The Benefits of Decentralized Money
This all changed in 2009 when a person (or persons) using the name “Satoshi Nakamoto” invented Bitcoin, solving the Byzantine General’s Problem and setting off a chain of events which made the concept of “decentralization” possible.
For the first time in history, Bitcoin made it possible to perform direct, peer-to-peer transactions without relying on third parties to establish trust.
The effect of this cannot be overstated and requires a bit of “tabla rasa” thinking. Imagine for a bit, how you would design a financial system if you no longer needed intermediaries. After all, what’s the point of banks if you can safely hold your own assets? What’s the point of a federal reserve if you control the money supply? What’s the point of a Treasury Department if you can issue your own money?
If you’re like me, you’re probably envisioning a form of money that is much simpler and more elegant than what we have today…
Evolution of Money: From Cows to Crypto
That’s the promise of cryptocurrencies, and they may allow us to reap all the benefits of traditional money – namely trust, security and growth – while removing most of the downsides. Indeed, cryptocurrencies are:
Seizure-Proof: Instead of relying on a bank to hold your assets, you control all of your funds with your own wallet. As such, there’s no one to seize your assets, limit withdrawals or tell you where you can and can’t spend your money
Permission-Less: Users don’t need permission from a bank to access their funds. Anyone with money and an internet connection can buy any cryptocurrency in markets that are open 24 hours a day, 7 days a week and 365 days a year
Private: Users can choose to (and often do) remain anonymous
Borderless: Cryptocurrencies have no borders. Users can store millions (or more) on a thumbdrive or online wallet (not recommended) and go anywhere they please. They can send money home to relatives without anyone ever knowing
Cheap: Although fees for many cryptocurrencies are high now they’re “fixed” (vs. variable) which makes them ideal for sending larger amounts of cash. In addition, as fees continue to decline, it’s likely that transactions will be cheaper than traditional credit cards or wire transfers
Transparency: While many claim cryptocurrencies will be a haven for criminals and tax cheats, they’re actually much more transparent than traditional currencies as every transaction is permanently recorded on a blockchain
I know this is a lot to take in. Crypto is so unique, so transformative, so unintuitive that I’ve been studying it for almost five years now and sometimes I feel like I only partially get it.
But to help you understand more about how it can transform the world, let’s go a bit deeper down the rabbit hole…
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