How Cryptocurrencies can bring Revolution in Monetary System

What is Money?

Money makes the world go around. Basically, every person in the universe works for money. Despite its familiarity, few people actually understand it. Most of the people think they understand money but can you explain it in laymen terms. Money is Thousands of years old, it is as old as the language because money is the language. Money can be feathers, beef, shell, a piece of stick or anything that can be used to express value to each other. Currency is the general form of accepted money. Current Monetary System uses paper money as accepted currency. It is also known as Fiat Money

How Money is Controlled

“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

—Henry Ford inventor and founder of the Ford Motor Company

Money is added to the economy through two main sources. First is the Central Bank who can issue new notes which can increase the amount of money supply and second are the Commercial Banks that creates credit which is added to the money supply

Central Banks create money out of nothing. Whenever the government wants money for some operations they ask central bank for money. The central bank creates money out of thin air and buys government securities thus giving cash to the government. Commercial bank can also take loans from central bank

Commercial Banks accept deposits from the public on minimum interest and lend to them to individuals and Businesses. When a person places money in a bank, the bank issues the depositor an IOU in the form of a receipt. In the meantime, the bank uses the money in a system called fractional reserve banking to create credit. Banks are allowed to lend a portion of funds deposited with them, generally, the reserve limit is 10% of the deposit

So if you deposit 100$ to a bank they will put 10$ in the reserve and lend out the other 90$. But your account balance still shows 100$. Now that 90$ will be deposited by someone else in other bank and they will put 9$ and lend out remaining 81$ and this goes on again and again and 100$ in the bank will be turned to approximately 1000$






This is how commercial banks increase the money supply in the economy. Almost 90% of the money in our economy is generated through credit. People do not tend to get this point and overlook the utility of money as a currency and fail to note its decreasing and diminishing value due to inflation. Inflation is the hidden tax that we pay to government

"By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft"

-John Maynard Keynes

Freedom of Choice: Cryptocurrencies

Money should be a product of the market not the monopoly of some corrupt politicians. We shouldn't really care about money at all, it is just a tool to communicate value but people who are taking care of it are not doing their job right. We are tied to a certain monetary system whose rules are not in our control but for the first time in history, we have a choice to get out the monetary system and take control of our money. We can choose a monetary system that is run by laws of mathematics, a system that is open, borderless and trustless

Cryptocurrencies are backed by the trust of people. A cryptocurrency has value because someone is willing to accept it. Think of Currency as an application of technology, it sounds pretty weird but it is actually really interesting. We can use different currencies for different properties of money. Taking an analogy of social media platforms Facebook and Twitter. You use Facebook to keep in touch with your school, college friends while Twitter is used to interact with your favorite celebrities and similarly Snapchat, Instagram, and WhatsApp. similarly, we can use different cryptocurrencies for different applications. want to do a private transactions X currency can be used for that, want to save money for retirement doesn't want it to be eaten up by the inflation I can use Y currency which provides a very good store of value, want to do micropayments I can use Z currency.

The most important thing is that no can stop you from making a choice. An individual has the power to control his money

Happy Investing!