(Image Source: https://flic.kr/p/e9LG7B)
(This post is based in part on a paper published by Rostrum Law Review)
Most of the currencies in the world right now, and all the reserve currencies, are fiat currencies, declared to be currencies by a legal tender, and unsupported by any physical commodity, only the rules of supply and demand (Incidentally, the term ‘fiat’ is Latin for “let it be done” or “it shall be”). These currencies usually have a central regulatory body which issues them, and are consequently called ‘centralised’.
Satoshi Nakamoto (the name is a pseudonym), the creator of Bitcoins, had a problem with this centralisation of currency, responding to it in the following terms in one of his earlier works “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”
Continue reading An Explanation of Bitcoins, Part I (The Philosophy)