Currency and Money#

  • One year of attending Columbia University is worth
    • three Honda Accords
    • Or $90K (USD)
    • Or 40 oz of gold
    • Or 0.81 Bitcoin
  • USD, Gold and Bitcoin are currencies, used to make it easy to compare the value of things
  • One of the important things about currencies is how much trust people have in them – can they be faked? can they be taken away? can they one day be worth nothing?

Currencies

Currencies and Trust#

  • A traditional currency, like the US dollar, only works because people trust that other people will buy/sell stuff for dollars and that the US government won’t just start printing dollars
  • When cryptocurrency started (bitcoin first), not very many people were willing to buy/sell stuff for it. Banks wouldn’t give you dollars for it, so it was just a belief that at some point in the future the acceptance and trust will grow…which has (kind of) happened
  • The reason people trust gold is that everyone believes it will be accepted as currency forever – because it cannot be manufactured at will or faked
  • Gold is still the second-best thing to just trading things (one horse for 10 sheep) directly, known as barter

Real Gold and Digital Gold#

  • When people say “bitcoin is a digital gold,” they mean that:
  • There is a limited amount of it, or it is tough to create/find
  • Governments have no control on the creation of bitcoin or gold
    • Which is “almost” true
  • It has only as much value as people believe it has.
  • Things like gold and diamonds are largely useless, but they are believed to be valuable forever.
  • Same with Bitcoin and - increasingly - other cryptocurrencies

Bitcoin

Types of Currencies#

  • Before we dive deeper into how the blockchain works…
  • There are three types of currencies:
    • Fiat currencies – dollars, pounds, euros-are issued by the governments
    • Stable cryptocurrencies – these are “pegged” to Fiat currencies, meaning that for every digital coin there is a dollar (this is known as “backed by fiat”)
    • Other cryptocurrencies, not backed by anything at all (Bitcoin is one of them)
  • Remember that a cryptocurrency is really just a token generated by a blockchain network
  • You can create your own network with your own tokens – that would be your own cryptocurrency
  • There are tons of trust issues around all of this
Backward Basic Terminology Intro and Concepts Forward