoins. These new coins are called the block reward and are distributed in an even manner depending on how much computing power you have, processing for transactions. This reward is gradually reduced every few years until no more bitcoin is created, in the year 2140.
Unlike Fiat money, created with centralization through unfair practices with opague policies, Bitcoin is created collectively by a community that anyone can join. The BTC protocol is designed in a way such that that no one can make policy changes behind closed doors – practically everyone must opt in to use the changed BTC software otherwise no changes are enforced! Truly, through technology, we now have the means and opportunity to change current financial system. Btcgold.biz is platform for those who wish to see that change within the global fairness and equity that Governments have taken away! Help us grow the global bitcoin community! We can rule the world! To the Global bitcoin community- Btcgold.biz