Blockchain, the technological innovation at the heart of cryptocurrencies, has enormous implications for how people are governed by the forces of government. To truly grasp these implications, you first need to understand the complex relationship between the state and money, the role of the state in generating cash, and the state's use of money as a governance tool. Money is not just a unit of account, a preservation of value and a medium of exchange, it is a state institution that must organize, encourage and control people in the state. States began to adopt the rules of the financial system as early as the 4th millennium BC. In ancient Egypt, the gold bullion of a fixed mass determined political authority and was the standard for measuring value - the highest measure of value. It was the same in Mesopotamia with silver.
Since then, the role of the state in monetary relations has only grown and strengthened. The minting of precious metal coins expanded the government's ability to define the unit of account. By the 11th century AD, "free coinage" had become a common practice in medieval England. Free coinage, despite its name, was a service provided by the Crown for a fee. Individuals could bring gold or silver ingot to the mint, where it was transported and given back in the form of coins - pennies (groszy). The Crown used the penny as the unit of account in which it collected taxes, and people were forced to either collect pennies or mint them in order to fulfill their obligations to the tax office. This is how the demand for minted coins arose and so the state monopoly over coinage was established.
At the end of the 17th century, stocks of silver coins in England dropped dramatically. War costs were rising, and the Crown needed much more money than the tax collection could cover. This prompted the government to create, in partnership with the private sector, the Bank of England, a private institution with the legal authority to create money in the form of loans to the government. Then money took the form of banknotes, the circulation of which the state could control in the process of spending in society. The crown also created a demand for banknotes by collecting taxes in banknotes. This gave people a reason to keep this form of cash, rather than exchange it for precious metals immediately. The Bank of England received its interest, which made sense for him to lend in the first place. Thus was born the central bank - a private institution with the legal power to create money in the state. Central banks are joining the interests of public authority and private investors to create standardized and expandable cash that will be used in the public and private segments.
The gold standard, the former US monetary system, is governed by the same rules. The Federal Reserve has promised to redeem dollars for gold on demand. Thus, the dollar's “value” is reinforced by the government's promise to issue a fixed amount of gold. In 1971, President Nixon ended the US gold standard (for the second time in US history). The dollar's pullback from gold launched the era of fiat cash and floating exchange rates. Fiat currency has no intrinsic value other than that it is designated as legal tender by the government.
“Bitcoin is not the only currency that has no intrinsic value. Government monopoly currencies such as the euro, dollar and Swiss franc also have no intrinsic value. These are fiat currencies created by government decree. The history of government monopoly currencies is a history of wild price spikes and falls. Therefore, decentralized cryptocurrencies perfectly complement the existing cash system. - Federal Reserve Bank of St. Louis.
By decree of the state, money moved from precious metals to legally secured pieces of paper, which gave the state monopoly power over currency. With the invention of blockchain-based digital currency, we have the opportunity to decouple the institution of money from the public authority and thereby deprive the state of the ability to directly use the financial system as a tool to manage and control financial systems in a decentralized network of nodes that govern digital currency networks.
Decentralized is a popular term at this time, largely due to the interest in digital currency and blockchain. But what does it mean? In a traditional financial system, we rely on the accounting systems of centralized organizations (banks, governments, companies, etc.) to keep track of who owes whom and what belongs to whom. There is no centralized ledger in the blockchain. There is no single person who manages the database like any other PayPal. Instead, the task of maintaining the ledger (i.e. blockchain, blockchain) is distributed among thousands of nodes (nodes, computers) that add up to the network. Each individual node contains a downloadable copy of the entire blockchain, which is constantly updated with each new transaction.
Every time any data moves, these nodes are actively working, checking their copy of the blockchain to prevent any malicious activity. When the validity of a transaction is confirmed by the consensus of many nodes, the transaction is added to the ever-expanding blockchain. Rather than relying on a single database managed by a trusted, centralized third party like a bank, the network distributes thousands of copies of the database among its nodes, so there is no single weakness for hackers to exploit. Even if an attacker takes control of a node, intending to change past transactions, he can only compromise one copy of the blockchain on the node. If this happens, other nodes on the network will instantly recognize the compromised node trying to trick the system,and discard a copy of its blockchain. This is the fundamental novelty of blockchain: the distribution of the database in a decentralized network of nodes. This removes the need for a centralized third party to validate the authenticity of the database. Eliminates the need for trust and also simplifies the process of transferring money. Rather than relying on an oligopoly of banks and payment aggregators, anyone with a computer and the Internet can participate in maintaining a distributed ledger. Rather than relying on an oligopoly of banks and payment aggregators, anyone with a computer and the Internet can participate in maintaining a distributed ledger. Rather than relying on an oligopoly of banks and payment aggregators, anyone with a computer and the Internet can participate in maintaining a distributed ledger.
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Blockchain technology also simplifies the process of creating money in the same system. Nodes in the network generate, or "mine", new bitcoins, providing their computing power to the system: they collect the latest transactions together and combine them into a new "block" of the blockchain. This is broadcasted sequentially to the entire network so that each node can authenticate transactions in a new block and add them to their copy of the blockchain. Since the operation of nodes is vital for adding new blocks to the blockchain, and therefore for processing new transactions, the system is mutually beneficial and encourages mining. The first benefit is that a miner who successfully finds a new block is rewarded in the form of currency. The second benefit is that the miner also collects fees that go along with the transferred amounts. Since mining requires processing power and energy,The reward is intended to offset the miner's costs of maintaining the node and to ensure that the network is always equipped with the computing power to process new transactions.
The process of confirming transactions, as we have already defined, is called "mining". He takes responsibility for injecting new money into the economy, pulling existing money away from governments and banks, and giving it to the people. Mining is also important for digital currency to gain value. If resources are needed to produce something, that something will have a value that depends on the cost of those resources. If mining did not require the cost of electricity and computing power, that is, it would be free, then the digital currency could be obtained free of charge, which means it would be “free”.
Of course, there are no perfect systems, and blockchain-based digital cash will be no exception. There are concerns about scalability, high transaction costs, long transaction processing times, traceability, environmental impact. The price is also very volatile - although this has nothing to do with the protocols of the system. There are also concerns that the industrialization of mining will lead to the concentration of network power in large "farms" that use special computers designed specifically for mining. The upshot of this is that, unlike the early days when digital cash could be mined on a regular computer, today it is almost impossible to mine anything on a home PC. You need to invest thousands of dollars in hardware to mine and make money on it. But the concentration of mining power on bitcoin farms leads to the centralization of the network, which poses a threat to the asset class with a decentralized nature.
Regardless of the opinions on the advantages and disadvantages of decoupling money from government, the fact remains that this is one of the most important consequences of blockchain technology. However, it's important to remember that this technology is still crude and even somewhat experimental. At the moment, it is almost impossible to accurately predict what impact the blockchain will have on the ability of central government to govern. But the potential of blockchain to allow individuals to store and transfer valuables outside the control of the state has already been recognized in countries that have problems with their national currency. In Venezuela, for example, thousands of people have chosen to mine and store digital currency in order to combat the hyperinflation of the bolivar. In general, the concept of a form of money that exists outside the control of the state promises most of all to thosewho does not trust the state in principle.
As blockchain conquers the world, the popularity of blockchain-based financial instruments will grow in regions without a strong national currency. The more people choose blockchain to carry out financial transactions outside the control of government control, the more power the government will lose over money. It is freedom from financial oversight that has never been seen in human history. This is a real paradigm shift.
Ilya Khel