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Bitcoin: emergence of an alternative and decentralized cryptocurrency

Bitcoin: emergence of an alternative and decentralized cryptocurrency

Bitcoin: emergence of an alternative and decentralized cryptocurrency

bitcoin (Duncan Rawlinson credits, Creative Commons license)

What should we understand and remember when talking about Bitcoin currency?

By Sylvain Fontan.

By nature abstract and often overused in the common discourse, money is nevertheless a subject that touches the daily life of everyone. As such bitcoin is an innovative practical application with regard to traditional monetary concepts. Appeared in 2009, the bitcoin currency was known and used mainly by geeks and the underground economy.
After a long period of sluggishness and despite the existence of controversy over the monetary nature of bitcoin, this has not prevented the latter from developing significantly over the past eighteen months to become the symbol of a new era marked by globalization, the digital world and the global crisis. The characteristics, the origin and the atypical evolution of bitcoin contribute largely to establish a halo of mystery around this decentralized digital currency of libertarian inspirationwhich simultaneously echoes two major anxiogenic topics of contemporary societies: information technology and finance. Although hypotheses can be made about the future of bitcoin, the only certainty about it is that it constitutes a conceptual advance that financial and state institutions will increasingly want to control.

Nature of bitcoin

Bitcoin is a currency, just like the euro or the dollar. Therefore, it is necessary to recall the three basic functions of a currency: (1) a unit of account, (2) a mode of settlement of transactions, and finally (3) a tool of store of value and savings. Thus, bitcoin can be called money because it fulfills these fundamental functions:

1) It represents a unit of account, that is to say, it makes it possible to value a good or a service. For example, it is possible to determine that a pen is worth 2 bitcoins.
2) It facilitates trade, that is, it can be used to buy goods and services. In fact, instead of exchanging pears for apples, shoes for books or a medical check-up against a technical check-up with a mechanic, individuals seeking to trade pass through a monetary instrument.
3) It serves as a reserve tool, that is, it can be stored for future use. Indeed, bitcoins can be held in a virtual wallet attached to an anonymous identifier on the internet.

 However, against the criteria that base a currency, the bitcoin does not return perfectly to the expected characteristics. Indeed :

1) A unit of account accepted by all. However, the strong fluctuations on the price of Bitcoin indicate the difficulty of determining a more or less stable value. However, the stability of a currency, even relative, is a fundamental aspect of trust. In these conditions, the high volatility (fluctuation of prices) related to bitcoin is not conducive to the establishment of a climate of confidence in it. Therefore, it is unlikely that someone accepts his salary in bitcoins if he can be worth half the next day. Ditto for a supplier of goods or services whose risk of depreciation (loss of value) of its performance in bitcoins is particularly high, for the moment at least.

2) A method of settlement of transactions. For the moment, and despite a clear increase in recent months, the number of businesses (e-commerce, hotels, restaurants …) that accept this method of payment in the world is still very low (20 000 merchant companies in the world offer their customers the opportunity to pay in bitcoin and only 40,000 purchases of goods and services denominated in bitcoin are made every day around the world). In addition, the security problems inherent in this currency (hacking-not the bitcoin system but computers allowing the circulation of bitcoins …) makes this large-scale eventuality ineffective. Finally, more trivially, it seems for the moment complicated to go buy a baguette as well.

3) A tool of store of value and savings. Indeed, even if it can be stored, the fact that it is impossible to physically set aside this money and that there is no other way than speculation to make it profitable, prohibits this basic function of the currency: depositing against the payment of an interest rate with a financial institution is impossible.
In addition, bitcoin has intrinsic characteristics that differentiate it from traditional currencies.

Indeed, bitcoin is an original currency by its nature:

• The euro and the dollar are legal tender, which means that it is recognized by the public authorities. Thus everyone, respectively within the euro zone and the United States, is obliged to agree to be paid in euros or dollars. However, even though more and more e-shops, and even some physical shops, accept bitcoin as a means of payment, nothing obliges a merchant to accept them and nothing and no one guarantees that they will be accepted in the future. . Therefore, the exchange of bitcoin is only possible between people who voluntarily agree to use it; it is called a currency “because of the uses” contrary to a currency “because of the Law” which has a legal tender.

