Monday, May 25, 2015

The Money Returns

The Money Returns...
The Money Returns in new form of Cryptocurrency.
For last few years, there is a constant effort to build an alternate currency which can become new money for the whole world.
For any currency to become money, it must function as a medium of exchange, a unit of account and a store of value for a large community.
Above all, People trust is fundamental for a currency to be used as money.  
Looking back at history of Money, we know that First recorded monetary system appeared in Mesopotamia, modern day Iraq around 3000 B.C. when Babylonians began using silver & barley as universal mediums of exchange and unit of value. Debts/ Payment settlements guidelines were laid out known as “Code of Hammurabi”.
Fiat money (Fiat - a Latin word for "let it be done") which derives its value from government regulation or law was first used in around 1000 AD in China. It differs from Commodity or representative money. Fiat money has no intrinsic value of its own.
 Initially Federal Banks of each nation printed paper money & coins for their economies mostly holding some % of gold reserves behind however now a days, most countries have switched to IOU or legal tender model.  Basically legal tender means business or person is required to accept payment of the debt in Federal currency.
International Monetary Fund (IMF) was setup to oversee the international monetary and financial system, foster global monetary cooperation, secure financial stability and monitor the economic and financial policies across its member countries.
Government has been at the center of currency ensuring people trust is maintained in legal tenders while Banks managed money exchange and support economic development of the country. Countries which failed to maintain this trust have faced currency crisis impacting million of people savings and halting economic development of country.
This centralized system comes with its own operational costs and multiple intermediaries who support money exchange/ payments at their own pace in exchange of certain fees.
 To enable peer to peer value exchange globally, decentralized digital currencies have been developed which enforces trust for transactions and offers transparency using it global ledgers digitally. These are not tied to any centralised party or servers.
These currencies systems are capable of avoiding double spending of same money and storing value securely using cryptography technologies. Users base of these currencies are slowly growing for payments, remittances & ecommerce transactions however they are far from being accepted as another global currency like leading fiat currencies.
Top 2 leading Crypto currencies are mentioned here to show how their acceptance is growing…
In 2009, Satoshi Nakamoto launched bitcoin as the world's first crypto currency. Bitcoin is an open source, global payment network that is fully decentralized without any central authorities. The code is open source, which means it can be modified by anyone and freely used for other projects. Mathematics secures the network and empowers individuals to control their own finances. Bitcoin coin limit is 21 million bitcoins and 14 millions coins already in circulation with current exchange rate of $236 per bitcoin.
Litecoin launched in 2011 by Charles Lee is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world.  Litecoin network will produce 84 million litecoins, or four times as many currency units as will be issued by the Bitcoin network. Currently 40 millions Litecoins are in circulation with current exchange rate of $ 1.461 per Litecoin.
Merchants accepting these currencies for payments can get confirmation within 10 mins without any add-on charges for payment settlement.
Recently New York Stock Exchange premiered a bitcoin index, giving an important endorsement to the digital currency that could help give it more mainstream credibility.
There are hundreds of bitcoin exchanges already operational which are making buying & selling bitcoins easier for people globally.
 These are early days of digital currency and it is yet to be seen whether it will stand people trust and replace fiat currency in long run.
A new era of currency has begun..