HISTORY
Fiat-Currency
The weakness in existing fiat-currencies stems from the lack of faith in financial institutions, particularly central banks, which are often in the same league with commercial and investment banks. When a government bails out a failed bank or insurance company, in essence, by printing money, the net effect is that the currency as a whole is debased, in favor of a few elite, and at the literal expense of everyone else, which explains today’s financial system. The root problem with conventional fiat-currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, yet the history of fiat-currencies proves to be full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but instead they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trusting them not to let identity thieves drain our accounts. The principle means by which central authorities have historically perverted currency systems has been by inflating supplies of their currencies. Printing more money has enabled the State to spend money it doesn’t have, thereby causing periods of inflation, and at worst, periods of hyperinflation that have ultimately destroyed most currency systems. There has been a fundamental mismatch between our traditional payment system and our internet experience. In the early days of the internet it was nearly impossible to buy anything because there was no suitable way to transmit value to an arbitrary location. Seeing a huge opportunity, the credit card companies, and then latter PayPal, stepped up and created a way where they acted as a trusted third-party. The merchants therefore have to pay a fee to be able to receive payments from their customers using the credit card and PayPal services. They have no real choice in the matter because there is no alternative. Hence the sudden emergence of bitcoin, which at the moment, appear to be immune to the manipulation of inept, crooked bankers and politicians.
The weakness in existing fiat-currencies stems from the lack of faith in financial institutions, particularly central banks, which are often in the same league with commercial and investment banks. When a government bails out a failed bank or insurance company, in essence, by printing money, the net effect is that the currency as a whole is debased, in favor of a few elite, and at the literal expense of everyone else, which explains today’s financial system. The root problem with conventional fiat-currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, yet the history of fiat-currencies proves to be full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but instead they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trusting them not to let identity thieves drain our accounts. The principle means by which central authorities have historically perverted currency systems has been by inflating supplies of their currencies. Printing more money has enabled the State to spend money it doesn’t have, thereby causing periods of inflation, and at worst, periods of hyperinflation that have ultimately destroyed most currency systems. There has been a fundamental mismatch between our traditional payment system and our internet experience. In the early days of the internet it was nearly impossible to buy anything because there was no suitable way to transmit value to an arbitrary location. Seeing a huge opportunity, the credit card companies, and then latter PayPal, stepped up and created a way where they acted as a trusted third-party. The merchants therefore have to pay a fee to be able to receive payments from their customers using the credit card and PayPal services. They have no real choice in the matter because there is no alternative. Hence the sudden emergence of bitcoin, which at the moment, appear to be immune to the manipulation of inept, crooked bankers and politicians.
Bitcoin
The implementation of Digital-Currency is by no means a new idea. It has been implemented several times, notably in the 90s, but the projects never seemed to get off the ground. Bitcoin is one of the first implementations of a concept called “crypto-currency”, which was first described in 1998 by Wei Dai on the cypherpunks mailing list. Building upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The true origin behind Bitcoin is a great source of mystery, because the creator never really revealed his identity. In 2008, the creator of Bitcoin, under the pseudonym of Satoshi Nakamoto was clearly motivated in his efforts to launch this new experiment by the fallout from the financial crisis. He cleverly combined existing peer-to-peer network technologies, cryptographic techniques to control the creation and transfer of money, rather than relying on central authorities, digital signatures, and the potential power of network effects to design and develop the Bitcoin system. In January 2009, Satoshi Nakamoto published the first Bitcoin specification and proof of concept in a cryptography mailing list, the so-called “genesis block;” the mining of the first fifty Bitcoins. Bitcoins foundation’s chief scientist; Gavin Andresen is one of the few people in the world who has known to have corresponded directly with Satoshi Nakamoto, becoming a trusted benefactor, and as a result Nakamoto began to step back as the leader of the project, pushing Andresen forward as the leader. Nakamoto was active on the bitcoin forums with Andresen through December of 2011 until he stopped posting the forums, and then a few months later, he disappeared altogether. No one has heard of him since then. Until his disappearance from the Web, Nakamoto was a visible participant on cryptographic forums, where he discussed Bitcoin freely, and published a nine-page paper outlining the details of the project. Since the start, the Bitcoin community has grown with many developers working on the project. During June and July 2011, Bitcoin suddenly gained media attention leading to massive buy rally. The resulting bubble slowly deflated through the latter part of 2011 and the value of Bitcoin has since slowly climbed once again back to its 2011 heights. On September 27, 2012, the Bitcoin Foundation was created in an effort to standardize, protect, and to promote Bitcoin. As the lead developer for the project, Andresen is paid a salary by the Bitcoin Foundation, and has been involved full-time since the spring of 2011. In conjunction developers work in their own trees, and then submit pull requests when they think their feature or bug fix is ready. Developers are also strongly encouraged to write unit tests for new code, and to submit new unit tests for old code. The organization was modeled on the Linux Foundation, and like the Linux Foundation, the Bitcoin Foundation is funded mainly through grants made by for-profit companies, such as the Mt. Gox exchange, CoinLab, Bitinstant, who depend on the stability and continued maintenance of the underlying open-source code. Bitcoin is released under the terms of the MIT license.
Competitors
Bitcoin is not the only digital-currency. Founded in 2007 on Facebook, Ven used by members of the social network service Hub Culture, was the first virtual currency to be used for commodity and carbon credit trading. The value of one ven is determined by a basket of currencies. Commodities, and carbon futures determined by Hub Culture, which operates as the currency’s central bank. The currency has an estimated $2 million USD base, as opposed to bitcoin’s $1 billion base. Very similar to Bitcoin; Ripple, an open-source project that is a developing a decentralized payment network that uses a peer-to-peer system by which people could exchange money, make payments, loans, and so on via a monetary honor system based on trust already existing between users. Other virtual currencies include Litecoin, IXcoin, PPcoin, and NovaCoin. May 13, 2013, Amazon will launch its own virtual currency called “Amazon Coins” for use on the Kindle Fire to purchase apps, games, and in-app items.