Why Bitcoin is a revolution?

Marius Farashi Tasooji
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To fully understand Bitcoin and its implications, it is first necessary to understand what value is on one hand, and what money is on the other.
What gives value to an asset?
This question may seem silly, but it is actually very interesting. Our lives are dictated by the prices of what we consume or sell. And yet, do we really understand what value is and where it comes from? (I invite you to ask yourself the question before continuing to read, there is no wrong answer).
There are many ways to think about value:

Labor theory

Developed by classical economists, this theory asserts that the value of a good or service is determined by the amount of labor necessary for its production. Although this theory emphasizes the value of labor as a source of wealth, it does not take into account factors other than labor in determining value. For example, it does not explain the value of works of art.

Use value

Developed by neoclassical economists, this theory holds that the value of a good or service is determined by its utility to consumers.
Although this theory emphasizes the importance of satisfying consumers' needs in determining value, it does not take into account broader economic and social factors that can influence demand.

Subjective value

Developed by Austrian economists, this theory holds that the value of a good or service is determined by the subjective perception of its value by individuals.
Although this theory takes into account individual preferences and perceptions in determining value, it does not take into account broader economic and social factors that can influence perceptions.

Exchange value

Developed by some economists, this theory holds that the value of a good or service is determined by the exchange ratio at which it can be exchanged for another good or service.
Although this theory provides a clear method for measuring the relative value of goods and services, it does not take into account broader economic and social factors that can influence exchanges.

