E-Gold Before & Bitcoin Now / To Understand The Concept of Bitcoin / Cryptocurrency, You Should Understand The History That Led to it.

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The last week I wrote about:

The Benefit of Using Cryptocurrency

A Look At Blockchain Technology

Where is The Bubble

For me was a big surprise that some of you did not know about it!
The reason why I come up with this post.

To better understand the concept of Bitcoin / Cryptocurrency you
should understand the history that led to it.

May be some of you did know about e-gold / gold backed currencies.
I started to use e-gold, 17 years ago until e-Gold was brought down.
After e-Gold was brought down, the US government stepped in and required that everyone who holds e-Gold exchange it immediately and then it was mandated that no one would be allowed to redeem it without going through a Federal Prosecutor.

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Bitcoin arose after the failure of gold backed currencies like E-Gold. The idea was to use a virtual currency, backed by the gold standard, and to trade this currency instead of the gold itself. It became extremely popular extremely fast and because of it’s ease of use it was targeted for use with criminal activity.

Other systems of gold backed currencies failed before governments could get involved because the companies behind them used the gold for their own investments rather than holding the gold, which came to light after those investments didn’t pay off. Basically, the problem was that a central point of control meant that any government can take it down, or charge fees that make it less reasonable to use, or be subject to internal corruption.

This is why when Bitcoin was first proposed in a paper by the person or group known only as "Satoshi" it would have a limit to the maximum number of coins produced simulating the gold standard. What makes gold valuable? Scarcity. Today Gold has uses, but when it was originally used to back currencies it’s only use was the scarcity. Since Bitcoin has scarcity, it can represent a gold standard.

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For security, Bitcoin uses a hashing algorithm that becomes increasingly complex which goes along with transaction verification. This gets used along with a ledger system so that it becomes impossible to spoof a transaction.

Every few years, this reward cuts in half, transitioning towards an environment where the miners are only paid in transaction fees alongside the expanded use of Bitcoin as a currency.

The fact that Bitcoin is decentralized means that governments cannot impose money transmitter fees on the network itself. There’s no one to charge and no one to take to court. They can only, charge fees to centralized exchanges.

Bitcoin is generally seen as a system of anonymous transactions, because you can create a wallet without any personal information, and can create as many as you want, but the public ledger means that the moment you buy or sell Bitcoin through any exchange that connects to a real bank account or a physical address your identity can be traced. This is why it proved to be far easier to convict drug cartels that used Bitcoin than any drug case in history.

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