• In addition, the use of traditional currencies such as the euro or the dollar is governed by centralized systems via central banks (the ECB in the euro zone and the FED in the United States). For example, when one of these currencies takes or loses too much value in relation to economic policy objectives, the central bank can potentially intervene to try to regulate these fluctuations. Bitcoin, on the other hand, is based on a decentralized system, that is to say that its value depends solely on supply and demand. Therefore, the more people buy bitcoins, the more its value will increase. Conversely, the less people buy, the lower the value.

• Moreover, in a centralized system, the use of money is framed by rules. For example, in France, in the event of fraudulent use of its credit card, the banks are legally obliged to reimburse the victim. In a decentralized system like bitcoin, in case of fraud, there is no legal recourse; but the user can however take out insurance with specialized organizations to be compensated if necessary. As such, note that this activity is mechanically called to develop in the wake of that of bitcoin.

How bitcoin works

Bitcoin is an original currency because of its operation. Like other currencies, the bitcoin exchange rate (usually expressed in US dollars) is a function of supply and demand. On the other hand, unlike a traditional currency whose available quantity evolves according to the actions of the institutions that emit them, bitcoin evolves according to a mathematical and cryptographic algorithm (that is to say, the art of coding and decoding secret messages ) pre-established on which it is not possible to act and which is able to develop autonomously. In this context, the money supply (number of bitcoins in circulation) of bitcoin is capped at 21 million units in the long term. To do this, they were initially issued at the rate of 1 bitcoin every 25 minutes, but this rhythm is programmed to slow down and it is since 2013 about half of that when it was created. According to the Bitcoin protocol, bitcoins will be issued automatically until 2040, when it will no longer be possible to create more bitcoin. Since its creation in 2009, nearly 12 million bitcoins have been issued to date and are in circulation.

There are two ways to get bitcoins: either by finding them or buying them

• Creation of bitcoins. While in a traditional centralized monetary system, money creation is left to the discretion of financial institutions, in the decentralized system of bitcoin, anyone can create bitcoins. For that, it is enough to find them by solving complex equations with a computer, that is to say by putting the computing power of its computer machine to the service of the network which seeks the solution: the more the computing power made available, the higher the chances of finding a bitcoin. In this context, it is possible to compare bitcoin as digital gold in the sense that a bitcoin would be the equivalent of a nugget in a digital gold rush. Indeed, like gold, the number of bitcoin to find is limited and its value is largely based on its rarity. In this context, the fact of “looking for” the computer code to validate the creation operation of a bitcoin is similar to a mining activity (“mining” in English) where people and servers there busy are called miners (“miners” in English).

• Purchase of bitcoins. However, the creation of bitcoins is a very long and expensive solution (purchase of very sophisticated equipment and consume a lot of electricity), so that this technique is little used except by experienced professionals. Therefore, to have bitcoins other than by creating them, it is sufficient to download an application or to register on a specialized site giving access to this currency. Many platforms exist and are easily found on the internet. Once registered, the potential buyer can buy this e-currency and then store it in a digital wallet and then exchange it over the counter for goods and services or other currencies without going through the banking system. . So,

Conceptual definition of bitcoin

Bitcoin is certainly a virtual currency, but it is above all a digital currency. Indeed, bitcoin is a virtual currency because it exists only through the Internet, unlike a traditional fiduciary currency that also has a physical existence (banknotes, coins). The distinction between a traditional currency such as the euro and bitcoin is primarily related to the legal status of these currencies: the first refers to a state monetary authority while the second refers to no authority. However, despite different legal statuses, all currencies are nowadays primarily digital, that is to say they refer to a set of accounting entries on digital databases. practically, When a user of euros pays for his car from a car dealership, he sends a transaction message to his bank that will then update its “books of accounts” which are in fact a digital database. If the bank of the buyer is not the same as that of the dealer, the two banks will synchronize their databases via a mechanism called digital “banking clearing”. The same goes for coins and banknotes, which technically represent nothing more than an acknowledgment of debt that can be exchanged with a bank for digital euros. Despite different mechanisms, bitcoin also functions as a digital currency where the possession and exchange of bitcoins gives rise to a digital writing game. he sends a transaction message to his bank which will then update its “books of accounts” which are in fact a digital database. If the bank of the buyer is not the same as that of the dealer, the two banks will synchronize their databases via a mechanism called digital “banking clearing”. The same goes for coins and banknotes, which technically represent nothing more than an acknowledgment of debt that can be exchanged with a bank for digital euros. Despite different mechanisms, bitcoin also functions as a digital currency where the possession and exchange of bitcoins gives rise to a digital writing game. he sends a transaction message to his bank which will then update its “books of accounts” which are in fact a digital database. If the bank of the buyer is not the same as that of the dealer, the two banks will synchronize their databases via a mechanism called digital “banking clearing”. The same goes for coins and banknotes, which technically represent nothing more than an acknowledgment of debt that can be exchanged with a bank for digital euros. Despite different mechanisms, bitcoin also functions as a digital currency where the possession and exchange of bitcoins gives rise to a digital writing game.

