The history of money and its future

Today I'm going to talk about a bit of history, to then talk about the news and finally tell you what is coming.

THE BEGINNINGS
If we look throughout our existence we are always interested in developing ways to exchange goods. First we started with bartering, a cow in exchange for 100 kilos of bread, everything seemed perfect until someone thought that he did not want 100 kilos of bread but only 10. Did we change a piece of cow? It did not seem like a good idea.

Then the money was born! which solved this problem, now you could change the cow for its value in coins, (which were gold, silver, copper, etc ... materials resistant to time and also scarce, fundamental requirements to be considered coins). Now the cow could be exchanged for 100 gold coins for example and with them to buy how much bread you would like.

Money accompanied us for a long time, until great events such as the world wars demanded that the countries spend an immense amount of money, since at that time gold or any precious metal was not exchanged directly, but instead paper money was exchanged. It was backed by these metals. This means that for each ticket there was a certain amount of gold, silver, etc ... validating that paper. The great demand of the war caused that many countries stopped supporting their tickets, now the only paper currency with real endorsement was the dollar, backed by the federal reserve of the USA, full of gold. All other currencies of other countries were backed by the dollar.

THE FIAT MONEY
But in 1971 the president of the USA, Richard Nixon, also decided to charge the last gold standard and began to print tickets without these necessarily being backed with a similar value in the metal. then for the first time we base our concept of value on nothing, the reputation of banks and states was the only thing that supported money. The FIAT currency was born. Which is the most widely used and used monetary system today.

This clearly has many problems, the first is that it is not scarce, you can print infinite amounts of bills, this causes the inflation phenomenon, which is basically the loss of value of the currency.

The second big problem is that those who issue the order to print bills are governments, that is, money is centralized. Make no mistake, when gold was the reference currency this also happened, only to get more gold needed to be extracted from the land, then to a certain extent centralization was regulated by the very nature of its scarcity.

THE BITCOIN
Things could not go on like this for long, money whose value was backed up in nothingness? That's why in 2009, as the solution to barter arose at the time, now the solution to money came out. Bitcoin and blockchain technology.

Bitcoin managed to develop a decentralized and also finite currency, just like gold. Only that instead of being regulated by nature, the shortage of bitcoin is regulated by mathematics. How does bitcoin work? or rather, how does the Blockchain work?

When two people try to transfer money into the current banking system they usually need to have one of the two a bank account, then the issuer then transfers the bank, the bank verifies the transaction and then sends it to the receiver. That is, at all times you depend on a bank to verify the transaction.

When two people transfer money using the Bitcoin network the issuer makes the transaction which goes to a mempool that is something like a pond of unconfirmed transactions. Then comes a computer, called a miner which grabs the transaction, verifies it and inserts it into a block, this block is an accounting record which will join a chain of blocks of past transactions, this is how the blockchain arises. accounting record of all the transactions that were made with the bitcoin, this blockchain is stored in thousands of machines throughout the world (nodes) which guarantees that before any modification of the blockchain in any of the machines the rest of the system rejects that modification, thus making the blockchain immutable. In this way, Bitcoin achieves greater security even than a bank. To modify the blockchain it would be necessary to intervene thousands of machines at the same time, which is like saying that we want to modify the internet.

But here does not finish everything, where do the blockchain blocks come from? Is this again the work of the miners who "mine blocks" and how they mine them? because basically solve very complex mathematical problems that require a lot of computational power, at this moment there are hundreds of thousands of miners trying to solve the next mathematical problem whose resolution unblocks a block which will be used to place transactions that are waiting in the mempool and that will also grant to that miner that manages to solve a prize of 25 bitcoins + the commissions that they receive from the transactions that validate.

Then the bitcoin currency that was initially used to transfer comes from the block mining itself. Here is clarified the basic operation of the currency which is revolutionizing the world monetary system and whose technology, the blockchain promises to be the Nemesis of the world banking system.

BUT NOT EVERITHING THAT SHINES IS GOLD...
Make no mistake, Bitcoin is not as modern as we think, it has been around since 2009 when it was only worth pennies, now it is worth 6 thousand dollars and it has an immense community of programmers, businessmen, financial speculators or simply common users behind it.

