Bitcoin Investment: Should I Invest in Bitcoins?

Bitcoin currency has already been used as a kind of a fiat money alternative for about 9 years. It is relatively popular all around the world. The first digital currency has made many people go nuts following the impressive ups and dramatic downs of its exchange rate.

Today, in October 2018, the whole cryptocurrency industry is looking forward to observing a new crypto-“miracle”. Search engines are overflowed with all those “How to invest in cryptocurrency?”. And this is not particularly surprising. Traders and different investors who own a significant capital expect cryptocurrency to be a promising investment tool in the long term. And if we talk about cryptocurrency, that basically means Bitcoin. Well, of course, there is a number of altcoins that can be worth making investments, but the first digital currency is definitely the most popular one.  

People still talk about investing in Bitcoin and this topic is interesting for many traders, investors and casual users. So, let’s take a closer look at this issue.

How to invest in Bitcoin

Before making an investment, one should obviously choose the way he or she wants to get some BTC. First of all, it depends on financial capacities. There are indeed many different options to invest in Bitcoin, but we will focus on two main ways that are currently the most popular and probably also the most effective.

Option №1: Taking advantage of the rate differences as a way of BTC investing

You might have already come up with the question, why people are still interested in making investments in Bitcoin when it costs less than $7 thousand per a coin? Well, influencers, opinion leaders, independent experts, and different analysists are confident that we will soon observe another sustainable increase of Bitcoin rate. And that is why many people start thinking about investing in cryptocurrency to make money out of the rate differences.

But what is the way to do that? It is actually pretty simple. All you need is some basics of math. In fact, investors are not really sad about the fall of Bitcoin. Many of them are even happy, especially those who believe that the cryptocurrency has a great future ahead. Today, if a trader purchases a BTC for $6,5 thousand, he or she will manage to make a good profit, in case BTC rate increases. Some really expect it to rise up to $30 thousand, and in this case, it will really be a good bargain. The key point here is whether the rate increases or not, of course.

Option №2: BTC mining

Besides, users can invest the special equipment that is used to mine Bitcoin. You may already know, that each BTC is actually a kind of a reward, given for the performance of certain calculations, necessary to issue new coins. Today these calculations are rather complex and require special high-performance equipment called ASIC-miners. The more users are there in the system, the more difficult are these calculations. This is called Bitcoin difficulty and it ensures that it always takes around 10 minutes to create a new Bitcoin block.

Investing Bitcoin this way means that you can get a certain number of BTC and store it till the rates grow or exchange it for another digital currency like Ethereum.

However, you’d better do not think that these two investment options will bring you fast and easy profit. This is possible only if the cryptocurrency rate increases significantly and in the case of mining, if your equipment has enough performance.

By the way, here is one more option of BTC investing. It`s actually difficult to say that it is a comprehensive way to invest in the cryptocurrency, but, anyway, many people use it today.

Bitcoin faucets

These are special websites, where users can get a reward for making certain easy tasks, usually related to online advertising. These rewards are paid in satoshi. The thing is, that one BTC includes as many as 100 000 000 satoshi, so one satoshi is only 0,00000001 BTC. So it`s actually a tiny piece of the market`s largest cryptocurrency. Investing BTC using Bitcoin faucets is not really effective, as you may never manage to collect at least one single coin.

Is Bitcoin a good investment

Well, if you have already decided to invest in digital currencies then Bitcoin will probably be the best option. Not only this cryptocurrency is a market leader and the most popular digital coin, but also it has relatively good liquidity as compared to other virtual assets. Many cryptocurrency followers believe that Bitcoin has a potential to become the main means of payment in the future. However, there are also those who bet on other digital currencies, as well as those who do not consider virtual coins as an investment option at all.

By far it seems that the question is it worth investing in Bitcoin remains undetermined, so let’s make it a little bit more clear. Bitcoin is relatively anonymous, decentralized and has a limited number of coins available for mining. This is, in fact, why hundreds of thousands of cryptocurrency followers made their decision in favor of BTC.

Anonymity

Investors do not have to disclose their personal data. The information about each transaction is public and everyone can see the address of the cryptocurrency wallets of a sender and a receiver, as well as how many BTC were transferred. However, the information related to owners of cryptocurrency wallets is not disclosed, so the whole system is relatively anonymous.

