A study of market distribution among cryptocurrencies. Today we will look at such phenomena as “The winner gets everything” or “The winner gets the most part” in relation to the cryptocurrency market.
In the first part of the material we will present a general overview of the evolution of monetary systems until the emergence of cryptocurrency and describe the limitations of previous forms of money.
In the second part, we will explain why the clear winner, and probably Bitcoin, should capture, if not the entire cryptocurrency market, then at least its main part.
In the third part, we apply this judgment to the global economy, and determine the extent to which cryptocurrency can capture the global financial market.
Part 1: Quest for global money.
Before the advent of any universal currency standards, barter was a common means of direct settlement. Given the problem of similar needs - civilization has come to understand that barter does not work well in practice.
In an attempt to find a solution to this impracticality, an indirect exchange arose, which was made possible by such goods as seashells, glass beads and cattle, which served as mediators.
Over time, new technologies, such as the mass use and distribution of synthetic fuels (approx. Translator - oil derivatives, etc.) significantly contributed to the development of production and transportation, making the world more connected.
Mutual knowledge and intercontinental trade developed and together with them, taking into account the global context, money itself evolved.
Progress in the end undermined the usual means of exchange, because advanced technology eliminated the absolute shortage of rare goods and reduced the cost of their production, which depreciated these goods as money.
In particular, some external groups have learned to easily produce money forms specific to a particular region. Therefore, not knowing about such an abundance of their money - the people suffered from a serious undermining of the economy.
When the shortcomings of the existing forms of money appeared, specific options began to appear that were better suited to the role of a means of accumulation and exchange, possessing such properties as deficit, durability, mobility, interchangeability, the ability to verify authenticity, divisibility and reputation.
In the process of natural selection, the forms of money competed with each other in terms of compliance with the necessary qualities, and, as a result, in the 19th century, gold became the world standard of money.
Along with the growth of gold, other forms of means of exchange were also developed. In particular, silver as money gained popularity due to the high costs associated with the use of gold in daily trading. The lower cost of silver per unit of weight compared to gold has made it easier to use for smaller transactions.
For several centuries, the cost of gold to silver was approximately equal to 1: 12-15 kg, which was adopted as a bimetallic standard. But, and this standard was only a temporary phenomenon, adopted due to the lack of appropriate technology. Therefore, with the advent of paper money, secured by gold and allowing it to operate with any amount of value, the monetary role of silver decreased significantly over time.
The graph below shows how quickly the ratio of gold to silver increased after the popularization of paper money:
As the financial sector grew, the limitations of gold began to manifest as global money. In particular, due to the physical nature and high cost per unit weight, gold has been subject to centralization and its detrimental effects.
Due to the lack of mobility and significant discrepancies in the value of gold, the state created standard units in the form of minted gold coins. Later, when citizens became accustomed to the legitimacy of these standard units of exchange and the monetary system as a whole, the state felt comfortable and engaged in the so-called “trimming of coins” when authorized jurisdictions reduced the amount of gold in each coin and used the excess to finance expenditures at the expense of citizens.
Subsequently, the jewelers who provided precious metals storage services introduced bills of exchange (IOUs) that could be redeemed for the metals. These receipts (paper money) eventually became widely used as a medium of exchange.
The jewelers understood that they could issue more banknotes than the gold that they kept in their vaults, because people could hardly buy their gold reserves at the same time. This practice has become known as partial reservation banking.
Jewelers, who later became banks, issued banknotes in excess of the metal presented and as a result received a huge profit.
In the 18th and 19th centuries, the emergence of the Golden Standard was the result of the spread of banknotes and the less durable nature of silver. The gold standard is a system in which a country's money supply is directly related to the value of its gold reserves, which limits a country's ability to increase the money supply.
By the 20th century, the state, in view of the limited amount of gold, began to abuse the practice of partly reserved banking, which ultimately deprived gold of the viability of global money. The United States centralized gold reserves, often forcibly confiscating gold from its citizens, and began to print money over their own basic reserves. In 1971, during the reign of President Richard Nixon, the United States, instead of repaying their debt, abolished the obligatory exchange of the dollar for gold, which meant the official rejection of the Gold Standard. The link between gold and paper money was broken, which marked the beginning of a completely unsecured fiat currency.