Bitcoin and blockchain technology have expanded and developed with great speed and today there are hundreds of cryptocurrencies based on the blockchain with even better technologies and services (see Altcoins). That is, Bitcoin is not in diapers and is not without problems.

One of the main problems of Bitcoin and Blockchain in general is that it is not scalable. What does this mean? that the number of transactions per second (TPS) that the network can process does not increase as more people use it.

And this is mainly due to the concept of the Blockchain, as we said before the transactions are placed in blocks and then these blocks are placed in the chain. These blocks have a limited size (1mb in bitcoin) and are issued each a certain frequency of time (approximately 10 minutes in bitcoin). All this makes the bitcoin network have a TPS of approximately 4.

That is to increase the TPS and reach the levels handled by the FIAT money (for example VISA processes 10 thousand TPS) would be necessary or increase the production of blocks, or increase the size of them. Seems easy? Well, it is not at all.

To begin with a larger size of blocks would require a greater use of resources since they would contain more transactions and therefore would be more difficult to process by the nodes, they would demand greater bandwidth and greater storage capacity which would lead to less and less people are able to raise a node on their home PC, this would inevitably lead to a centralization and the immutability of the network would be in danger.

If the frequency of generation of blocks is increased, the bitcoin protocol that guarantees a decreasing exponential production of bitcoins until reaching 21 million units will be violated. In order not to violate this protocol, the bitcoin reward generated by each block should be reduced, which It would impact fully the economy of the miners who are the ones who do the dirty work of producing the blocks and validate transactions, which takes a great computational cost and an enormous energetic cost. To give an idea, the global bitcoin network currently spends 20 TWh, which is more or less the energy production of Ecuador. Yes! Bitcoin has an energy cost that can only be measured at the country level! The miners would try to resolve this loss of profit by validating only those transactions with the most juicy commissions.

Finally in Bitcoin the transactions are accompanied by a commission, which is rather a royalty or offering that the issuer of the transaction makes the miner to consider his transaction with more priority than another transaction with lower commission. If the number of users increased, the number of waiting transactions in mempool would increase, this would generate a bottleneck that the wealthiest users could afford paying higher commissions. If this were generalized, fewer and fewer users will have the opportunity to use the network. to make payments, because the commissions would be something very to consider.

IOTA AND THE TANGLE
It is here where the new proposal comes, La tangle! and specifically IOTA.
What does this currency offer? A p2p system, like Bitcoin, only that in this things work quite differently.

When two people try to send a transfer the issuer creates a transaction, then this transaction is sent to the Tangle making the PC a small computational effort to grant the transaction security and prevent spam, this security or rather, encryption is quite weak so it can be done by any domestic processor, even a low-end cell phone.

Once the transaction is uploaded to the Tangle, it is linked at random to two other pre-existing transactions, validating them. Then there will come a transaction made by a third party who randomly (and hopefully) will choose our transaction and another one (always a new one validates two old ones) validating both.

How can they intuit the TPS of the Tangle depend almost exclusively on new transactions, while more new transactions have higher the TPS, then we can conclude that IOTA or rather the tangle scale as more people use it, just what opposite that happens with the Blockchain.

And what about the miners? Well simply do not exist, there is nothing to undermine, the small computational expense that our PC makes to raise transactions to the Tangle can not be compared with the enormous computing power of the Bitcoin miners. Furthermore, this small computational expense is simply to provide a small protection to the transaction, that is, if we presuppose that all the people of the world were completely honest and kind, this computational expense would not be necessary.

And how is it that a barely protected transaction can be secure?

Here let me use an analogy. A single bee may be harmless, but a honeycomb is a threat to consider.

When an attacker plans to modify the tangle is where all those small computational costs to give security to the transactions make sense, since to attack the tangle it is necessary to overcome the computational power that was used to generate all those transactions.

This gives the network a formidable security. and what a formidable thing it is, if there is even talk that IOTA has quantum resistance!

Finally, IOTA does not have commissions! And is that there are no miners, there is no one to convince to give priority to your transaction, your transaction will have the same value for the network than any other, only chance will determine if your transaction is confirmed before or after another .

So without miners, resistance to quantum computing, no commissions, scalable with use. I do not know about you but I think that this coin has a lot to say in the not too distant future.

IF YOU HAVE A DIFFERENT OPINION, POST YOUR COMMENTS.

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