Decentralization

Bitcoin worth investing, as it has a decentralized management, which means there is no single administrative center. Transactions are carried out directly between users in a peer-to-peer network. However, Bitcoin users still have to pay certain commission fees for transfers of their virtual assets, because every transaction is confirmed and recorded in the blockchain by miners who receive rewards for this. Today small transactions are often not effective at all, as the commission fee is rather big. However, if a transaction is large, the commission fee will be relatively low.

Limited number of coins

Is Bitcoin a safe investment –  “yes” is the answer of many people, who believe that a limited number of Bitcoins to be mined is a strong advantage of the digital currency. It will prevent BTC from inflation.

“Why should i invest in bitcoin?– you may ask. The answer will probably contain both pros and cons. And that`s because Bitcoin has some special features, which are:

  • 24/7 trades, that allow making investments at any time;
  • most indicators have a rather good quality;
  • high volatility;
  • possible positive prospects of cryptocurrencies and, as follows, positive expectations related to Bitcoin investments.

Bitcoin investment trust

The risk remains here almost all the time and no one can guarantee that your money is 100% safe. Here are several examples why it can be rather risky to make investments in the largest cryptocurrency by market capitalization. Yes, Bitcoin still has a decentralized management, however, in a certain way the system is getting more and more centralized. This risk of investing in cryptocurrency is related to the fact that BTC rate starts depending on cryptocurrency exchanges.

Moreover, the significant part of all Bitcoins is owned by those who are engaged in mining or lease out high-performance mining equipment. Making new Bitcoins requires really a lot of computing power and gets more and more expensive. The competition within the system increases and it is almost impossible for casual users to join Bitcoin mining. That is why many people have already switched for other digital currencies that are easier to mine and can be later exchanged for BTC.

In some cases, Bitcoin`s anonymity is also a risk. Anonymous deals can be used for money laundering, as there is no effective state regulation of cryptocurrency transactions.

How to invest in Bitcoin stock

There are special cryptocurrency funds, similar to mutual funds that exist in the world of bonds and stocks. These funds are managed by private parties and it influences the interest rate. For instance, some cryptocurrency funds provide 1-2% per day.

Bitcoin investment strategy

There are two main types of cryptocurrency investment strategy.

The first one: investors buy BTC and sell the cryptocurrency when its rate increases.

The second one: Bitcoin holders trade their digital assets on cryptocurrency exchanges. This strategy is very similar to Forex trading.

Minimum Bitcoin investment

Many people decide to invest in Bitcoin because they hope to get huge profits in the long term. So, even a small investment is considered to be rather promising by many cryptocurrency followers. Eventually, the smaller is an investment – the lower is the risk. But, on the other hand, a really small investment can just be useless. Anyway, how much to invest in Bitcoin remains an open question and everyone has their own opinion.

Who said users can only invest their money? It is also possible to get BTC for free by investing one`s intellectual work. Well, just a bit of BTC, to be honest. Special websites offer users the opportunity to earn satoshi – the smallest fraction of Bitcoin – for the performance of different easy tasks, usually related to advertising. These websites are called Bitcoin faucets.

The main advantage of such an option is that users do not have to invest a single penny to get a piece of BTC, however, the drawback is also rather significant – it will take a really long time to get at least one BTC.

Invest in Bitcoin mining

Mining is actually how new digital currency is issued. Making investments in Bitcoin mining means buying special mining equipment or renting it from different providers. Cloud cryptocurrency mining is also possible. These services lease out their mining equipment for users to rent a particular amount of processing power.

There are some experts who think that cloud mining is actually the best way to invest in Bitcoin, as users don`t have to purchase, set, maintain and update expensive mining equipment.  

Anyway, both traditional and cloud mining still require preliminary investments.

Bitcoin investment sites

Before making investments in Bitcoin, basically, before purchasing it, you should have a cryptocurrency wallet to store your digital assets. Today Bitcoin holders and those who want to join them are lucky to have a large variety of different cryptocurrency wallets. These are, for example, mobile, hardware, online, desktop, cold, and even paper wallets.

If you are planning regular digital currency investment, we recommend having a local hardware wallet. However, it actually depends on what is more convenient for you and what meets all your requirements and there is really a number of options you can choose from. Do not forget to activate your cryptocurrency wallet.  

