From cocoa beans to crypts – a little history of money, cryptocurrencies, and the blockchain

Did you know that sometimes cocoa beans were also a fair currency?

Squirrel skin, salt, coffee and cocoa beans, precious metals, banknotes, and coins. All of these things have sometimes been tools of exchange used to buy and sell products and services.

Well, cocoa beans are no longer an acceptable means of payment – with the development of society and technology, the above-mentioned objects and precious metals were simply no longer practical. In the monetary society, there was a gradual shift to the coins and banknotes we are familiar with, where each coin and banknote had an agreed value.

Have you ever wondered what money is? Money acts as a means of payment and a unit of account, as well as a measure and custodian of value, which ensures that the purchasing power of banknotes is maintained. The global monetary system is called the Fiat system, which includes currencies regulated by central banks such as the dollar, euro, and yen.

Over the years, alongside coins and banknotes, digital money, i.e. credit and debit cards, has risen. The principle of digital money is the same as with traditional exchange instruments, ie it has an agreed value. The most significant difference between digital and traditional money is that digital money does not have to be physically involved in a trading situation. Digital money works virtually, in which case it is assumed to be transferred from one person to another with a payment confirmation.

Enter: cryptocurrencies

In the 21st century, alongside banknotes, coins, and digital money, a new challenger has emerged: cryptocurrencies. Cryptocurrencies also act as a digital exchange medium that has a certain value and works virtually. Not everyone has been as excited about the rise of cryptocurrencies – they have shaken and disrupted the monetary economy as consumer interest has grown.

The interest of states and banks in cryptocurrencies has also increased, as they pose a threat to the traditional monetary economy. The cryptocurrencies are underpinned by an ideology that seeks to free money transactions from third-party control, such as banks.

But what exactly are these cryptocurrencies?

In 2008, a person, group, or entity using the Satoshi Nakamoto nickname published a research paper on a new digital currency called Bitcoin. Bitcoin laid the foundation for cryptocurrencies and triggered their development.

Cryptocurrencies operate, among other things, as an electronic payment system based on cryptography instead of trust. Cryptocurrencies allow you to trade between the two through a blockchain without a trusted third party, such as a financial institution. Developers themselves issue cryptocurrencies that they create, but do not act as third parties in cryptocurrency transactions, unlike Fiat currencies. In Fiat currencies, third parties are usually financial institutions or governments.

There are currently thousands of cryptocurrencies. Each cryptocurrency has its purpose, protocol, algorithm, and encryption technology. Cryptocurrencies allow for a decentralized monetary system that can be freely accessed through computers.

Cryptocurrencies use a P2P peer-to-peer system where their use, processing, and authentication take place. In a P2P peer-to-peer system, transactions such as sales and purchases take place collectively in a network, where each transaction is encrypted using cryptography and copied to a blockchain, i.e., a decentralized ledger.

How to obtain cryptocurrencies?

Cryptocurrencies can be obtained in two different ways, either by mining or buying.

Cryptocurrencies are mined using the computing power of the computer. Thus, the computer solves complex calculations and in return for the solutions, the Miner receives a predetermined amount of cryptocurrency to be extracted. The miner who solves the calculation first gets a prize for the block he solves. The prize depends on the cryptocurrency to be mined and its reward system.

Mining is performed in a P2P peer-to-peer system, where each transaction is reviewed and confirmed on behalf of the miners in the peer-to-peer system. By solving the calculations, a block is formed, from which the blockchain is formed.

Buying cryptocurrencies is simpler, as the cryptocurrency to be purchased has already been mined from the blockchain, and the buyer can buy this from a suitable trading venue.

And what was that blockchain?

The blockchain is the core of cryptocurrencies. A blockchain is called a decentralized public ledger. There is no third party in the blockchain, such as a bank, to validate the transactions. This has been resolved with a decentralized ledger. Thus, each person in a peer-to-peer system has their copy of the blockchain. All events in the blockchain are publicly available, and anyone can request that a transaction be added to the blockchain. However, accepting transactions in the blockchain requires the approval and verification of persons in the peer-to-peer system.

The blockchain has a validation mechanism that maintains a universal and transparent ledger. In the blockchain, each transaction is confirmed, and the transaction cannot be confirmed twice because the miners judge the transaction to be incorrect and do not confirm it. The verification is performed automatically on behalf of the user in the peer-to-peer system, which enables fast, secure, and non-tampered accounting.

The blockchain consists entirely of blocks, which in turn consist of digital signatures, i.e. transactions. Each transaction leaves its mark on the block as it materializes, and thus forms a blockchain. After verifying a block, you always move to the next block, where the process starts again.

Other uses of the blockchain

The blockchain is mainly known as the technology behind cryptocurrencies, but the blockchain can also be used for other purposes. Among other things, the blockchain can be used for smart, code-based, and self-fulfilling smart contracts, digital content publishing and rights management, patent protection, voting, fundraising, and supply chain management, for example. The blockchain can be used to prevent abuse and improve efficiency.

Money has changed shape over time. As consumer interest increases, the need for alternative means of exchange increases. It is worth looking to the future; what will the monetary system look like in the future? No matter how eternal the current instrument of exchange maybe, those cocoa beans were abandoned. Because of this, I think cryptocurrencies are a special opportunity. Besides, cryptocurrencies and the blockchain are suitable not only for payment but also for many other uses that are not even known or have been studied yet!

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