If you’re considering trading in cryptocurrencies, registering a company for ICO, or obtaining a license authorizing exchange of cryptocurrencies, you should keep in mind that cryptocurrencies, and more specifically, Bitcoin, are an entirely new socio-economic phenomenon. In fact, it’s so dissimilar from any existing traditional currencies that very few individuals are ready to trust it wholeheartedly & invest their hard-earned ‘paper’ money in it.
So, how does paper money work? Basically, it can be thought of as a contract that people & governments conclude between themselves. By concluding it, the former entrust the latter with control over money and other essential functions inherent in it. Governments, in their turn, use the power entrusted to them for combating crime, redistributing wealth & handling economic matters. However, what many don't realize is that the same principle is applied to Bitcoin.
Now that we’ve established this, we may proceed to answering the ‘big questions’, namely: Why was bitcoin invented? Who determined bitcoin’s properties? Who is bitcoin controlled by nowadays? Could bitcoins be ‘killed’ by a critical error? How does one get a license for a cryptocurrency exchange? What should one do to get a license for conducting an ICO?
How Does It Work?
Because humans cannot ensure full harmony with nature, they willingly surrender their freedom in exchange for protection afforded to them by the government. The government, in its turn, is responsible for creating laws & ensuring protection from any outside threats.
However, it’s not only about the government-people relationships. From the economic viewpoint, an identical principle is also quite applicable. If the traditional economy leaves people deeply unsatisfied, they can make their lives better by using money or any other forms thereof.
How Money Works
Since ancient times, governments have committed many abuses: they’ve stopped people performing specific transactions & triggered inflation by printing more money (causing hyperinflation sometimes). Incidentally, obtaining a crypto license or obtaining a cryptocurrency exchange license is also limited by quite a few governments.
All of that has caused people to lose confidence in the contract & made them want to redraw it. The idea behind was to include in the contract the bulk of the previously agreed upon benefits & make it impossible for the government to perpetrate any kinds of abuses.
However, the new contract was no less volatile. One of the main problems was the gold standard, Splitting, moving & storing gold was a big problem, which is why a replacement was quickly suggested – paper money. Producing paper money was easy; however, finding someone who could be entrusted with keeping track of its supply was a bit problematic.
Therein lies another valuable lesson: not having a reliable institution capable of effectively executing a contract leads people to eventually lose faith in it.
How Bitcoin Works
To understand what Bitcoin is all about (& obtain a license for cryptocurrencies or register a company for ICO), we should keep in mind that Satoshi Nakamoto, a person credited with inventing Bitcoin, didn’t just invent anything new. In fact, he used technology to breathe a new life into an old contract & make it work far more effectively.
The rules he invented were quite simple:
- Only owners of tokens can make use of them;
- Storing bitcoins & engaging in bitcoin transactions should be anyone’s prerogative;
- Only twenty one million bitcoins should be issued;
- Rules should be observed by all users.
A New Contract?
As stated above, an institution needs protection. However, as time goes by, governments begin to abuse their powers, ending up being too overprotective & controlling people’s lives in every possible way. In fact, we’re seeing it today when governments of many countries are restricting people from using cryptocurrencies and obtaining licenses for cryptocurrencies. Eventually, it makes people lose faith in this institution & makes them want to replace it, causing the cycle to begin anew.
Satoshi tried to handle that predicament in 2 different ways:
- instead of relying on government protection, Bitcoin creates a highly competitive market, in which security becomes something that can be bought & sold;
- Satoshi also succeeded in suggesting a solution enabling providers to determine the scope of their ownership.
Bitcoin automates the conclusion of a new contract by letting people determine the rules of the game. The idea behind is quite simple: all Bitcoin holders complement one another, forming an independently functioning network of users.
For more information on Bitcoin, please refer to the second part of the article. In the meantime, we’d like to remind you that IQ Decision UK experts are ready to provide you with comprehensive advice on anything related to cryptocurrencies. They can also help you with registering a company for ICO & obtaining a license for cryptocurrency activities in any jurisdiction of your choice.