Scarcity value

Developed by ecological and institutional economists, this theory holds that the value of a good or service is determined by its scarcity and opportunity cost.
Although this theory takes into account ecological and institutional factors in determining value, it does not take into account broader economic and social factors that can influence scarcity.
Have you ever wondered if the currency you use is a good currency?
What are the characteristics of a good currency?
A good currency must be:
A rare currency maintains its value by limiting its supply, which prevents it from depreciating (suffering from inflation) and ensures its stability. In addition, a low supply encourages demand, which can lead to an increase in the value of the currency.
The divisibility of a currency allows for transactions of different sizes, making it more practical and flexible for exchanges.
The portability of a currency allows it to be stored, secured, and transported easily for transactions. This also facilitates long-distance transactions and allows for the circulation of the currency between different regions.
Censorship resistant
Resistance to censorship guarantees financial freedom and transactional privacy. This also allows the currency to operate without excessive government restriction or control.
The durability of a currency over time allows it to maintain its value and usefulness in the long term, avoiding depreciation due to inflation, manipulation, and/or technological obsolescence. This also guarantees confidence and stability in the currency for users.
The verifiability of a currency ensures its authenticity and prevents counterfeiting, which is essential to preserving its value, user trust, and reduces the risks of fraud.
Here's a brief summary of the history of money:
Barter is a system of exchanging goods or services between two parties without using money, which has been practiced since ancient times.
In pre-monetary societies, bartering was often the only method of exchange available, whereas today it is used more informally and as an alternative to money in certain situations.
The Romans, for example, traded salt, which was a rare commodity at the time, for exotic spices from India and Asia, which were also highly valued. The barter of salt for spices was one of the main forms of commerce in the region for centuries.
Shell money is a form of currency used in many ancient and tribal societies, which involves the use of shells as a means of exchange and measurement of value.
This practice dates back several thousand years and has been used in many different cultures around the world, including Africa, Asia, and South America.
For example, Native American peoples such as the Iroquois, Algonquins, and Lenapes used "wampum" before European colonization. Wampum were belts or necklaces made of shell beads, used for commercial transactions, political agreements, religious ceremonies, and marriages. Their value was based on their rarity and quality, and they were considered a symbol of wealth and social status. Wampum was used until the end of the 18th century when European coins began to be used in their place.
Gold has been used as currency since ancient times, first in the form of nuggets and later in the form of bars.
This practice dates back several thousand years and has been used in many different cultures around the world, including China, India, and the Mediterranean region.
Gold coin currency is a form of currency that has been used in many cultures throughout the world, with a fixed value in weight and quality of gold.
This practice was common in antiquity and continued until the adoption of the modern gold standard in the 19th century, with coins issued by states, banks, and private institutions.
For example, the American "Double Eagle" gold coin, which was issued from 1849 to 1933, with a face value of 20 dollars. This gold coin was widely used as a form of currency in the American West during the gold rush and the years that followed.
Paper money is a form of currency that is issued in the form of banknotes or paper money, representing a promise of payment by the issuing institution.
This practice first appeared in China in the 7th century, but it gained importance in the 18th century with the rise of central banks and the adoption of the modern paper standard.
The gold standard is a monetary system in which the value of money is linked to that of gold.
This system was widely used during the classical gold standard period, which lasted from the mid-19th century until World War I.
An example of the use of the gold standard is the Gold Standard Act of 1900 in the United States, which established the gold standard as the basis of the American monetary system and fixed the price of gold at $20.67 per ounce.
The fiat money system is a monetary system in which the value of the currency is determined by people's trust in the issuer of the currency rather than by an intrinsic value like that of gold.
This system emerged in the 20th century with the rise of central banks and the end of the gold standard.
Fiat currencies are now all around us: the Euro, the US Dollar, the Pound, and so on.
The word "inflation" has two definitions. Today, this word is used to refer to the loss of value of a currency, but in the past, inflation only referred to the increase in the money supply.
These two things may seem similar, but they are indeed different. Indeed, if the Central Bank creates liquidity that will be used to develop a new activity that does not affect any other, then the value of the currency will remain the same. This money loses value from the moment this new liquidity mixes with the old, giving more purchasing power to its users who can consume more or more expensively.
Thus, we can say that the increase in the money supply leads to a decrease in its purchasing power, but this is not systematic.
The risk taken in increasing the money supply is to devalue the currency more than expected, potentially leading to hyperinflation.
In history, periods of hyperinflation have almost always been triggered by a centralization of monetary power. For example, Germany in the 1920s, Venezuela since 2016, etc.
Here is a very simplified 6-step diagram of how we can go from inflation to hyperinflation:
Centralization of monetary power
When a state centralizes monetary power, it tends to push the limits by creating more liquidity, which is beneficial in the short term.
Loss of confidence
Once a state starts playing with the rules, users of the currency will lose confidence in it and begin to sell it for other assets and/or currencies.
Strong loss of value
As fewer and fewer people want this currency, it creates a selling force that simply makes it lose value.
Rise in consumer prices
If the currency of a region devalues, then actors in that region will lose purchasing power in the currencies of neighboring regions, which will increase the price of imported goods, increasing the cost of living.
Governmental institution aid
To help consumers, institutions provide financial assistance to the population and businesses, which helps them in the short term but creates more liquidity.
Increase in the money supply
This assistance only supports the devaluation of the currency, as it is created either by new liquidity creation or by tax exemptions, which increases their purchasing power in the short term but increases inflation in the medium term.
The only way to get out of it is to go through a period of recession or financial crisis, or to completely change the monetary system: replace the currency with another, erase debts, etc.
Here's a brief summary of the history of Bitcoin:
The Cypherpunks were a privacy and online security defense movement that emerged in the 1990s and promoted the use of cryptography to protect personal data and communications. They were also behind the creation of Bitcoin.
October 31, 2008
The Bitcoin Whitepaper, published in 2008 by a person presenting themselves under the pseudonym of Satoshi Nakamoto, describes the workings of a peer-to-peer electronic payment system based on cryptography and using a decentralized database called the blockchain. This publication marks the birth of Bitcoin, an uncensorable currency.
January 3, 2009
The Genesis Block is the first block of the Bitcoin blockchain, mined on January 3rd, 2009 by the creator of Bitcoin, Satoshi Nakamoto. This initial block contains a reference to the first page of "The Times" newspaper from the same day, which reported on bank failures.
January 12, 2009
The first Bitcoin transaction took place on January 12, 2009 between Satoshi Nakamoto and Hal Finney, a developer and cryptography advocate. Nakamoto sent 10 bitcoins to Finney, marking the first recorded transaction on the Bitcoin blockchain.
Mai 21, 2010
Pizza Day Bitcoin is celebrated on May 21 of each year in commemoration of the first known transaction where Bitcoin was used in a commercial transaction. On this day, Laszlo Hanyecz bought two pizzas for 10,000 Bitcoins, which is worth several million dollars today.
December 12, 2010
The disappearance of Satoshi Nakamoto, the creator of Bitcoin, is an unsolved mystery. Starting from December 2010, Nakamoto stopped contributing to the development of Bitcoin and gradually disappeared from public life. Although several people have claimed to be Satoshi Nakamoto, his identity remains unknown to this day. This disappearance allowed Bitcoin to become a decentralized and autonomous currency, without centralized influence or control, thereby increasing users' confidence in the technology. Since then, neither Nakamoto nor anyone else can attack the network, disappearing was the way to remove its biggest weakness.
The numerous innovative characteristics of Bitcoin allow it to seriously compete with the current monetary system.
Firstly, the limit of 21 million units guarantees that Bitcoin is a finite asset, protecting it from potential inflation and offering a form of long-term monetary stability.
Moreover, its decentralization makes it resistant to censorship, meaning that Bitcoin cannot be controlled by any entity and cannot be manipulated by any government or individual, providing stability and financial freedom to its users.
However, the price volatility of Bitcoin represents a hindrance to its adoption. Although it decreases over time and will continue to decrease with the increase in its valuation and adoption, it remains an obstacle to overcome for Bitcoin to be fully accepted and used as an alternative to the traditional monetary system by a majority of the population.
Today, over 400 millions people are using cryptocurrencies, which represents approximately 5% of the global population. Use cases vary among individuals, but are largely dependent on their quality of life. Learn more.
In 2021, El Salvador became the first country in the world to accept Bitcoin as legal tender. El Salvador now has two currencies: the US dollar and Bitcoin.
The adoption of Bitcoin brings primarily two advantages to the population.
Firstly, it allows the 70% of the population who are unbanked to have access to a safer and more efficient Bitcoin address than cash.
Secondly, over 22% of El Salvador's GDP comes from abroad, from emigrants (mainly in the United States) who send money to their families and pay enormous transaction fees (between 20 and 50%) that take several days to complete. Bitcoin is a way to do this instantly and for just a few cents.
In Iran, amidst severe inflation and international sanctions, Bitcoin has become a crucial financial tool. As the Iranian Rial faces drastic devaluation, Bitcoin offers stability and a hedge against inflation.
Bitcoin enables Iranians to bypass banking restrictions imposed by sanctions, allowing for international transactions and access to global markets. Beyond financial utility, Bitcoin represents a form of digital freedom and silent protest against governmental controls, reflecting a cultural shift towards autonomy.
Thus, in a challenging economic landscape, Bitcoin emerges as a symbol of resilience, innovation, and empowerment for the Iranian people. Know more about it.
Bitcoin notably facilitates international transactions, avoids excessive controls by certain governments, and more.
In summary, compared to the traditional banking system, Bitcoin offers several advantages, including increased security, lower transaction fees, resistance to censorship, enhanced privacy, and global accessibility.
Bitcoin transactions are also irreversible, meaning that chargeback frauds are impossible.
Additionally, Bitcoin users can send and receive payments without needing a traditional bank account, which widens access to financial services to millions of people around the world who don't have access to traditional banks.
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