Last week we looked at the topic of fiat money, money whose value is based on the trust of the people who use it.
Fiat money is issued and controlled by a central bank. In our case, the Bank of Mexico is the only institution authorized to issue banknotes and coins; So our currency is a centralized currency.
But there are also currently decentralized currencies, such as Bitcoin, Ethereum, etc. That it is a form of digital currency whose issuance and operation does not depend on a central institution; as they operate over a decentralized computer network that supports verification and recording of transactions in a secure manner.
A precursor to decentralized currencies are the Rai stones from the island of Yap
Yap Island is one of the four states of Micronesia and is known for its famous stone money.
According to local legend, hundreds of years ago, a Yapese sailor arrived in Palau on one of his voyages and found a type of limestone that did not exist on his island. Because of its rarity, he decided to bring it to his island. Once there, the first stones were formed and called Rai.
The sailors returned to Palau several times to get more of these precious stones, and in order to transport them, they found that it was easier to carve them in a circle and make a hole in the middle for transport.
The interesting thing about these stones is that they eventually became a form of currency because of their value. Some of them were more than 3 meters long and weighed up to 4 tons, making them difficult to move.
To pay, it was enough for the current owner of a stone to make a public declaration that it had become the property of a specific person. From that moment on, the residents already knew that this stone, which had a certain value, now had a new owner. The stone did not have to be brought to the new owner’s house because everyone in the community knew who it belonged to.
There is even a curious anecdote that says that a stone that sank during transport and lay at the bottom of the sea also served as a means of payment. The owner of this stone only had to refer to it and explain that he was giving the property to someone else for payment.
The Rai Stones from Yap Island were a form of decentralized currency. There was no central authority to issue them, and to record the transactions, several people in the community certified that they had been paid for and recognized the owner.
Digital
Bitcoin, a cryptocurrency, is similar to Rai Stones in that it uses blockchain (a chain of blocks), a technology that allows for a public and decentralized record of transactions.
When a transaction is made using blockchain, the data is stored in blocks. Each block contains a record of multiple transactions and information about the previous block in the chain. To add a new block, transactions are validated and confirmed by the network nodes, which are a network of decentralized computers distributed throughout the world where copies of all transactions made are created.
Blockchain technology enables a transparent, secure and decentralized record of operations, making it a great option for a wide range of applications around the world due to its immutability.
Financial Advisor and Director of Administration and Finance Studies, Universidad Anáhuac Mayab
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