Before being a currency, Bitcoin is a network just like the Internet. Indeed, the currency Bitcoin is built on an open computer language and free of right. In this, the bitcoin resembles the electronic mail where again the user of this type of mail actually goes through a computer language open and free of rights. Typically, if a user of Hotmail (Microsoft) wants to write to a Gmail (Google) user, both people can exchange and communicate with each other because neither Microsoft nor Google has the language. It is a peer-to-peer (P2P) network, or peer-to-peer in French, where no server has an advantage over others. In the case of Bitcoin, the mechanism is identical, that everyone can own a Bitcoin server at home while being on an equal footing with other Bitcoin network servers. As a result, this introduces a major change in electronic transactions because the central networks that dominate electronic transactions are private networks (PayPal, Visa, MasterCard …) that have built networks between them. Bitcoin is an open network because nobody owns it, and free of right because everyone can use it without paying for it.
Bitcoin is only the implementation of the eponymous protocol. In this context, Bitcoin is a network “naive”, that is to say, it does not attach interest to what it carries; what matters is that what it carries arrives correctly, in time and at the desired place whose practical purpose is a transaction allowing the transfer of a certain number of bitcoins from one address to another. When the Internet carries text, images, audio or videos, the Bitcoin network carries figures expressing a value. Thus, when the Internet is a facilitating medium for digital communications, the Bitcoin network is a support for digital transaction facilitation. In this, Bitcoin is the practical application of the last tool that was missing from electronic exchanges, namely the monetary tool. Bitcoin is a protocol, as are HTTP (Internet Protocol) or SMTP (one of the protocols behind Emails). Thus, bitcoin is a language, a means of communication between computers.

Bitcoin refers to a system of “money value” different from the system of “money debt”. In fact, traditional currencies (euros, dollars, etc.) are created (for the most part) in loan operations where a bank will create money ex nihilo (from scratch) when it grants a loan. Again, via a digital accounting entry game, the bank records the amount of the loan on the current account of the economic agent (household, company, etc.) who took out the loan (this is the money that the bank must to the debtor); at the same time, it records the same amount in its assets (corresponding to the loan that the economic agent has to repay to it). In the end, the bank’s balance sheet increases but it remains balanced because its liabilities increase by the same amount as its assets: the money thus created in the case of traditional currencies is a “debt money” because it did not exist before. In the case of bitcoin, money creation is different. Indeed, like traditional currencies bitcoins are created ex nihilo but there is no debt associated with bitcoins that are issued. It is then “money value” where, as a company that issues stock market shares that are securities, the Bitcoin network emits a value. Here, the collateral of bitcoin is not a company but a network on the internet. If the value of the network is difficult to evaluate, it does not remain less than it exists in the same way that the network value of the e-mail exists (avoids to pass by the post office, saves time …) but that it is difficult assessable. In the case of bitcoin, money creation is different. Indeed, like traditional currencies bitcoins are created ex nihilo but there is no debt associated with bitcoins that are issued. It is then “money value” where, as a company that issues stock market shares that are securities, the Bitcoin network emits a value. Here, the collateral of bitcoin is not a company but a network on the internet. If the value of the network is difficult to evaluate, it does not remain less than it exists in the same way that the network value of the e-mail exists (avoids to pass by the post office, saves time …) but that it is difficult assessable. In the case of bitcoin, money creation is different. Indeed, like traditional currencies bitcoins are created ex nihilo but there is no debt associated with bitcoins that are issued. It is then “money value” where, as a company that issues stock market shares that are securities, the Bitcoin network emits a value. Here, the collateral of bitcoin is not a company but a network on the internet. If the value of the network is difficult to evaluate, it does not remain less than it exists in the same way as the network value of the email exists (avoids to go through the post office, saves time …) but that it is difficult assessable. like traditional currencies bitcoins are created ex nihilo but there is no debt associated with the bitcoins that are issued. It is then “money value” where, as a company that issues stock market shares that are securities, the Bitcoin network emits a value. Here, the collateral of bitcoin is not a company but a network on the internet. If the value of the network is difficult to evaluate, it does not remain less than it exists in the same way that the network value of the e-mail exists (avoids to pass by the post office, saves time …) but that it is difficult assessable. like traditional currencies bitcoins are created ex nihilo but there is no debt associated with the bitcoins that are issued. It is then “money value” where, as a company that issues stock market shares that are securities, the Bitcoin network emits a value. Here, the collateral of bitcoin is not a company but a network on the internet. If the value of the network is difficult to evaluate, it does not remain less than it exists in the same way that the network value of the e-mail exists (avoids to pass by the post office, saves time …) but that it is difficult assessable.