Usually, Bitcoin is purchased on cryptocurrency exchanges. It is really important to choose the right one, so we recommend taking the following criteria into account:

  • a region, where the exchange is registered;
  • input and output, exchange, transfer options, etc. – basically, what you can do with your funds in a digital wallet;
  • commission fee level;
  • reputation;
  • security level.

This will help you figure out whether is it safe to invest in Bitcoin.

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What is Ethereum Address (ETH address)?

This information will be useful for those readers who are the beginning of their way in the cryptocurrency world. In this article we will talk about such concept as Ethereum address, find out what it is necessary for, where you can find it and see it. So let’s get started.

Contents:
(please, click the topic to scroll down to it)

  1. What is Ethereum address and what is it for?
  2. Difference between online and offline addresses
  3. Conclusion

1. What is Ethereum address and what is it necessary for?

To begin with, it should be noted that Ethereum is the second most popular and capitalized coin. It has significant differences from the flagship of the industry with a good sense of the word. Ethereum has a more advanced technological base. For example, Bitcoin, in fact, is only a payment system, and on the basis of Ethereum you can create your own coins and smart contracts. Ethereum is a platform from which, potentially, a great number of companies and individuals can operate.

So, we are over with the introductory part, now let’s get to the essence of today’s question. ETH address is a certain unique set of letters and numbers, with a help of which a specific wallet can be identified. It is necessary to transfer coins from one wallet to another. It can be easily shared, since knowing it doesn’t reveal any important information about the owner and the state of balance.

Only the owner can receive the address. To get it you have to run the wallet application on a computer or mobile device. Without any doubt, in the interface of any crypto wallet program (there is a large number of services for storing Ethereum) you will find a special button that will automatically generate the wallet address.

2. The difference between online and offline addresses

If you are just starting your crypto journey, then you probably do not know that there are different types of digital wallets. We will dig into this topic too deeply, but just describe the main points. More information about the classification of wallets can be found on our website. So, the wallets can be:

  • Online. These include web-wallets and personal accounts that are on the exchanges. This is the most insecure, but the most convenient way to store and exchange coins.
  • Desktop and mobile apps. These are so-called hot wallets. They are more secure than online solutions, but with their help it is no longer possible to make transfers so quickly.
  • Hardware wallets. They are the safest way to store coins, since it is virtually impossible to hack them and get access to assets. But they are very inconvenient for every day use. This type of wallet is ideal for long-term storage.

So, you can get an Ethereum address both online and conditionally offline, on a desktop or mobile wallet application. Сonditionally offline, because even if the wallet is physically located on the computer, you need access to the Internet to work correctly. There is no principal difference between online and offline addresses, the only thing is that coins will arrive either on an online wallet, or on a desktop or mobile application.

It is very important to use only official wallets for storing ETH or any other coin. Since they are best optimized for work with this or that blockchain, and also have more advanced level of security than a service that was developed by third-party developers.

3. Conclusion

Everything about cryptocurrency topic seems so complicated, but this is only at first glance. Of course, the wilds of cryptography and the operation of algorithms are not easy, but for ordinary users such information is absolutely useless. The knowledge that is necessary in order to use cryptocurrencies can be obtained by any average person in the shortest time possible .

So, in this article, we discussed what Ethereum address is and found out that this is only the identifier of a certain wallet and is needed to transfer coins from one account to another.

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Top Bitcoin Movies Worth Watching

We bet there is not a person in your circle who has never heard of Bitcoin.  Nowadays, cryptocurrency #1 has become a TV star. Horror films, travel films, and Hollywood thrillers about it are produced. However, few people are aware of the existence of documentaries that illustrate “digital gold” as it is and exhibit its positive and negative sides.

The Coin Shark has collected its own TOP real-life stories about creation of the characteristics of Bitcoin.

1. The Bitcoin Gospel (2015)

The film is dedicated to both technical side of the cryptocurrency and its value in society. It also covers payments with cryptocurrency issue. The film starts with a performance of a Bitcoin evangelist Roger Ver and is basically dedicated to his way in crypto industry. In this film, you will learn how cryptocurrency works, why it is being promoted so much and who else, besides Ver, firmly believes in digital future.

