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The interviewer: You discussed Yap's money culture in your Ted talk. Can you have any thoughts on the money system's success in today's world?
The curious thing about the money community in these Micronesian islands is that their currency, the Rai stones, reflects an oral tradition of possession. Since these circular stone disks were difficult to pass at times, the transactions were registered orally. Following that, possession of good is passed to the new customer without the stone being physically moved. This is essence indicates that the physical location of the stone (currency) did not matter. This applies to the cryptocurrencies like bitcoin. Ownership of this programmable money is clear even when there is no physical transfer or even physical accessibility by either party.
Interviewer: While it is clear that money can take different forms whether paper, plastic, check or coins, it still meets the base criterion to be acceptable. How does the cryptocurrencies measure up against the traditional currencies like the US dollar?
Miss Narula: For an entity to be considered as a currency, it requires to serve as a medium of exchange, a unit of account and a store of value. Cryptocurrencies and in particular the bitcoin meets all of these demands. To first understand the inner workings of the bitcoin, it is paramount to examine its origin. As it happens, the bitcoin emerged as a side product of another invention. In trying to create a peer-to- peer electronic cash system, Satoshi Nakomoto created the bitcoin that became the first ever completely decentralized currency that had neither server nor central authority. This decentralized network revolutionized the money as we know it. As there is no need of a server, every single entity of the network has to do this job.
Interviewer: How then do the entities keep a consensus of the records? What happens when disagreement occurs?
Miss Narula: If in the course of the transaction the peers disagree even on a single minor balance, the whole chain is broken. This process runs on absolute consensus. In essence, the lack of central authority to declare the correct balance was considered a downfall of the cryptocurrencies before Satoshi’s bitcoins.
Interviewer: In most economics textbooks and the money supply diagrams, we are taught that excessive monetary growth leads to inflation. How then can the circulation of the cryptocurrencies be controlled?
Miss Narula: To understand the mechanisms that control the circulation of cryptocurrencies, it is of vital importance to examine the cryptocurrencies databases. Bitcoins comprises of a network of peers. Every peer in the transaction network has full record of all transactions and as such is aware of the balance of every account. After a transaction is approved by one of the parties, it is broadcasted in the whole network and is sent from one peer to the other. This is basically what is referred to as the p2p technology. Confirmation is the next step. This brings forth the most important players, the miners. After the transaction is approved, every node has to include it in their database hence making it part of the block chain. As there is lack of a centralized authority, there needs to be a mechanism to prevent abuse. The mechanism in play when it comes to the bitcoin is the SHA 256 Hash algorithm. Each minor is therefore required to put in work to qualify to get a hash which in practice is a product of a cryptographic function. In conclusion and to answer your question, only minors can create a bitcoin which has proven to be a challenge even for the most skilled programmers.
Interviewer: Bitcoin is an emerging technology network with the potential to improve banking. However, the cryptocurrency has experienced great volatility since its inception. How then would you explain the ramifications that the programmable money on traditional systems likes the banks?
Miss Narula: All new technology has tradeoffs. The recognition of the bitcoin as a viable alternative to the dominant reserve currencies like the US dollar has not been smooth-sailing. The decentralized payment system that is at the core of the bitcoin craze in essence renders the centralized payment system used in traditional banks redundant. The currency has been associated with crimes like money laundering and narcotics trade. All these coupled with the price volatility has left financial market participants with a bitter taste in their mouths. Institutions such as the US Federal Reserve and the Bank of England are therefore tasked with the responsibility of monitoring the evolution of the bitcoin. They are tasked with ensuring that this new technology does not tamper with the integrity of financial systems.
Interviewer: In conclusion, what do you consider the future of the cryptocurrency?
Miss Narula: Contrary to popular belief, I am inclined to think that the future of the cryptocurrency is now. I believe that digital currency or what is otherwise referred to us programmable money creates economic and social opportunities that were far from a reality a decade or so ago.
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