Evolution of the bitcoin price

The evolution of the price of bitcoin has gone through several distinct periods. The characteristics of bitcoin make this currency particularly fluctuating. Indeed, while the virtual currency traded less than one thousandth of a dollar at its creation in 2009, it was worth a little more than 10 dollars in 2012, before reaching 266 dollars in April 2013, and then ” to stabilize “around $ 100 until summer 2013, before rising sharply above $ 1,000 by the end of 2013, to experience several successive” crashes “in early 2014 and finally recover around $ 600 since summer. Therefore, after a relatively long period with a very low price, then several months of runaway and very high volatilities (fluctuation of prices) at the beginning of the year, the evolution of bitcoin seems to be less erratic,

Interest in bitcoin is very recent. Indeed, the fact that bitcoin went from $ 10 to over $ 1,000 in the space of a few months, thus multiplying its value by more than 10,000%, began to intrigue observers, some of whom feared the formation of a new bubble. Nevertheless, even if the fears could be legitimate to a certain extent, it should be remembered that a bubble can exist only if it is based on fundamentals (real estate, gold, companies …) whose market price deviates too much and for a long time of its real value. However, in the case of bitcoin, this is not possible because by definition the bitcoin has no value and is not backed by any asset. Only an attempt to value Bitcoin as a network would give value to bitcoin.

The evolution of the course of bitcoin refers to successive phenomena, combined or concomitant. The initial rise in Bitcoin in the spring of 2013 is linked to the Cypriot banking crisis. Indeed, it seems that the latter has pushed the investors of this country, and those who had invested, to take refuge on this currency to protect their funds. The threat of savers’ taxation had created a stir in the face of the possibility of the authorities digging directly into the bank accounts; which did not happen, but the safe currency of the moment (the bitcoin) had reached a historic peak under the law of supply and demand. Subsequently, concerns about the sovereign debt of European countries, especially those of southern Europe, has led some citizens (mostly Spanish) to turn to this currency. They also feared that part of their savings would be used to bail out the coffers of their country, as was the case in Cyprus. Thirdly, the increase in the price is also due to the increase in demand for this currency due to the increase in sites accepting bitcoin payments and the buzz aroused by the media in this regard, thus confirming the growing interest in this currency.

However, the most significant increase comes at the end of 2013. Indeed, several states have said that they are interested in studying bitcoin with interest or benevolence, such as Germany, which officially recognizes bitcoin as a private currency since autumn 2013. In the United States, United, the Fed (the US central bank) said in November 2013 by the voice of its then president (Ben Bernanke) that it endorsed what she considered a new stateless currency by introducing bitcoin as a credible alternative as a money transfer system worldwide; thus officially recognizing the potential of bitcoin: “[Bitcoin] can be promising, especially if innovations allow for faster, more efficient and safer payment methods”. Meanwhile, rumors that large companies such as Google or Ebay were studying the possibility of using bitcoin as a means of payment, have increased interest in the currency.

