Dollars, euros, pounds, marks, lire, sesterces and florins

Coins and their names have always been synonymous of wealth. But what is currency?

Today when we talk about currency, we think about the 10 dollars bill, but many of us think of ATM and credit cards. But currency is the fuel of every modern economy and is the unit of measure for the production of goods and services.

To understand the economic value of a good or service we use Currency as the unit of measure to make comparisons between different assets. We must then remember that broadly speaking when we have too much currency we suffer the phenomenon of ‘inflation while when we have too little currency we suffer deflation. In theory.

It should be remembered that today’s currency is issued by central banks against the transfer of collateral i.e. government bonds, so this currency is borrowed or rather created as loan, which generates debt.

Thousands of years ago, before the invention of currency, the ‘economy was based on barter, which, however, was not an efficient system given the various things to be bartered. If I own 3 eggs and I need a cow for my farm, well barter becomes a system that makes at least one party interested in the exchange unhappy. The exchange becomes impossible and I will never get the cow I need. And the eggs rot.

Now given the impossibility of applying the system all exchanges, what we call “currency” was invented to solve every problem. With X number of coins I can go to my friend and get the cow I am interested in, so the same coins can be used by my friend to pay the worker to fix his farm that is falling apart.

Coins also, in ‘antiquity but also until recently, had an intrinsic value determined by the value of gold and silver used for minting.

Coins, however, are a difficult commodity to carry around in large quantities; they can be stolen or lost. Buying a loaf of bread or a palace, requires a large difference in the quantity of coins. To overcome these problems, checks were born, which later turned into today’s banknotes.

We have condensed the story as much as possible for ease of understanding.

Each banknote guaranteed the existence of its gold value at the issuer’s depository.

in 1944, at the height of World War II, the monetary system was changed at Bretton Woods, and the only currency convertible into gold becomes the U.S. dollar with all other currencies pegged to it

in 1971 nixon abandoned gold convertibility for the dollar to avoid default because US was involved in the  Vietnam War. On that day the fiat currency was born, or perhaps it would be better to say returned to the stage of history, whose value is given by trust in the ‘authority that imposes its use, thus the government that issues it.

there are no more limits in the creation of money, being able to print as much currency as one wants and needs since the currency is created by the central bank of a country, in this case if we are talking about Europe , by the ECB.

In the history of our planet and of our civilization, kings, sovereigns and emperors had the ability to create the currency, and then this ability moved on to lordships and governments , and now end up with central banks that are private entities.

To date, the value of the currency is given by the international exchanges that take place between the various states, which implies considering the strength of the various economies as well.An increase in the value of a country’s currency will make the purchase of its goods and services abroad, by a foreign citizen with lower value currency more difficult. The higher the value of the currency, the higher the price of goods that will be exported. One of the unfair activities you can do is to artificially keep the value of your currency low to increase exports by going to devalue it. And yes I am talking about you, China!

This is where Bitcoin comes in, which is a “currency” that we can describe as special. In fact, nothing like it has ever been created in the history of ‘man, while the economic history books are full of fiat currency experiments that failed. Go look at what happened a few decades before the French Revolution….

In fact bitcoin possesses two characteristics that are unique compared to fiat currency, namely its decentralization and its deflationary nature.

No one controls the protocol nor can anyone change its characteristics by issuing more or less coin than those decided in the protocol. The protocol can be modified but all users must agree to the modification.

In the long run, the deflative nature of bitcoin makes it an excellent tool for long-term savings.