You are either already knowing what I'm going to talk about and then, this article is made to be shared, or you either are a newbie who doesn't understand all the buzz around cryptocurrencies. You certainly heard talking about bitcoin, high volatility in price and heard that people became millionaire with it but I'm not going to talk about this. I'm also not going to talk about the technical aspects of the blockchain. I will rather focus on the societal changes this technology has the potential to leverage. I will do this by presenting the first cryptocurrency that came to existence, bitcoin. Then, I'll explain why it allows regular people with knowledge in computer science or people who know a programmer to invent their own mechanism of money creation. I will also show you a project that uses cryptocurrency in order to achieve something more than speculation. And finally, I will talk briefly about ICO's and why it is a clever way to finance the development of new cryptocurrencies.
First, the bitcoin ! The very first thing you need to know about bitcoin is that it was intended to be a Proof of Concept (PoC). Everything makes more sense once you know this. Bitcoin is a PoC that aims to showcase that the blockchain technology is working. You now have to understand what the blockchain is for regular people. Blockchain is a way to achieve consensus between people and machine that don't know each other without intermediaries. Think about it, why do we need notary when we buy a house ? We need them to act as a neutral third-party who acts as a witness of the agreement to give the assurance to both the buyer and the seller that what they agreed on will be respected byt the other party. Blockchain allows to achieve the same effect removing the third-party and replacing it by code. Bitcoin implemented the blockchain technology and applied it to money creation. The Bitcoin code acts as a central bank without having the need to have an organisation like the Bank of America, and by the way, people acting as a bank. As such, users started using bitcoin as a currency and it rapidly evolved in a highly speculative market. But again, remember bitcoin is only a PoC and, as such, it is a success.
So, with blockchain in general, you can create a new coin and start using this coin as a currency. It would be useless or very difficult to use if you couldn't tie the coin to something of value in the current economy. That's where exchanges make their interesting appearance. Again, bitcoin was the first cryptocurrency with which it was possible. Bitcoin could only have a value in the real economy if it could be exchange against something of values like the US dollar. That means that you need a supply of bitcoin which was the case thanks to the bitcoin program but you also need a demand of bitcoin and create, by the way, a market. It happens that early adopters accepted to exchange US dollars against bitcoin creating the demand. Bitcoin then gained a value in the real world because exchanges were made possible inside a market.
Ok, so we have a technology that removes third-parties and it allows you to create coins that you can later exchange on markets in order to make those coins gain value. Is it everything there is to know about it ? What would be the added societal value of this ? Is it only speculative ? The answer is no ! It goes far beyond speculation. The key element is the following. You can create your own coin and, by the way, choose yourself the RULES of its creation. Do you think a basic income based on money creation would be a good idea ? Check out DUniter. It is also a PoC in my opinion but it has the merit to exist. Also, you think that creating money is nice but you would like to include a redistribution mechanism inside the money creation rules ? You can ! Remember that, as the coin you created is created by code, it is the programmer who choses the rules that the coin will follow. And the programmer is an individual like you or me. Again, if you don't know how to code yourself, maybe you can find a programmer to do it for you. The key is that we get the possibility to experiment new money creation mechanisms which was not possible before. Indeed, with the exception of local currencies, only states were allowed to create a currency before. It is the Central Bank of you country that choses how and how much money is created. And it impacts all of us as we all need to use currencies in order to have access to housing, food, medical care and every aspects of our lives. We just cannot survive without money. Regaining control of money by being able to create our own coins ourselves is something that is a profound game changer opportunity !
Ok, we can create coins. We can choose ourselves what are going to be the rules of its creation. But how to make it appealing for people to use that coin ? Indeed, not everybody is willing to risk his US dollars on something as risky as bitcoin. Also, a remark you often hear is that bitcoin is built on top of nothing. Indeed, there are no assets behind bitcoin that would guarantee it would keep a value on the long term. In order to answer those questions, I will present you an example of paltform that is currently being developed and that is a way to both be an incentive to use the newly created coin and is also a way to give a real intrinsic economic value to the coin. I will also talk a bit about ICO's. But that's going to be in part 2 of this article.