Excerpt from Crypto Currencies for Absolute Beginners:
Bitcoin is the biggest game changer to an economic system since the introduction of paper money
But what is a Bitcoin? Is it a sequence of highly encrypted zeroes and ones? I wish I could say yes to make it easier to understand, but it is not a string of digits.Bitcoins are not digital coins at all. They are a new form of money based on technology.
Around 750 years ago, a young Italian merchant called Marco Polo wrote a book about his travels in China. The Book “The Travels of Marco Polo”, was full of customs that Marco Polo claimed to have seen. One in particular was so strange and extraordinary, that Marco Polo could barely contain himself: “Tell it how I might, you never would be satisfied that I was keeping within truth and reason.”
Marco Polo was one of the first Europeans to witness an invention that remains at the foundation of the modern economy: paper money. The money was made from a sheet cut from the bark of mulberry trees. It was signed by multiple officials and, authenticated by the Chinese emperor Kublai Khan himself. The chapter of Marco Polo’s book was titled: “How the great Khan causes the bark of trees made into something like paper, to pass for money all over his country”.
The genius of this system amazed Marco Polo, who recalled that the paper money circulated as though it were gold or silver itself. The point I want to make here is, that whatever these notes were made of, their value didn’t come from their preciousness as with gold or silver coins. No, the value was created purely by the authority of an emperor.We cannot know the reaction that this strange concept of a currency might have stirred in the hearts of the money lenders of the time. It’s easily imaginable that their feelings and thoughts were quite like those expressed today by bankers confronted with crypto currencies such as Bitcoins. We generally don’t think about what money is. We exchange our time for work to get it, and then use it to buy food and pay the rent or the mortgage. We DO SOMETHING to obtain it, and when we hand it over we want something in return. Is the same possible with Bitcoins or other digital currencies? Not quite yet, but we are getting there, stay with me.The market capitalisation of crypto currencies reached half a trillion dollars by the middle of December 2017. This is still very small compared to the 40 million trades that are made every day in the realm of euros and dollars, but the trend is clearly upwards. An increase in market capitalisation from $100 billion to ½ trillion dollars happened within a two months period. On the 17th of December one Bitcoin hit $20,000. This pioneering spirit is incredible!
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