Banknotes and coins are a very small part of all money in circulation. Another large part in the form of electronic money. We all need banks, credit card companies or other service providers to transact using electronic money.
This is what the digital-cash bearer community opposed. The use of banknotes and coins even still requires the role of the government or central bank. How much money circulated by the government will directly affect its exchange rate.
What if the government prints too little or too much money? Why do certain currency rates always decline over time? This is what ultimately encourages this community to create a new currency in the form of digital cash that has behaviours such as money-commodity (commodity money or hard-currency).
Some experts argue that money-commodities originate from commodities that are naturally transformed into money. That is, the public voluntarily accepts it as a legitimate medium of exchange.
The history of money concerns the development of means of carrying out transactions involving a medium of exchange. Money is any clearly identifiable object of value that is generally accepted as payment for goods and services and repayment of debts within a market, or which is legal tender within a country. While money is always a medium of exchange, not all mediums of exchange are money in the numismatic sense. Significant evidence establishes many things were bartered in ancient markets that could be described as a medium of exchange. These included livestock and grain – things directly useful in themselves – but also merely attractive items such as cowrie shells or beads were exchanged for more useful commodities. However, such exchanges would be better described as barter, and the common bartering of a particular commodity (especially when the commodity items are not fungible) does not technically make that commodity "money" or a "commodity money" like the shekel – which was both a coin representing a specific weight of barley, and the weight of that sack of barley.
History of money : Wikipedia source
How much money-commodities circulating at a given time depends entirely on the market mechanism. This is different from money-fiat whose legality is determined by the central authority, namely the government.
Supporters of digital-cash then attempt to realize a new type of money-like commodity in digital form which is then commonly referred to as cryptocurrency.
In addition to the three digital-cash characteristics or cryptocurrency must meet two additional characteristics.
First, the creation of certain cryptocurrency units must be quite difficult. The goal is that the availability of money remains limited to gold (as money-commodities) is also limited in availability. With these characteristics, cryptocurrency is expected not to be susceptible to inflation.
Second, the control of money creation is entirely in the hands of the public or the user community. The creation of money must not be centred on any authority, either individuals, governments, central banks or corporations.
After DigiCash, in 1997 Adam Smith proposed a technique called hash cash to solve one of Digital-cash's main problems, namely: how to produce digital files that cannot be repeatedly duplicated.
In the spring Adam Smith will replace Sir Edward Elgar as the face on Britain's £20 note. The first economic thinker to be so honoured could well be the last. Not because economists are especially undeserving, but because cash, after millennia as one of mankind's most versatile and enduring technologies, looks set over the next 15 years or so finally to melt away into an electronic stream of ones and zeros. If an era is represented by its money, the information age is at hand. Notes and coins are already a small fraction of the money in most rich countries. The Cash Era source
Adam Smith mengajukan bukti-of-kerja yang perlu komputer untuk melakukan proses sebelum membuat unit hashcash.
Miners only see Bitcoin addresses and amounts in each transaction, providing some privacy to those submitting transactions. To add a block to the blockchain, miners must solve a proof-of-work function. Once a block has been assembled by a miner, the Bitcoin software generates a nonce, adds it to the content of the block, and then hashes the contents of the block with the nonce using SHA-256, twice, to produce a hash. The system does not share the nonce with the miners. To add their block to the Bitcoin blockchain, the miner must guess nonces, combine them with the block content, and hash this content until they produce the correct hash digest value. This proof-of-work function is designed to be fast for the system to verify, but time-consuming for the miners to execute. The length of the nonce is increased every 14 days to maintain the level of difficulty in solving the proof-of-work function. This value was chosen to ensure that that miners continue to take 10 minutes to process each block. For each block completed.
Trusted Time stamping source
This proof-of-work is one of the backbones of the Bitcoin protocol that is used to ensure that money is not easily created. This initial protocol then continued to be improved, among others, by Nick Szabo who in 1998 proposed bit-gold.
Then Wei Dai who submitted b-money as anonymous distributed electronic cash system and also Hal Finney who submitted RPOWs (reusable proofs of work). It was Finney who later became Satoshi Nakamoto's earliest partner when developing a bitcoin prototype.
After 1999, the development of the digital-cash protocol appeared to be deadlocked and was even often equated with attempts to convert charcoal into diamonds.
Only in August 2008, Satoshi Nakamoto suddenly appeared by submitting a new protocol scheme called Bitcoin. Ethereum, Litecoin, Ripple and other cryptocurrency followed after a few years.
The latest development in money uses cryptography to seek to ensure trust and fungibility in a theoretically tamper-proof distributed ledger called a blockchain. While several digital currency systems where proposed since the 1980s. The first successful decentralized peer-to-peer cryptocurrency, bitcoin, was proposed in 2008 by an unknown author or authors under the pseudonym of Satoshi Nakamoto. The protocol proposed by Nakamoto solved what is known as the double-spending problem without the need of a trusted third-party. Since bitcoin's inception, thousands of other cryptocurrencies have been introduced, many of which use the symbology of former metallic currencies, such as silver for Litecoin. Cryptocurrencies : Wikipedia source
The cryptocurrency protocol in the latest form always has several basic technologies, namely: proof of work, distributed systems and blockchain. These three technologies can realize all three main digital-cash characteristics and two additional characteristics of cryptocurrency.
So, digital-cash that developed in the last ten years is not only a cash money protocol in digital form. Bitcoin, Ethereum, Litecoin and ripple are all at the same time a new type of currency. That's why the name cryptocurrency is more suitable, a type of currency created based on cryptographic techniques.
This cryptocurrency was born from the idealism that was originally carried by the Cypherpunk community. The public has the right to have the kind of money that does not threaten privacy when used, is resistant to inflation due to limited supply, and its sustainability does not depend on centralized authority.