Also, the SilkRoad website, which sold drugs and other illegal products through the use of bitcoins, was shut down by the FBI, which increased the respectability of bitcoin that was suffering from a blurred image backed by the underground economy. Finally, two events in China have significantly increased the potential for development of bitcoin, thus generating a certain craze. First, the bitcoin overture, with Baidu (Google’s Chinese equivalent), which is starting to accept bitcoin payments for some services; secondly, the creation of a bitcoin exchange platform (BTC China) which has become the world’s first volume trading platform.

All these phenomena help to increase Bitcoin’s credibility and increase its value very quickly, but in a similar way to what is observed when a bottleneck is formed: the number of people wanting to acquire bitcoins increases, but the liquidity are limited in quantity. Indeed, given that supply is constrained, the sharp rise in demand mechanically blew up the price. Note that the rise in the price of bitcoin caused in its wake the rise of about 40 less known and recently launched electronic currencies (Litecoin, Namecoin, Webmoney, Infinitecoin, Quarkcoin, Peercoin …). In the end, the digital currency sector is now worth nearly $ 15 billion; derisory amount compared to traditional currencies,

While maintaining a very high volatility, the price of bitcoin has since somewhat “stabilized”. Of course, in the case of bitcoin, there is no question of talking about stability in the same way as the price of a traditional financial asset. However, at the level of past evolutions, the price has become less erratic. Among the various possible reasons for the decline and the relative stabilization of the bitcoin price around 600 dollars, it is worth mentioning the decision of the central bank of China, after allowing transactions in bitcoins, has reversed its decision and has since officially banned Chinese financial institutions from using this currency. Indeed, while China is the first market for Bitcoin trade, the Chinese central bank, on December 5, 2013, prohibited to its banks (but not to individuals), any transaction in this alternative currency. Following this decision, in one hour, the equivalent of $ 5 billion had evaporated globally. Also, several warnings have emerged from several states, banks and central banks about their fears about the (assumed or actual) dangers associated with the use of bitcoin. Also, as in any fad, the buzz around bitcoin has weakened somewhat. Finally, the closure of the main bitcoin transaction platform (MtGox), following the hacking of its computer system, may have led to a movement of defiance. the equivalent of $ 5 billion had evaporated globally. Also, several warnings have emerged from several states, banks and central banks about their fears about the (assumed or actual) dangers associated with the use of bitcoin. Also, as in any fad, the buzz around bitcoin has weakened somewhat. Finally, the closure of the main bitcoin transaction platform (MtGox), following the hacking of its computer system, may have led to a movement of defiance. the equivalent of $ 5 billion had evaporated globally. Also, several warnings have emerged from several states, banks and central banks about their fears about the (assumed or actual) dangers associated with the use of bitcoin. Also, as in any fad, the buzz around bitcoin has weakened somewhat. Finally, the closure of the main bitcoin transaction platform (MtGox), following the hacking of its computer system, may have led to a movement of defiance. as in any fad, the buzz around bitcoin has weakened somewhat. Finally, the closure of the main bitcoin transaction platform (MtGox), following the hacking of its computer system, may have led to a movement of defiance. as in any fad, the buzz around bitcoin has weakened somewhat. Finally, the closure of the main bitcoin transaction platform (MtGox), following the hacking of its computer system, may have led to a movement of defiance.

The overall evolution of the bitcoin price is very similar to that of a fashion cycle. Indeed, when a carrier invention appears on the market, after a period of visibility and intense hopes, the disenchantment finally succeeds before the durable installation in the landscape this innovation which finds a stability of its modus operandi.

Position of States, Monetary Authorities and Banks

Governments are thinking more and more about this issue. Indeed, since bitcoin is a totally deregulated activity, internet trading platforms do not need to register with regulatory authorities. Thus, beyond the potential “risk” aspect that this may entail for these organizations, this implies that states can not collect taxes on this activity. Moreover, and despite a certain respectability recently gained, the anonymity nature makes that bitcoin is a preferred way for several criminal activities to pass their funds, exchange money or laundering activities of the type of traffic. drugs and weapons. Thus, several governments, including that of the United States, Canada and Australia are beginning to think seriously about a way to frame these currencies that are totally beyond their control. As such, Germany has already taken the step because the country has recently announced the official recognition of the currency. From then on, all exchanges can now be carried out in this currency in Germany. Very clearly, beyond the regulatory aspects, the main objective is that the country can now levy a tax via VAT.