2. Bitcoin: The End Of Money As We Know It (2014)

The documentary shows how much the new cryptocurrency has already influenced and is still influencing the traditional financial systems. Having watched it, you will understand how Bitcoin differs from other currencies and why so many people around the world want to own it.

3. The Rise And Rise Of Bitcoin (2014)

“The Rise and Rise of Bitcoin” is a film-history of the world #1 cryptocurrency. It covers all the events that have ever hit the headlines. Those who are closely connected with BTC will tell why Bitcoin volatility is associated with a rollercoaster ride.

4. Magic Money (2017)

This film is created as an answer to the popular questions about Bitcoin. There you will learn about what cryptocurrency is. The idea that the authors convey- Bitcoin is not controlled by financial institutions, but only by the people who use it. The creators in details investigate the origin of BTC and try to predict its future.

5. The Bitcoin Story (2015)

The Bitcoin Story is a collection of myths and rumors about the creation of Bitcoin, the basics of technology, political influence and its impact on the financial system. Also, the authors have created a collection of opinions of venture capitalists on cryptocurrency.

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Cryptocurrency Games: Bitcoin Game Review

Bitcoin Games

Today digital currencies are still rather popular, despite the fact that holders of virtual coins are not really happy with the rates of their crypto assets. Some make forecasts that the market is going to increase again, while others assure that it will not take long for digital currencies to fade away. Anyway, many people are still interested in cryptocurrency and are willing to own some coins. That is why there are a number of services that offer to get digital coins without big investments. And some of them even provide users with the opportunity to make some profit while playing.

Content:
(please, click the topic to scroll down to it)

  1. What are Bitcoin games?
  2. Different kinds of cryptocurrency games
  3. Conclusion

1. What are Bitcoin games?

Today bitcoin games, as well as games with other digital currencies, have been becoming quite popular. Well, the opportunity to get some cryptocurrency while playing games actually sounds pretty tempting. There are not really a lot of cryptocurrency games available today, or it is probably better to say that this market is not yet floated. Anyway, online gamblers are likely to find the one they need. Cryptocurrency games basically include two large industries – online gambling and digital currencies – and these two combined may be rather promising. Statistics show the online gambling market is developing rather fast. It is difficult to say whether it is good in terms of moral aspects, but that is our today’s reality. Eventually, not every game is a bad thing of course.

Source – iGaming Business 

Usually, cryptocurrency games do not ensure super high profits. So, if your aim is to earn some good money, you`d probably better try another option. However, as it often happens, some games and some gamers manage to get certain gains.  

Cryptocurrency games are actually similar to fiat online gaming and gambling. Gamers do particular actions and if they are successful, they win and receive a reward. However, gambling is gambling, so it is really better not to forget that having decided to play a little bit just for fun, one can end up spending all their digital coins.

2. Different kinds of cryptocurrency games

Today one can find a quite large number of different cryptocurrency games. These are, for example, lotteries, where participants make bets, and then some of them win. Here are a few popular Bitcoin lotteries. Let’s start with Lottoland. This lottery is officially registered in Ireland. There are certain restrictions in terms of jurisdictions and users from some countries, including for example the USA, are not allowed to take part. In addition, participants must be over 18. This online service provides also fiat money lottery throughout Europe and in fact, does not specialize only in cryptocurrency. The lottery website states that the service even has the Guinness record for the largest online gambling payouts. The service offers a jackpot of as much as 1000 BTC and even gives the winner an opportunity to choose between receiving this amount of virtual currency on the Bitcoin wallet or getting the equivalent amount of euro. There are also other lotteries – the multi-cryptocurrency game Crypto-Games, FaucetHub micropayment platform that also provides the online lottery, YABTCL.com with its free lottery, etc.

Also, cryptocurrency online casinos are relatively popular. Such services usually offer to play classic roulette, slot machine, blackjack, etc. Spin games like FreeBitco.in offer to win up to several hundred US dollars in BTC equivalent. 16.5 thousand users of this service altogether won almost 160 bitcoins. Yes, the winnings here are relatively small, but still, many crypto enthusiasts will be glad to get even some satoshi without any investments.

