And to whom the newly created money belongs. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
#money #economics #cryptocurrency
I am just a cabinet maker / woodworker so the terminology might be lacking and the views imperfect. Thanks for understanding!
Where Money is Created Defines it's Value
If there were no strict rules on who is allowed to create money, and if the rules were not enforced by sovereign power, money would have little lasting value. The sovereignity and trustworthness of the entity setting the rules - usually a state - are reflected in the utility of the currency. Just imagine an insignificant island at war with a bigger country; who would put any trust in its' currency? Or who wants to save money in a currency of a totally corrupt state? People would put a discount on such a currency and try to get rid of it.
How Money is Created Defines it's Charasteristics
The rules on how money is created play an important role. Who gets the newly created money? In developed countries you can bring new money into existence to the degree you are considered trustworthy or have some real-estate. By using your credit score or house as collateral, you can loan money into existence. Thus the new money created is at the disposal of people who have something to collateralize. Money can be thought of as liquidized and extended assets. This has the consequence that money is thought of as risky. You don't want to create new money if unsure. Also a state itself can loan money into existence, which has proven to be a very problematic thing. Politicians don't take personal risk, but put it on the economy.
Money can also be thought of as a share in a whole economy; 1 € is one share in the EURO-system. The charasteristics of this kind of currency is what we think of as money. Fiat-money. By the way, Fiat money is just as virtual as cryptocurrencies, only the cash representing it feels more tangible and real.
Fiat-money Has it's Costs
Creating the rules and enforcing them is not cheap business. In addition the mechanisms are decades old and money moves incredibly slowly. I don't know how much of the money in existence is currently on it's way somewhere, and not at someones immediate disposal. The cost of it is ultimately a cost on money itself and a burden on the economy.
Bitcoin Was a Funny Experiment
New bitcoins were brought into existence by mining. Mathematics enforced the rules, which was vastly more efficient than politics and bureaucracy. The people who worked the hardest got the new money. The value of the work done was in security - creating trust in the currency. So new money wasn't loaned into existence, it was laboured and sweated into existence. Labour and sweat defined it's value. Such wow.
#bitcoin #litecoin #dogecoin #pow
Proof of Stake Made it Cheap, But Struggled to Distribute the Money in a Fair Way
The entities getting the newly created money were the ones who happened to be in the right place at the right time. Creating money was cheap and enforcing rules just as cheap. Math - no bureaucracy. The limited value of such currencies wasn't because of lack of security, but because of poor methods of distribution. Way too unfair to be considered as a basis for any economy.
#nxt #peercoin #pos
Distributed Proof of Stake Made POS Even More Efficient
Transactions became even faster and cheaper, and the system was apparently more flexible in terms of optimizing parameters, but fair distribution wasn't solved.
#bitshares #dpos
Then Comes the Most Recent Attempt to Create a Better Currency, Proof of Subjective Value
Steem has the benefits of all the aforementioned. In addition it has additional mechanisms to add stability. What is probably unprecedented, is that the people getting the newly created money are the ones who create value in the form of intangible things such as information, advice, saved time and entertainment. Money doesn't represent an asset somwhere else or stake in an economy, but real value. Think of it again. This is unprecedented. New money is brought into existence and distributed to everyone creating value - defined by the consensus of everyone involved! This is immense!
#steem
What We Still Need is Proof of Producing something Physical
STEEM is evidence of subjective value - proof of producing something intangible. There is also lots of tangible things being created, which are of immense value. How could newly created money be allocated to those who create tangible things? Maybe shares in a company, which are represented and issued on a blockchain. I can think of two reasons why shares haven't been used as money before:
- For taxation purposes, goverments like to know who owns shares in which company. They are not fungible. You can't just simply give someone your shares.
- It hasn't been practically possible to issue shares electonically, because of the historical double-spend problem. Because of that, shares have not been divisible - which is a fundamental character of a currency.
However it doesn't look like technology is ripe for this. Shares can only be represented on a blockchain, but how are the rules enforced as the company is completely separated from the blockchain. Lets wait and see.
#uia
Ether Is No Currency
By the way, I don't think of Ether as currency. It wasn't designed as such. It is the fuel needed to make use of the ethereum network, and as such resembles more a commodity like oil. #ethereum