I recently came across an article on why Bitcoin and Digital Currencies are important. The article explains why they would continue to increase in price but first you must understand the evolution of money.
Keep reading, I hope you enjoy the article below👇.
EVOLUTION: Nobody knows the true origin of money.
Was it barter? Was it some unit of accounting for debts?
I simplified it to this:
Money went from…
Barter > Precious metals > Paper money backed by precious metals > Fiat money (money backed by a government)
Each form of money solved the problems of the prior form.
For instance, a barter system is too complicated. How much grain should a pair of shoes cost? How much corn could I get for a shirt that I sew?
This was solved by precious metals, which were hard to mine and easier to transport and come up with exchange rates.
But with metals, it was hard to transport long distances. And it was random where there was gold and silver, and this would lead to wars (I am simplifying).
So paper money backed by resources was created.
But again, why should the spending of a country be limited by a country’s closeness to a gold mine?
So fiat paper money was created to allow for a growing country to pay for that growth.
But paper money has its limitations: centralized control (a central bank), which created the potential for human error (as almost happened in the bank bailout in 2009).
Paper money transferred electronically has too many fees.
Imagine transferring money from your bank to a friend in China.
Your local bank > Your local reserve bank > Federal Reserve > SWIFT wiring system > China’s Central Bank > local reserve bank > local bank
Each step of the way there are:
- loss of privacy
- potential for human error
- time (ever send a wire and before it settles in the other account you wonder, “Where in the currency ether is my money?”)
Cryptocurrencies solve this problem. And since each form of money eventually takes over 100% of the prior form, I felt (and still feel) this will happen as cryptocurrencies, in some way, replaces regular currencies.
Demand for money is $150 trillion (the amount of money on the planet).
Supply of Bitcoin is about $150 billion.
The math then suggests a potential 1,000x increase in the price of Bitcoin, since supply of Bitcoin is fixed (as opposed to the supply of paper money).
That was my first argument.
For a good resource on understanding how evolution works in various industries, read Matt Ridley’s The Evolution of Everything. I was applying his ideas on evolution to the industry of currency.
This article first appeared on 👉 JamesAltucher.com