The authorities are in a phase of stigmatization of bitcoin. Indeed, the bitcoin divides, between those who see in this new virtual currency a real revolution of transactions, and those who are openly suspicious, like the Bank of France who issued a note warning against his “highly speculative” nature of the “certain financial risk for those who hold it”. For its part, the European Banking Authority (EBA) says that bitcoin can be a lax instrument that can be used for tax evasion, money laundering or terrorist financing. The same is true for the European Central Bank (ECB) and the European Finance Authority (ESMA), which are urging national supervisors of banks to“Discourage [the latter] from buying, holding or selling virtual currencies” as long as they are not regulated. The idea here is to encourage national authorities to regulate bitcoin (and other currencies of the same type) through the creation of dedicated governance structures, while at the same time imposing a minimum capitalization on the different platforms for storing and trading bitcoin. currencies. In the same vein, the Japanese government considers that bitcoin “is not a currency” and that the gains relating thereto must thus be taxable; while the US tax authorities would like any wages paid in bitcoins to be subject to income tax.

Even beyond the fiscal and regulatory stakes, it is above all the competition of a currency that escapes the political control of the states that worries them. Since the monetary system has abandoned the gold standard to adopt paper money, the monetary system has entered a virtual world where monetary creation is a monopoly of banks or monetary authorities that issue money ex nihilo according to considerations not necessarily economic and often political. Indeed, central banks and politicians often use and abuse the currency tool as a means to achieve short-term election-related political goals, without taking into account the longer-term economic implications. Therefore, the appearance of a competing currency, not falsifiable, which escapes inflation and any state manipulation by construction, and which also requires a secure, fast and cheap payment system, is a matter of concern to the monetary and state authorities who derive a large part of their power and influence of monetary policy. As a result, the emergence of bitcoin, favored by the development of the internet, questions the future of national currencies and related central banks because the protection of the savings of individuals offered by Bitcoin against the state spoliation via inflation can push individuals to turn away (at least partially) from traditional currencies in favor of bitcoins. cheap and quick is a matter of concern to the monetary and state authorities who derive a large part of their power and influence from monetary policy. As a result, the emergence of bitcoin, favored by the development of the internet, questions the future of national currencies and related central banks because the protection of the savings of individuals offered by Bitcoin against the state spoliation via inflation can push individuals to turn away (at least partially) from traditional currencies in favor of bitcoins. cheap and quick is a matter of concern to the monetary and state authorities who derive a large part of their power and influence from monetary policy. As a result, the emergence of bitcoin, favored by the development of the internet, questions the future of national currencies and related central banks because the protection of the savings of individuals offered by Bitcoin against the state spoliation via inflation can push individuals to turn away (at least partially) from traditional currencies in favor of bitcoins.

As for the banks, the reason why the banks are worried about the emergence of bitcoin and argues for its regulation is more prosaic. According to the economist Carl Menger , the subjectivity of value is expressed like this: “the value does not exist outside the consciousness of the man”. In other words, the monetary value of bitcoin does not come from a tangible commodity, but from the value individuals place on it as a payment system (instantaneous transactions, universality, anonymity, protection against inflation and currency manipulation, and state …). However, the rarity of Bitcoin compared to its success mechanically produces an effect of increasing its value: as the bitcoin value is doomed to rise, bitcoin users do not use so much this currency to exchange (a minority of exchanges of bitcoins is used for trading purposes) than to preserve it in the hope of achieving added value (80% of current holders are hoarding bitcoin as digital gold). More people will discover bitcoin and will start to be interested in it and it will become interesting to acquire because its value will increase (the more the money wins users, the more it appreciates). Then, by construction itself, the more successful bitcoin (and therefore the value) the less it is used to make transactions. Consequently, in the event of a generalization or a larger “market share”, bitcoin will prove to be a problem for the banks’ business model because this currency does not encourage debt (gold banks profit from interest) but to save (because the value of bitcoin increases with time). the more successful bitcoin is (and therefore the value) the less it is used to make transactions. Consequently, in the event of a generalization or a larger “market share”, bitcoin will prove to be a problem for the banks’ business model because this currency does not encourage debt (gold banks profit from interest) but to save (because the value of bitcoin increases with time). the more successful bitcoin is (and therefore the value) the less it is used to make transactions. Consequently, in the event of a generalization or a larger “market share”, bitcoin will prove to be a problem for the banks’ business model because this currency does not encourage debt (gold banks profit from interest) but to save (because the value of bitcoin increases with time).