There are also arcade cryptocurrency games, for example, the Spells of Genesis. This arcade-strategy is one of the first online games based on the blockchain technology. The gameplay includes battles and economics in a fantasy world. The main asset of the game is BitCrystals coins (BCY). Currently (as of early October 2018) this cryptocurrency costs around $0.08 and is traded mainly on Bittrex, where users exchange it for Bitcoin.

There are even games that involve cryptocurrency trading. For example, Spark Profit players receive rewards for guessing the rate of digital assets and market fluctuations. The service offers the opportunity to receive rewards without investment and without the risk of losing money.

It is interesting that even some existing online games have decided to add popular digital coins to their list of assets. This is how BitQuest appeared – the public server of the popular game Minecraft, where you can find and use real BTC.

3. Conclusion

So, today cryptocurrency games are rather popular among crypto enthusiasts. A wide variety of projects have already been developed – from classic online gambling (casino, roulette, lotteries, spin games) to arcades and financial strategy games. Many traditional online gambling platforms have added cryptocurrencies to the list of their gaming assets.

It is important to make sure that this or that game is really reliable and makes the necessary payments. If the market of digital currencies grows and their popularity increases, then, accordingly, we will observe the development of a cryptocurrency online gambling segment. Though games provide an opportunity to make easy cryptocurrency profits, one should never forget that a game should remain a game, and to go all-in may not work out as it was initially planned.

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Hashrate BTC and Its Influence on the Profit of Miners

Hashrate Bitcoin

Due to the possibility of mining, cryptocurrencies are often compared with precious metals or minerals. Mining of digital coins, especially Bitcoin, is a multi-billion dollar industry. In this article we will analyze what the complexity of mining depends on, find out what a hashrate is, and, of course, answer the main question: is it profitable to be engaged in mining in 2018? So, first things first.

Contents:
(please, click the topic to scroll down to it)

  1. Why is the complexity of cryptocurrency mining growing?

  2. What is a hashrate and what does it depend on?

  3. How profitable is mining in 2018?

  4. Conclusion

1. Why is the complexity of cryptocurrency mining growing?

Blockchain consists of a chain of blocks found by miners. This is basically the process of mining new coins. To open a new block, miners have to solve a complex mathematical problem, after which they receive an award in the form of an unlimited number of coins. Each coin has a different reward.

The suppressing number of cryptocurrencies has a limited number of coins, for example, Bitcoin has 21 million coins. Initially, in the Bitcoin algorithm it was put that each new block is generated every 10 minutes, that is, the last coin will be mined not earlier than the year 2140.

At the very beginning the network of the participants was very small, so the complexity was minimal. But with the increasing popularity of the coin, the number of miners increased, and in order to keep to the schedule, it became necessary to take control of the pace of mining. The Bitcoin network reconsiders the complexity at intervals of 2016 blocks. If miners open them in less than 2 weeks, then the difficulty increases, if longer, then it decreases.

2. What is a hashrate and what does it depend on?

For a regular user, such words may seem like rocket science, but everything is not as difficult as it seems at first glance.

The network hashrate is the total computing power of all active miners. The more equipment is engaged in mining, the faster the problem will be solved, and the network, accordingly, will respond with an increase in complexity.

Each processor, video card, asic-miner, etc. has its hashrate (hash / second). Depending on the power of the equipment, this speed may differ, for example, an average video card can provide as little as 15-20 MH/s, and a specialized asic-miner 14-16 TH/s.

To know the complexity of mining, you need to know the hashrate of the network. In order to obtain this data, it is better to go to the official sites of coins or use third-party services that track these indicators online. But it is important to remember that such Bitcoin mining calculators are not always accurate, since the hashrate is a very dynamic indicator. In order to have a more accurate picture, it is better to collect data from different sources and determine the average value. Here are a couple of popular services:

  • https://www.coinwarz.com/charts/difficulty-charts;
  • https://bitinfocharts.com/ru/.

3. How profitable is mining in 2018?

As you can see on this graph, the hashrate of Bitcoin network is steadily growing.

As of September 2018, it is 53 exahash per second. This is a pretty large value, which, unfortunately, makes mining of Bitcoin absolutely unprofitable for most people.

Industry experts have calculated that the complexity of networks of popular coins is growing every month by about 7-8%. For this reason, starting to mine cryptocurrencies with high complexity in 2018 is not really profitable.

