Bitcoin lies among the most underrated assets
This article will discuss another unexplored topic which talks about the current financial system.
The world today is filled with people and the market with investors who do not understand the core purpose and value of the crypto assets.
This article, however, will discuss another unexplored topic which talks about the current financial system.
Although the financial system has been constantly failing us, digital currencies like bitcoin is giving us a ray of hope by offering us solutions to the problems we are encountering in the financial system.
Understanding the Development of Monetary System
Following the barter system in the early periods, gold was a popular medium of exchange. It was, however, later replaced by the current currency system due to the lack of its portability. It was decided that papers would be printed, who would be assigned a monetary value, which would be backed by gold.
According to this method, only that amount of currency could be printed, which could be backed by the corresponding amount of gold in the reserve. According to this way, an exchange system was established which was portable, while keeping gold the actual medium as well.
Over time, the dominance of the United States grew in global financial affairs, giving more power to the dollar. The dollar itself was still backed by gold though.
During 1971, the U.S. Dollar suffered a huge blow, which caused a ripple throughout the world, and consequently all the currencies in the world were not backed by anything or any asset anymore.
Due to this, a new financial system, known as the fiat currency system was introduced, which remains today.
Understanding the Fiat Monetary System
The current fiat monetary system is not backed by any asset or commodity like gold, which creates several problems.
In contrast to the fiat system, the value of BTC can be derived from the mining power contributed to the bitcoin network. However, in the case of the fiat, other than the fact that a currency gains or loses value due to the actions and forces of government, there is not much of an explanation left.
Also, given that the fiat monetary system is backed by nothing, this indicates that the federal reserve can print the fiat limitlessly, since there isn’t a set amount of limit on printing the fiat. Learn about yuanpay group official here.
If the reserve continues to print money, as observed last year during the Coronavirus pandemic, it is equivalent to stealing money from the general public. This is because the greater will be the supply of the money, the lesser will be the purchasing power of the public, causing inflation. Consequently, people will have to pay a relatively greater amount of money now to pay the same thing.
The regulation of the fiat by the central bank poses another major issue.
Is Bitcoin the Answer?
After understanding the phenomena of the monetary system, the next and real question is; How will Bitcoin resolve the aforementioned problems which the fiat cause?
We will talk about inflation first. Compared to the limitless printing of fiat, bitcoin has a limit on its total supply i.e. 21 million coins. Therefore, with the passage of time, as bitcoin’s mining finishes in 2140, the inflation in bitcoin will diminish to zero. No bitcoins could be mined anymore beyond that, putting an end limit to its supply.
The other problem under consideration is the intervention by a third-party authority.
Bitcoin is identified as a peer-to-peer network. The blockchain always updates its peers, following a transaction on the BTC network. This signifies that all peers in the BTC Network are an equal authority and that there is no third party regulatory authority intervention here, in case of bitcoin.
The crux is, the fiat monetary system, which is not backed by anything and is entirely managed by a central authority, is causing increasing inflation. On the contrary, there is another system having nearly zero inflation, a very low fee relative to other financial instruments and which has no central authority. This demonstrates the potential of digital currencies over the fiat, and how we believe they will be shaping the future of global finance.