Perspective elements

Bitcoin has gone from “underground” currency to “concept” currency. While it was largely ignored by the world monetary authorities, this currency has become an almost theoretical issue at a time of financial globalization and the global crisis. Indeed, this currency echoes economic theories previously never applied. The bitcoin system shares some of the theoretical principles of the so-called “Austrian” school , including Friedrich von Hayek(Nobel Prize in Economics 1974) is certainly the best known economist. In essence, and among other things, the Austrian school blames economic cycles (and therefore recessions) for money market interventions, in a system where banks can lend more money than they have in the money market. deposit. According to this theory:

• Monetary creation causes an increase in money supply which leads to artificially low interest rates.
• Companies are then encouraged to borrow to finance projects that are not viable.
• Ultimately, this imbalance inevitably leads to a recession during which companies readjust their production structure by eliminating failed investment projects.
• Therefore, the Austrian school is campaigning for the abolition of the banking system as it currently operates.

In this context, like the bitcoin, a currency should be created by anyone and it should be designed to do without conventional banking network, control of a central bank or any centralized monetary authority.

The interrogations around the inventor of this currency give birth to fantasies. Indeed, the inventor of this currency is known as Satoshi Nakamoto. However, this is only a pseudonym and the real identity of this person is a mystery at the moment. Several hypotheses circulate about this. It could be:

1) a Finnish IT specialist who made the very first transaction with the virtual currency (Martti MALMI);
2) an Irish computer code specialist (Michael CLEAR);
3) the person who created the MtGox bitcoin trading platform (Jed McCALEB);
4) a Japanese mathematician specialized in number theory (Shinichi MOCHIZUKI);
5) a Finnish economist former video game programmer (Vili LEHONVIRTA).

However, and although this may not be the most likely hypothesis, some think that bitcoin is the creation of a consortium of multinationals whose first initials form exactly the name SATOSHI NAKAMOTO, in which this is SAmsung, TOSHIba, NAKAmichi and MOTOrola.

The American magazine Newsweek seemed to have put an end to this mystery by discovering a man of the same name: a 64-year-old Japanese American ex-physicist living in recluse in California. Hunted by the media, Satoshi Nakamoto initially and implicitly recognized his role as creator by having supposedly said “I am no longer involved and I can not talk about it. It’s now in the hands of other people. I have no link, “ before finally retracting. The question remains intact and participates in the Bitcoin mystery.

A prospective attempt informed by the experience of an ancient example

An ancient historical example can bring some thinking about the future of bitcoin. Indeed, the “Monneron” experience appears in some ways as a form of old bitcoin. The Monneron was created by private actors under the French Revolution, somewhat in the logic of bitcoin, that is to say independently of the monetary and state authorities in place, and on the basis of the confidence inspired by this currency. It is created by two brothers, Pierre and Augustin Monneron, hence the name of the same currency. Note also that numismatists still have mints because the Monneron brothers are going to “coin money”, that is to say they will physically create this currency based on copper because at that time a currency is necessarily physical.

The launch of the coin follows approximately the same mechanism as that of bitcoin. Indeed, the Monneron brothers announce first that they will issue money. The citizens will then be able to acquire it by bringing in exchange a certain amount of assignats. The Monneron brothers will then operate by auction (allocation of money) via a draw system of people who brought assignats. Therefore, in exchange for the contribution of 100 assignats (for example), some will receive 100 monnerons, others 1000 monnerons and other 10 000 monnerons (the examples figures here being illustrative of a mechanical and do not represent the exact reality of scales of magnitude).

