Dr. Kropotkin, how was Bitcoin born and why is it so revolutionary ?
Bitcoin draws its roots from the cypherpunk movement, a group of people including Julian Assange (wikileaks), Bram Coen (bittorent), Tim Berners-Lee (www protocol) and obviously Satoshi Nakamoto, people who have been discussing on a mailing since 1992 encrypted list on cryptography, privacy and the future of the internet. After several unsuccessful attempts to create an IT currency, Satoshi Nakamoto publishes a document in 2008 (white paper) where he describes how to create an encrypted currency using blockchain technology. From this input, gathered by open source informatics, in the following years the decentralized world of cryptovalute and blockchain solutions developed. The peculiarity of bitcoin lies in its being a free protocol (opensource) whose development takes place in ways completely independent of any central authority. It is a system of which no entity, not even its creator (under the pseudonym of Satoshi Nakamoto) holds control, which generates trust in blockchain by users.
Why have the main players in the financial system badly accepted cryptocurrency ?
Bitcoin is not just a system for transmitting value in a secure and irriverable way. The value is issued through the “mining” mechanism, in short the owners of the equipment (the ASICs and the servants with the nodes) that keep the blockchain network in operation, are remunerated through the issue of Bitcoin (currently 12.5 Bitcoin per block every 2-5 minutes). However, the total amount of Bitcoins is liable by its own algorithm (21 Millions in total of which mined to today 17.2 ca), it is therefore a currency of a deflationary nature. The current financial system is instead based on an inflationary model with centralized issuance entrusted to central banks. Without losing ourselves in several quotations, we remind you that the issue has always been forbidden to the private sector unless it is done through a regulated process such as the issue of shares or bonds assisted by leading financial operators.
As for the deflationary property of the currency, we mention the case, unknown to most of the currency of Silvio Gesell (German economist 1862 – 1930). Gesell managed to conduct a curious experiment in the Austrian city of Worgl during the Great Depression: the municipal authority began to issue its own deflationary currency that citizens were forced to spend as it could not be conserved, having a temporal deadline. Although the experiment had shown several benefits of this approach (consumption was taken back, many public works were realized, taxes were paid in advance, etc …) with several Austrian municipalities were interested in this model, the Austrian central bank banned the continuation of this experiment.
What is surprising is not the reaction of the banks, but the spread of cryptocurrencies, which would not have been without support from a part of the banking world, which suggests the existence of currents within the same financial system that think differently.
One of the main accusations against the crypto concerns the dirty use that crime can do, guaranteed by anonymity, in addition to the insecurity of the platforms that manage the exchanges. What do you think about it ?
To avoid being superficial, I want to shed light only on a couple of aspects:
- Bitcoin does not guarantee anonymity (there are other crypto like the Monero with this task) and indeed it is much more traceable than the dollar: the blockchain contains the history of the single bitcoin from its genesis through mining to the current user.
- The diffusion and evolution of technology passes through a system of continuous improvement. The response times of justice are incompatible with the development of the web which for this reason has always been self-regulated. It is clear that self-regulation can only work in a decentralized web with many players of different sizes (not like in the mass-media sector) that prevent the formation of a mainstream oligarchy. Blockchain technology allows this decentralization and thus contributes to the development of the web in a “healthy” direction. On the other hand, the crypto world is very new (mass diffusion in 2017) and the self-regulation process takes time, so scams, scam fakes abound. It can not be said that centralized systems such as banking and mass media are exempt (shadow banking, fake news).
What kind of future are we going to in the financial field ?
Technological evolution has a natural direction towards decentralization, thinking of communications: we have moved from mails and telegraphs to telephone booths and landline phones in smartphones in every pocket. Internet and blockchain are enabling technologies that allow us to completely change the value, savings and investment exchange system.
Even today there is the technical possibility of working in a system where one passes from ideas to their material realization, avoiding much of the traditional intemediation requested today by the entrepreneur. Technology allows communities to finance their projects independently (crowdfunding) without having to depend on the institutionalized financial system. The first experiments of this type we saw them with crowdfunding, during the course of 2017-2018 they have “self-financed” several projects through the ICO (initial coin offer) and the issue of tokens. Unfortunately we do not yet have many elements to judge if this model works.
However it will take time for global dissemination, think how much has elapsed since the invention of the electric motor to the mass diffusion of household appliances. On the other hand, the technological diffusion curves are much faster than before (classic example is the diffusion of TV compared with the diffusion of smartphones).
What advice can you give to those who intend to take an interest in cryptocurrencies?
Try to “get your hands dirty” in an experimental way, that is without investing large amounts of capital from the beginning. It is a very accessible and very scalable technology:
- Install a wallet
- Make transactions
- Try cryptomining
- Try market making
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