Bitcoin, a monetary system without reserves

You may have noticed that one of the most used arguments by those who do not support cryptocurrencies is that (with few exceptions) do not require a deposit in another asset that serves as a guarantee of its value. But that’s how it is? And, in any case, is it so important?

In the past, countries could only issue an amount of money (in paper or coins) that was equivalent to their reserves of value in gold. This system, known as gold standard, had its end because of modern wars, in which to finance the purchase of ammunition or provide social assistance to victims, for example, governments issued more money than their reserves allowed.

After World War II, the gold standard was replaced by a system of mixed agreement between the dollar and gold, by which many countries began to fix their exchange rates in relation to the US dollar. But even the United States abandoned the dollar-gold standard in 1971 because of the considerable costs and financing needs of the Vietnam War.

Nowadays, government currencies (fiat money) are not backed by any specific form of value, but basically became valued according to the trust that people have in their governments, politicians and central banks.

Guarantees and consensus in Bitcoin

the bitcoins are not created from the deposit of a reservation gold or precious metals. And its protocol does not depend on the approval of governments, nor does it need central banks to control it.

However, bitcoins do have all the essential characteristics to be considered money: durability, portability, scarcity, divisibility and recognition. The community’s confidence in this coin comes from the predictability, decentralization and immutability of your code.

In the Bitcoin system, it is impossible to issue more coins than the code has programmed. And no war or political will can change the form of issuance of this cryptocurrency. In any case, the guarantee that Bitcoin owns is its own code, supported by the community.

How does a currency without collateral gain value?

The law of offer and demand moves the digital currency market, especially since it is public knowledge that bitcoins and most altcoins have a controlled emission. That is, a finite supply.

Over the years, cryptocurrencies are increasingly adopted and arouse the interest of more people, so its price tends to rise. In times of high demand, this value can rise considerably. But, in the same way, it also descends.