Several reasons contribute to the success of the monneron. First of all, (1) put in context it is a currency that gives rise to trust because, on the one hand, the Monneron brothers present it as such (“It’s a currency of trust”) and on the other hand because it is made of metal, in this case copper, which in the popular spirit refers to the adage that “the metal has never lied or betrayed” while assignats officially held at that time are bits of paper with no intrinsic value. Therefore, the currency is something that can be easily rested, especially since the assignats quickly lose their interest and their value (“billboard”, inflation, public spending and debt). Then, (2) the Monneron brothers issue small denominations (low-value copper coins) with a certain interest in everyday life. Finally, (3) the system of the auction, which allows to obtain potentially more coins than assignats brought in exchange, instills a certain interest with the will to recover relatively large sums in cash. Therefore, the population will use the currency because it starts to recognize it as a currency with which it is possible to trade and trade, and in which it is possible to have confidence. The system of the monneron gradually gains in notoriety and becomes relatively usual. which makes it possible to obtain potentially more money than assignats brought in exchange, instills a certain interest with the will to recover relatively large sums in cash. Therefore, the population will use the currency because it starts to recognize it as a currency with which it is possible to trade and trade, and in which it is possible to have confidence. The system of the monneron gradually gains in notoriety and becomes relatively usual. which makes it possible to obtain potentially more money than assignats brought in exchange, instills a certain interest with the will to recover relatively large sums in cash. Therefore, the population will use the currency because it starts to recognize it as a currency with which it is possible to trade and trade, and in which it is possible to have confidence. The system of the monneron gradually gains in notoriety and becomes relatively usual.

Despite some success in the beginning, the experience of the monnon will fail. Indeed, as for the Monneron brothers, even as the system worked, they will go bankrupt because in exchange for the money they need to produce, they recover assignats that will quickly turn out to be worthless. They hoped to recover some of the Church’s property but the revolutionary authorities will refuse them. As for the currency, it is the time that will eventually sound the death knell of this alternative currency. If the population has actually adopted the monnon, two reasons come to explain its gradual disappearance. First, the state will warn against the use of the cash which is nothing other than a private currency that he considers dangerous because not controlled by his care. Then, after discouraging its use among the population, the state will finally decide to ban its use by declaring the use of the monneron as illegal. Finally, the English will begin to manufacture themselves forged money to inject them into France and destabilize its economy. Thus, people who have obtained coins will not be able to exchange them with authorities that do not recognize this currency (illegal currency) or because the central monetary authority can not protect users against counterfeit money. Since then, the population is gradually turning away from the currency to return to the official currency. the English will begin to manufacture themselves forged money to inject them into France and destabilize its economy. Thus, people who have obtained coins will not be able to exchange them with authorities that do not recognize this currency (illegal currency) or because the central monetary authority can not protect users against counterfeit money. Since then, the population is gradually turning away from the currency to return to the official currency. the English will begin to manufacture themselves forged money to inject them into France and destabilize its economy. Thus, people who have obtained coins will not be able to exchange them with authorities that do not recognize this currency (illegal currency) or because the central monetary authority can not protect users against counterfeit money. Since then, the population is gradually turning away from the currency to return to the official currency.

As a result, while the differentiating elements between bitcoin and currency are numerous, it is clear that many authorities are currently seeking to discourage the use of bitcoin and that some are considering banning it: if a comparison is not made reason, the fact remains that the parallel of the mechanics at work is striking.

Conclusion

The future of bitcoin is still uncertain. Indeed, there is no reason to say that it will one day be a major and indispensable currency; perhaps this money will disappear and another one will take the place it currently occupies and will succeed in its design. In contrast, the Bitcoin protocol has shown its robustness and applicability. Therefore, if the future of bitcoin as a currency as it is currently is not assured, Bitcoin as a technique seems perfectly perennial. The willingness of states to regulate, tax, or even prohibit bitcoin may lead to its disappearance, but the technique is unalterable and other currencies or media of the same type can always appear. Therefore, at this stage, three scenarios can reasonably be envisaged: disappearance of a currency that will not be able to impose itself on the users, regulation of the currency to limit its expansion (and thus its probable disappearance in the long run if the regulator begins to interfere in the Bitcoin system) or explosion of the system that will play a full part in the international monetary system. At this point, any prospective attempt is pure guesswork.

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  1. […] Wilde did not write for buyers of bitcoins … but it could have been the case if the cryptocurrency experimental existed at the […]

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