Fiat currencies only have value because we believe it. A shopkeeper accepts your money because the person believes that the currency will still have value the next day. At the same time, there is a centralized authority that controls the value of this currency. As a consequence, central banks get the unlimited power that they use to redistribute money from society to banks that then lend money to companies. The state and the banks believe that this “redistribution” is justified to boost growth and push people to buy more. If this is right or wrong, we’ll let you decide.
Bitcoin, on the other hand, doesn’t work in the same way as it is decentralized instead of centralized. In other words, no authority decides over the digital currency. It is the users participating in the Bitcoin Network that together determines the protocol rules. This results in a system that is fair. We all realize that the current system has shortcomings, as well as the previous means of payments, have had. On the contrary, there are always people who are against change and work to prevent the development of new technology. However, the introduction of cryptocurrencies in our society is inevitable because they solve the problems with current fiat currencies.
Among those who oppose cryptocurrency, one can hear statements that Bitcoin is not a currency. If we look at the definition of a currency, there are 3 distinct features;
- It should act as a means of payment. The fact that Bitcoin serves as a means of payment is proven because you can transfer Bitcoins between digital wallets in just a few minutes around the world. For example, it may take several days or not work at all to transfer money between different countries with regular currencies.
- It should act as a counting unit. Unlike common currencies that only can be divided into cents (0.01) at most, Bitcoin can be divided into what is called Satoshi, which is currently one-hundredth of a million (0.00000001). The Bitcoin protocol can also be updated in the future for an even smaller breakdown.
- It should preserve the value. As we have said, central banks can manipulate their fiat currency by changing the amount and thus also the value. This doesn’t work with Bitcoin as the supply is limited with a certain amount of Bitcoins (21 million) that will be created until 2140.
But in addition to serving as a currency, Bitcoin can be used for a lot more. The network uses so-called smart contracts which create many opportunities. Transferring money from one to another just happens to be the most common type of contract.
Source: Crypto Runner