WHAT DOES BITCOIN SOLVE?

in #bitcoin6 years ago

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The ability of Bitcoin to provide financial solutions is not obvious to everyone. Perhaps because there is a deep-rooted idea in culture that each one of us must adapt to the already established models, which in some way suggest the limits of our economic freedoms, which include aspects of the privacy of our actions or the possibility to audit the systems we use to exchange value or communicate.

It is as if someone would have us believe that it is a mistake to think that there is something fundamentally wrong with the way in which procedures are established to know, participate and decide on the political and administrative mechanisms of the financial institutions that safeguard the money that we have been using until now.

Questioning the functioning of the economic models that banks reproduce in the domestic and individual economies is perceived as an act of conscience of the malaise. If we think in global terms, economies are in crisis. But proposing alternatives such as the use of Bitcoin can become suspicious according to the stance of the most stagnant sector of the economy. Above all, if people get carried away by the opinion of experts, authorities and even Nobel prizes.

Most of these people agree that there are numerous problems that have to be solved. But the idea that maybe we missed the road a long time ago can be disturbing for everyone. However, the money remains in the vaults of strangers, our expenses are made with credit notes (bills or coins) that an entity provides to represent a fraction of an impregnable value, which some calculate based on amounts of gold, reserves of oil, shares in stock exchanges, confidence, debt or products that produce value: if that is still possible, and if we include in the equation the central banks and the way in which the fiduciary money is currently issued.

The Bank of England took 300 years to create 1 billion pounds sterling. It took 8 more years to create another trillion pounds sterling, of which only 3% was cash, according to 2014 figures. Is there a limit then? Is it possible to judge or sanction the way in which economies devour more and more money and argue that this growth, and the use of that money, is based on the trust of the people?

A few days ago a reputed economist argued precisely that he does not understand what is the problem that cryptocurrencies solve. He believes that "they have no support or anchoring" to reality and that the transaction costs generate a lot of friction, which means a setback for any monetary system.

But the idea that the transactions that are made through the modern financial system do not generate costs for people is not right. Because who deposits value in a bank, in exchange for reducing friction for trade, for example, gives up control of your money. What does a saver get if he leaves his money in a bank? A negligible interest rate that has no incidence, the payment of small commissions that the bank consumes in massive amounts, debts that come from loans.

Banks have the privilege of deciding on the limits of cash that a person can use in a certain period of time. In fact, banks in the United States must keep 3% of their reserves in their vaults if they maintain transactions of accounts of more than 15.2 million dollars; and 10% of your total reserves if you handle account transactions above 110.2 million dollars. The rest is usually deposited in the local central bank, but it is hard to think that the bonds or the debt that is used to represent that reserve can be called a "backup" or anchoring to reality.

The worrying thing is how many of these federal banks, together with large companies, intend to boost their economies from the almost indiscriminate creation of money that contributed to the crisis of the last 18 years, accumulated in mortgage loans, financial sector businesses, properties commercial, credit cards and personal mortgages, that more than tools seem bondage to the tax system.

The current state regulations of the most influential economies insist on adapting the use of Bitcoin to existing legislation. Without taking into account that the existing laws do not provide clear limits to the system for which they were designed; much less allows to adapt the geometry of Bitcoin to the regulatory molds.

International trade implies greater challenges for fiat money: it imposes restrictions on free trade and a large amount of friction in bureaucratic terms and expenditure on commissions. Bitcoin does not recognize geographical or political barriers, there are no borders for its use: the fee expense is a small fraction of satoshis, distributed among the groups or individuals that keep the network operating by confirming transactions and including them in the block chain; in no way is that expense comparable to the exchange that a trader would have to make, who must move funds in international transactions.

The financial infrastructure, especially the one that is on the side of agencies, institutions and banks, admits the possibility of people exchanging or safeguarding their money in an environment of apparent security. But in no case that security is sustained in the reputation of the bank. Contrary to what has been tried to establish in the economic culture of the people, nobody uses the fiduciary money that the central banks emit by the belief that "it has underlying value because some armed men say that it has it", as Paul Krugman suggested, an economist awarded with a Nobel prize.

If the people who criticize the system that Bitcoin proposes do not understand what this technology resolves, they do not understand the discomfort caused by the political and economic climate of the last decades, which was decisive for the first bitcoiners to use a currency designed on precepts that postulate a system built against the censorship of transactions, which was not linked to the traditional actors of the global economy.

The financial authorities understand little that Bitcoin has self-regulatory mechanisms that limit the possibility that people who use the cryptocurrency lose value when exchanging funds or that the chain of blocks is hacked. On the other hand, someone very motivated and resourceful could intervene in the banking system for five years, like Denis K., who managed to extract money from more than a hundred banks from 2013 until he was arrested, including all Russian banks and obtaining 810 million euros only during one year of operations.

Bitcoin has never been or will be hacked, because it would be necessary to deceive a system that has thousands of computers that safeguard the history of all transactions made so far.

Bitcoin goes in the opposite direction to the financial model instituted for 300 years. It is not a system that disguises itself as something that it is not: it does not create money from debt, rather it creates value from the development of its technology, which is what generates the trust that bitcoiners hold.

The banking system discriminates through censorship, which allows diverting attention from the truly important: how money is generated, how it is safeguarded and how it is exchanged. Most people do not have the possibility to audit the financial system. On the other hand, Bitcoin proposes a model that is resistant to censorship of transactions, auditable.

Only the person who possesses the secret keys that the software provides, has the power to control how much to transfer, to whom and where, there are no temporal limits, nor requirements beyond the understanding that security depends on each one. In the future, Bitcoin could come to implement smart contracts that will further diversify the possibilities of using the cryptocurrency, thus ensuring that there is nothing that the fiduciary money does that Bitcoin can not do in a more transparent and safer way, because it is supported by mechanisms that are executed according to mathematical laws.

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