Currencies ... Everywhere Currencies
Today, there are more than 180 currencies in 195 countries. The reason for this anomaly is simple: there is no free market for currencies. Foreign exchange markets were limited by governments to maintain financial control. There are many laws and institutions created to suppress the free-market monetary system. This includes coercive boundaries, laws on legitimate means of payment, capital controls, state regulations, seigniorage privileges, (see the problems of centralizing mining), local controls and monopolies on violence, laws on debt repayment, capital gains taxes, hidden rescue guarantees for banks, central banks and dozens of other artificial barriers.
Such legislation forces people around the world to use a worse currency under the threat of direct or indirect violence, or other consequences. The centralized nature of the financial system and flows allows the state to impose restrictions and stifle people's ability to express the true demand for more advanced and competitive currencies.
The reliability of fiat money currently depends on the ability of the authorities to pursue a legitimate monetary policy. People living in countries such as Venezuela cannot safely keep their wealth due to hyperinflation caused by irresponsible monetary policies and limited access to more reliable currencies due to strict capital controls.
In addition, a legal tender acts as the only option for citizens who are obliged to pay taxes and accept the worst currency in exchange for goods and services. More competitive currencies, such as the dollar, which fall into countries such as Venezuela, are sold at a high mark-up, since high demand is not met by controlled supply. Until recently, citizens of countries such as Venezuela were not able to abandon this system and were forced to switch to easy money.
Government control over money created the conditions for poor management. In an interview in 1984, Friedrich Hayek said:
“I do not believe that we will ever have good money until we take it out of the hands of the government. But we cannot do it so easily - just by some clever devious way of introducing what they cannot stop. ”
In his work for the Free Market Monetary System, Friedrich Hayek notes that “the government’s monopoly on issuing money not only deprived us of good money, but also the only process by which we can figure out what would really be good money. We don’t even understand exactly what qualities we want ... Because we were never allowed to experiment with this. We have never been given the opportunity to find out which money will be the best. ”
Introducing Bitcoin as an experiment.
In 2008, Satoshi Nakamoto proposed Bitcoin, an alternative financial system free of downward control. Bitcoin, the “trustless electronic transaction system,” was not created to fit existing governments and financial systems.
Bitcoin is an experiment. Unlike any past money, Bitcoin has no limits, does not allow censorship and is easily verified. Thus, Bitcoin can be just such a “cunning roundabout way” that bypasses prohibitive mechanisms and outdated financial institutions that restrict people's access to the free financial market.
Bitcoin is often called digital gold because it has most of the properties of gold and even complements them, including scarcity and endless value. Given their digital nature, bitcoins are easily divisible, mobile and cannot be captured, which makes it much better to protect them from the threats of centralization and the fate faced by gold.
This is a table, first presented by Vijay Boyapati, and then supplemented by Dan Held, who assesses the characteristics of Bitcoin, gold and Fiat in terms of financial transactions:
Dawn cryptocurrency.
Cryptocurrencies are, first of all, money. With the exception of a few crypto-tokens, which are still either obviously money or extremely messy with technological jargon, they are still money.
Thus, as the Bitcoin community grew and prices increased, other coins began to appear on the cryptocurrency market, often referred to as Altcoins. Many of these “cryptocurrencies” were created in order to supposedly not only repeat, but also improve “Bitcoin’s fundamental flaws” and its “limited functionality”. Therefore, by 2018, ten years after the appearance of the original Bitcoin, more than 2,000 other cryptocurrencies already existed.
Unlike the locally-nationalized financial market of the 20th century, the cryptocurrency market more closely resembles a private competitive market, where no violent monopolies distort price signals, preventing competitors from entering.
Given the nature of cryptocurrency, which has an open code, everyone can create their own coin or change an existing one. This stimulates the birth of open and low-cost experiments.
Open source cryptocurrency acts as a promising mechanism for determining what natural money can be for society.
Ethics of Money Production, Jörg Guido Hülsmann, emphasizes in his work Ethics of Money Production that the only way to find out what is natural money for society is to allow people to freely unite and choose the best exchange methods from the available alternatives.
Given the conditions of the free market, one can ask the question - what proportion of the financial market can such natural money seize?
While the modern world has proved itself not in the best way, the makings of a winner can allow cryptocurrency to absorb most, if not all of the reality associated with gold. Given the long period of cryptocurrency reality - it is hoped that this time, it is more than a temporary phenomenon.
In the second part of the story, we will examine in detail the rationale - “the winner gets everything.” And defining the size of the market as the aggregate of all cryptocurrencies, and revealing that, in general, is the driving force for them - we shed light on this, noteworthy, phenomenon.