There are several options:

  • Invest a large amount of cash in equipment. This will increase the share of reward, but it’s not a fact that it will pay the money invested, as due to the constant increase in complexity, calculating machines can become almost useless. In case of increased complexity even the acceleration of the video card for mining will not help, as it gives insignificant increase.
  • Expand mining of unknown coins, which does not require large capacity. This option is also quite risky, since there is a possibility that this cryptocurrency will not increase in price.
  • Mine the coins that are already widely known, but their complexity has not yet grown to enormous values. For example, Dash, BTC Cash, Monero, Litecoin, etc. In terms of risk/profit ratio, this is the most optimal and balanced solution.

4. Conclusion

The constant increase in the complexity of networks of popular coins, unfortunately, makes their mining an absolutely unprofitable business for the majority of people. In order to succeed in mining, you must always keep an eye on the hash rate and be able to move the focus on the extraction of another coin in time.

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Bitcoin Core Developers Introduced Update 0.17.0: Review of Innovations

Bitcoin Core 0.17.0

The creators of Bitcoin Core announced the release of a large-scale update for the most famous client Bitcoin. The updated version of the client had been developing for more than six months, headed by Wladimir van der Laan. The upgrade is based on almost 700 users’ suggestions.

The new version contains the “branches and borders” algorithm, which was created by BitGo developer Mark Ehrhardt. It is he who provides two important improvements:

1) The commission for each fragment is calculated before it becomes a part of the transaction.

2) The algorithm tries to compare different fragments in such a way as to obtain an amount as close to the one requested by the sender as possible.

Bitcoin Core 0.17.0 contains a lot of new features. All of the weak spots of the previous version have been fixed. The choice of coins in the new version is optimized: now they are stored in wallets as separate parts, the process of creating and using wallets is also significantly simplified. Users can create them through a graphical interface at any time. The developers ensured compatibility of HD and non-HD wallets, provided an opportunity to create unique wallets intended only for viewing, and also implemented partially signed transactions and reduced the blockchain volume.

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What is Fiat Money?

fiat money

Fiat money. What is that? Why people often use this term talking about digital currencies? Does it have something to do with well-known brand of Italian cars? We are here to provide you with answers! Today, The Coin Shark will tell what are those colored papers that we use to buy things, how fiat money appeared, what is the logic behind our current economy and money and how all these things deal with virtual currencies.

Content:
(please, click the topic to scroll down to it)

  1. What is fiat money?
  2. A brief history of fiat money
  3. Fiat and virtual currency
  4. Conclusion

1. What is fiat money?

We all deal with fiat money nearly everyday. Well, yep, today a huge number of financial transactions is cashless, whether we buy coffee, top up our phone, pay bills or trade currency on the exchange. This is especially true for the developed countries where cash seems to fade away over the medium term. However, we still use cash. Our pockets still make coin sound and we still have some colored papers in our wallets. And these are fiat money.

Money can be cash or cashless. Cash money include coins and banknotes. While coins are made of metals (or their alloys) – mostly gold, silver, copper, but also brass, zinc, platinum, palladium, etc., banknotes are in fact just colored pieces of paper. Yes, they have protective elements, watermarks and so on, but, nevertheless, banknotes have no physical value. “Fiat” is a Latin word for “decree”, “instruction”. So fiat money is a means of payment, that has a value established by the state. In other words, the value of fiat money is not based on the value of the material that they are made of. The paper used to print 100 dollars banknote certainly is not worth 100 dollars. However, the state determines the face value of this paper, and tells everyone that this piece of  paper should be worth 100, another one – 50, another one – 20 and another one – ten. So fiat is actually a symbolic money with no physical value that we are obliged to use as means of payment.

Fiat money is not only paper banknotes. There is also so-called token money or token coins. Their metal value is less than a legal value determined by the state. These are, for example, American coins with a nominal less than one dollar – daim (10 cents), quarter (25 cents) and half (50 cents).

