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Kindle Notes & Highlights
by
Antony Lewis
Bitcoin1 and Ether are two of the better-known cryptocurrencies or coins (note that the coin on the Ethereum network is called Ether,
When these digital assets move from one account to another they are all recorded on their respective transaction databases known, because of some unique shared characteristics which we will look into later, as blockchains.
token?’. Cryptocurrencies and tokens are both types of cryptographically secured digital assets, sometimes known as cryptoassets.
Tokens can be fungible (one token being more or less replaceable by another), or non-fungible (where each token represents something unique). Unlike cryptocurrencies, these newer tokens are usually issued by known issuers who stand behind them, and the tokens can represent legal agreements (like financial assets), physical assets (like gold), or future access to products and services.
DDRs—Digital Depository Receipts.
blockchains: replicated databases that act as the ultimate books and records—the ‘golden source’ that represents the universal understanding of the current status of all units of the digital asset.
Bitcoin is a bunch of protocols: rules that define and characterise Bitcoin itself—what
These protocols, or rules, can be described in English or any other human language, but are best articulated in computer code, which in turn can be compiled into software—Bitcoin software—that
transaction data, and this transaction data is bundled into bundles or blocks, and linked together to form the Bitcoin blockchain.
Bitcoin protocols are written out as Bitcoin code which is run as Bitcoin software which creates Bitcoin transactions containing data about Bitcoin coins recorded on Bitcoin’s blockchain.
but the fundamental questions concerning financial privacy are inevitably raised when understanding the game-changing innovation that is Bitcoin.
definition of money usually says that money needs to fulfil three functions: A medium of exchange, a store of value, and a unit of account.
This is known as price inflation (as opposed to currency inflation which is an increase in the number of dollars in circulation).
Bitcoin is the very first digital asset of value that can be transferred over the internet without any specific third party having to approve the transaction or being able to deny it.
Is Bitcoin widely accepted?
what do you want from your store of value?
According to its current protocol rules, bitcoins are created at a known rate (12.5 BTC every 10 minutes or so)—and that rate will decrease over time. So the supply of it is understood and predictable, capped to almost 21 million BTC and not subject to arbitrary creation, unlike fiat currencies10.
Limiting the supply of something can help maintain its value if demand is stable or increases, though the downside of a known, predictable, and completely inelastic supply unrelated to a fluctuating demand results in perpetual price volatility11, which is not good if you are looking for price stability.
Stability is determined more by the liquidity of a market (how many people are willing to buy and sell at any price point), than the price of an asset.
Bitcoin’s supply is inelastic. If there is a spike in demand, there is no impact on the rate at which bitcoins are generated, unlike normal goods and services, so there is no dampening effect on the price, and this holds true for any price point—even if volatility decreased, traders may just take bigger bets, often with leverage, which would then move the price again.
‘stable coins’—cryptocurrencies
cryptocurrencies whose prices are relatively stable compared to some other thing, for example a US dollar.
Maybe the answer is to not try to fit it into any existing bucket, but to design or define a new bucket, and to judge Bitcoin and other cryptoassets on their own merits.
central bankers have a potential conflict of interest when commenting on new forms of money.
The emergence of money to solve the problem of repaying a debt or favour makes more sense than the emergence of money as a solution to the double coincidence of wants. Indeed, David Graeber details the existence of debt and credit systems before money, which itself appeared before barter, in his fascinating and influential book Debt: The First 5,000 Years21.
The two underlying factors in Bitcoin that create demand are: 1.It is the most recognised instrument of value that can be transmitted across the internet without needing permission from specific intermediaries. 2.It is censorship resistant.
Fiat (pronounced fee-at, Latin for ‘let it be done’) is money because legislation says so, rather than because it has a fundamental or intrinsic value.
fiat currencies valuable? Two main reasons: 1.They are declared by law as legal tender, meaning that in that legal jurisdiction it must be accepted as valid payment for a debt. Therefore people use it. 2.Governments accept only their own fiat for tax payments. This gives fiat currencies a fundamental usefulness, as everyone needs to pay tax23.
Fiat currencies—USD, GBP, EUR, etc—have no intrinsic value either. In fact, fiat currencies are defined by not having intrinsic value. That is worth repeating. Fiat currency has no intrinsic value.
money. This is money that is declared legal tender and issued by a central bank but, unlike representative money, cannot be converted into, for example, a fixed weight of gold. It has no intrinsic value—the paper used for banknotes is in principle worthless—yet is still accepted in exchange for goods and services because people trust the central bank to keep the value of money stable over time. If central banks were to fail in this endeavour, fiat money would lose its general acceptability as a medium of exchange and its attractiveness as a store of value.
Fiat money is money that does not have intrinsic value and does not represent an asset in a vault somewhere. Its value comes from being declared ‘legal tender’—an acceptable form of payment—by the government of the issuing country.
Well, fiat currency is useful, at the very least because it is the settlement instrument with which you pay your taxes to the state, and more broadly because it is legal tender and must be accepted by merchants.