In the first part of the material we will present a general overview of the evolution of monetary systems until the emergence of cryptocurrency and describe the limitations of previous forms of money.
In the second part, we will explain why the clear winner, and probably Bitcoin, should capture, if not the entire cryptocurrency market, then at least its main part.
In the third part, we apply this judgment to the global economy, and determine the extent to which cryptocurrency can capture the global financial market.
Part 1: Quest for global money.
Before the advent of any universal currency standards, barter was a common means of direct settlement. Given the problem of similar needs - civilization has come to understand that barter does not work well in practice.
In an attempt to find a solution to this impracticality, an indirect exchange arose, which was made possible by such goods as seashells, glass beads and cattle, which served as mediators.
Over time, new technologies, such as the mass use and distribution of synthetic fuels (approx. Translator - oil derivatives, etc.) significantly contributed to the development of production and transportation, making the world more connected.
Mutual knowledge and intercontinental trade developed and together with them, taking into account the global context, money itself evolved.
Progress in the end undermined the usual means of exchange, because advanced technology eliminated the absolute shortage of rare goods and reduced the cost of their production, which depreciated these goods as money.
In particular, some external groups have learned to easily produce money forms specific to a particular region. Therefore, not knowing about such an abundance of their money - the people suffered from a serious undermining of the economy.
When the shortcomings of the existing forms of money appeared, specific options began to appear that were better suited to the role of a means of accumulation and exchange, possessing such properties as deficit, durability, mobility, interchangeability, the ability to verify authenticity, divisibility and reputation.
In the process of natural selection, the forms of money competed with each other in terms of compliance with the necessary qualities, and, as a result, in the 19th century, gold became the world standard of money.
Along with the growth of gold, other forms of means of exchange were also developed. In particular, silver as money gained popularity due to the high costs associated with the use of gold in daily trading. The lower cost of silver per unit of weight compared to gold has made it easier to use for smaller transactions.
For several centuries, the cost of gold to silver was approximately equal to 1: 12-15 kg, which was adopted as a bimetallic standard. But, and this standard was only a temporary phenomenon, adopted due to the lack of appropriate technology. Therefore, with the advent of paper money, secured by gold and allowing it to operate with any amount of value, the monetary role of silver decreased significantly over time.
The graph below shows how quickly the ratio of gold to silver increased after the popularization of paper money:
As the financial sector grew, the limitations of gold began to manifest as global money. In particular, due to the physical nature and high cost per unit weight, gold has been subject to centralization and its detrimental effects.
Due to the lack of mobility and significant discrepancies in the value of gold, the state created standard units in the form of minted gold coins. Later, when citizens became accustomed to the legitimacy of these standard units of exchange and the monetary system as a whole, the state felt comfortable and engaged in the so-called “trimming of coins” when authorized jurisdictions reduced the amount of gold in each coin and used the excess to finance expenditures at the expense of citizens.
Subsequently, the jewelers who provided precious metals storage services introduced bills of exchange (IOUs) that could be redeemed for the metals. These receipts (paper money) eventually became widely used as a medium of exchange.
The jewelers understood that they could issue more banknotes than the gold that they kept in their vaults, because people could hardly buy their gold reserves at the same time. This practice has become known as partial reservation banking.
Jewelers, who later became banks, issued banknotes in excess of the metal presented and as a result received a huge profit.
In the 18th and 19th centuries, the emergence of the Golden Standard was the result of the spread of banknotes and the less durable nature of silver. The gold standard is a system in which a country's money supply is directly related to the value of its gold reserves, which limits a country's ability to increase the money supply.
By the 20th century, the state, in view of the limited amount of gold, began to abuse the practice of partly reserved banking, which ultimately deprived gold of the viability of global money. The United States centralized gold reserves, often forcibly confiscating gold from its citizens, and began to print money over their own basic reserves. In 1971, during the reign of President Richard Nixon, the United States, instead of repaying their debt, abolished the obligatory exchange of the dollar for gold, which meant the official rejection of the Gold Standard. The link between gold and paper money was broken, which marked the beginning of a completely unsecured fiat currency.