2. A Brief History of Fiat Money

Monetary systems of ancient states and communities were often based on coins that had the same value that the amount of metal they were made from. However, there are also many examples of token coins. Those were often silver coins that were minted with the use of some other metals, thereby actually reducing the physical value of the coin, while its face value retained. Scientists agree that the first known paper money appeared in China in the 8th century. Later, their use developed under the rule of the Song dynasty in the 11th century, and they became widely spread during the Yuan dynasty (13-14 centuries), when the Mongols led by Genghis Khan’s grandson Kublai  conquered the Middle Kingdom.

Long after that fiat money close to those we have today started appearing in England. Bank of England started issuing paper banknotes. By that time banknotes already existed, however, they were not used as means of payment. In fact, they were bank bills that banks gave to depositors, taking a certain amount of money in gold coins. If that was not a nominal note, then it could pass from hand to hand and had no connected with its original owner. Later they became means of payment backed by an equivalent amount of gold. In such a system, the amount of money that was in circulation was equal to the amount of gold deposited in banks. But, as capitalist relations developed, England’s economy required bigger amount of money in circulation, so the central bank started issuing paper banknotes that were not backed by a supply of gold anymore. Nevertheless, in the middle of the 19th century, the government legislatively established the framework of such an issue. It was a certain ratio to the state’s gold reserve. Before World War I, there was a so-called gold coin standard – the amount of fiat money in circulation was provided by a certain number of gold coins stored in banks. Every banknote holder (every owner of fiat money) could potentially exchange their papers for an equivalent amount of gold. After World War I, most of the countries set a gold bullion standard, which meant that banknotes could be exchanged for gold bars weighing 12.5 kg. Everyone who had less money than the price of these amount of gold, had no opportunity to exchange their banknotes for the precious metal. However, banknotes were already backed by goods and circulated in the economy as a means of payment. In the new economic conditions that emerged after World War II, the gold bullion  standard was replaced by gold exchange standard. The United States played a key role there. The country pledged to back the US dollar with a particular amount of gold, given that hundreds of tons of it were accumulated in American vaults. According to that standard only financial regulators of other states had the right to demand the exchange, while the US dollar became a reserve currency. The era of the gold standard ended in the early 70’s, when the US government refused to provide gold at the request of other states. Since then, the international monetary system “was let float freely”. Today, currencies are no longer pegged against gold, they can be freely converted, and the market (supply and demand for a particular currency) plays a significant role in the establishment of exchange rates.

3. Fiat and virtual currency

Today the term “fiat money” is often used in the cryptocurrency community, and often opposed to digital coins. The state i s responsible for the issue of fiat money, it is carried out in a centralized manner by central banks and controlled by state bodies. The rate of fiat money is also set by the state. Cryptocurrency has been considered as an alternative to such centralized and regulated systems. Fiat transactions are managed by financial, tax, banking structures, while cryptocurrency transfers are carried out peer-to-peer without any regulators and intermediaries.

Fiat money and cryptocurrencies have one important common feature – both are not backed by anything. However, in fact, fiat is still backed by goods that can be bought for it. And here is the point where virtual coins have some problems. Even such major cryptocurrencies as Bitcoin or Ethereum still have low liquidity, while other digital coins cannot be used to purchase at least something at all.  Anyway, the cryptocurrency community is confident that this problem lies in the absence of mechanisms, while the demand for digital currencies is and will be rather high, so and their full fledged liquidity is a matter of time.

Today, cryptocurrencies still amount to a relatively small percentage of global assets and cannot compete with fiat money.


Source:https://howmuch.net/

4. Conclusion

So, fiat money is a currency that government agencies declare to be a legitimate means of payment and prescribe to use it at a fixed face value, despite the fact that it has no physical value. Almost all paper money, as well as many coins, are currently fiat money. Fiat is not backed by gold, and today the world economy is actually built on this principle. Cryptocurrency offers an alternative to fiat – decentralized and unregulated payment facilities. However the logic that cryptocurrency is based on is in a way similar to the one that fiat is based on. Unlike the old system, where payment means were pegged against gold, modern fiat money exists in the relatively free market paradigm. Cryptocurrencies went even further, eliminating those elements of strict regulation that remained in fiat money.

Anyway, there are different forecasts related to the future of digital currencies. The cryptocurrency financial system is only developing and can not yet compete with traditional economy and fiat money, of course. Will it be able to do so in the future? Well, the answer is “no” in the short term and “time will tell” in the long term.

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