Today, there are more than 180 currencies in 195 countries. The reason for this anomaly is simple: there is no free market for currencies. Foreign exchange markets were limited by governments to maintain financial control. There are many laws and institutions created to suppress the free-market monetary system. This includes coercive boundaries, laws on legitimate means of payment, capital controls, state regulations, seigniorage privileges, (see the problems of centralizing mining), local controls and monopolies on violence, laws on debt repayment, capital gains taxes, hidden rescue guarantees for banks, central banks and dozens of other artificial barriers.
Such legislation forces people around the world to use a worse currency under the threat of direct or indirect violence, or other consequences. The centralized nature of the financial system and flows allows the state to impose restrictions and stifle people's ability to express the true demand for more advanced and competitive currencies.
The reliability of fiat money currently depends on the ability of the authorities to pursue a legitimate monetary policy. People living in countries such as Venezuela cannot safely keep their wealth due to hyperinflation caused by irresponsible monetary policies and limited access to more reliable currencies due to strict capital controls.
In addition, a legal tender acts as the only option for citizens who are obliged to pay taxes and accept the worst currency in exchange for goods and services. More competitive currencies, such as the dollar, which fall into countries such as Venezuela, are sold at a high mark-up, since high demand is not met by controlled supply. Until recently, citizens of countries such as Venezuela were not able to abandon this system and were forced to switch to easy money.
Government control over money created the conditions for poor management. In an interview in 1984, Friedrich Hayek said:
“I do not believe that we will ever have good money until we take it out of the hands of the government. But we cannot do it so easily - just by some clever devious way of introducing what they cannot stop. ”
In his work for the Free Market Monetary System, Friedrich Hayek notes that “the government’s monopoly on issuing money not only deprived us of good money, but also the only process by which we can figure out what would really be good money. We don’t even understand exactly what qualities we want ... Because we were never allowed to experiment with this. We have never been given the opportunity to find out which money will be the best. ”
Introducing Bitcoin as an experiment.
In 2008, Satoshi Nakamoto proposed Bitcoin, an alternative financial system free of downward control. Bitcoin, the “trustless electronic transaction system,” was not created to fit existing governments and financial systems.
Bitcoin is an experiment. Unlike any past money, Bitcoin has no limits, does not allow censorship and is easily verified. Thus, Bitcoin can be just such a “cunning roundabout way” that bypasses prohibitive mechanisms and outdated financial institutions that restrict people's access to the free financial market.
Bitcoin is often called digital gold because it has most of the properties of gold and even complements them, including scarcity and endless value. Given their digital nature, bitcoins are easily divisible, mobile and cannot be captured, which makes it much better to protect them from the threats of centralization and the fate faced by gold.
This is a table, first presented by Vijay Boyapati, and then supplemented by Dan Held, who assesses the characteristics of Bitcoin, gold and Fiat in terms of financial transactions:
Dawn cryptocurrency.
Cryptocurrencies are, first of all, money. With the exception of a few crypto-tokens, which are still either obviously money or extremely messy with technological jargon, they are still money.
Thus, as the Bitcoin community grew and prices increased, other coins began to appear on the cryptocurrency market, often referred to as Altcoins. Many of these “cryptocurrencies” were created in order to supposedly not only repeat, but also improve “Bitcoin’s fundamental flaws” and its “limited functionality”. Therefore, by 2018, ten years after the appearance of the original Bitcoin, more than 2,000 other cryptocurrencies already existed.
Unlike the locally-nationalized financial market of the 20th century, the cryptocurrency market more closely resembles a private competitive market, where no violent monopolies distort price signals, preventing competitors from entering.
Given the nature of cryptocurrency, which has an open code, everyone can create their own coin or change an existing one. This stimulates the birth of open and low-cost experiments.
Open source cryptocurrency acts as a promising mechanism for determining what natural money can be for society.
Ethics of Money Production, Jörg Guido Hülsmann, emphasizes in his work Ethics of Money Production that the only way to find out what is natural money for society is to allow people to freely unite and choose the best exchange methods from the available alternatives.
Given the conditions of the free market, one can ask the question - what proportion of the financial market can such natural money seize?
While the modern world has proved itself not in the best way, the makings of a winner can allow cryptocurrency to absorb most, if not all of the reality associated with gold. Given the long period of cryptocurrency reality - it is hoped that this time, it is more than a temporary phenomenon.
In the second part of the story, we will examine in detail the rationale - “the winner gets everything.” And defining the size of the market as the aggregate of all cryptocurrencies, and revealing that, in general, is the driving force for them - we shed light on this, noteworthy, phenomenon.
