#001: Hello, Digital currency
Since the introduction of Bitcoin in 2008, digital currencies no longer seem like a novelty. Bitcoin is hailed as the pioneer of blockchain technology, and its creator, Satoshi Nakamoto, is often regarded as a visionary who opened the Pandora’s box of the virtual world.
With the emergence of Ethereum, anyone can issue their own “digital currency” based on smart contracts. However, in Ethereum’s own terms, these are not digital currencies but ERC-20 tokens.
Why does this discrepancy exist? For those who know little about the topic, digital currency (or virtual currency) is often equated with ERC-20 tokens.
Many blockchain-related media outlets heavily promote and teach how to create one’s own digital currency, though it’s possible that even they don’t fully understand the process. Some might even be copying others’ work.
I prefer to refer to ERC-20 as “tokens,” a form distinct from digital currencies. The most fundamental characteristic of tokens is their high volatility and lack of strong consensus. Yet, consensus is precisely the most critical element in the blockchain world. The core reason Bitcoin has reached its current value is consensus.
Like traditional currencies, digital currencies require a trusted central authority for issuance. The difference is that, in the blockchain world, this authority is code. Code determines the supply and circulation of the currency, while consensus determines how far it can go.
The fixed supply of digital currencies inherently prevents them from becoming a reliable medium of exchange. Bitcoin’s price has now exceeded $110,000, yet just two years ago, it was only a few thousand dollars. Such extreme volatility means Bitcoin functions more as an investment asset rather than a practical medium for transactions. After all, no one would use Bitcoin to buy a hamburger (though in its early days, someone once spent 10,000 Bitcoins on one).
Many view Bitcoin as digital gold, or even something greater than gold. However, its most fundamental difference from gold is its virtual nature. Gold is a tangible metal, while Bitcoin is merely a string of code. Some worry: if a global blackout occurred, would Bitcoin still hold value? Or if a new internet protocol emerged, would Bitcoin survive? What happens when all Bitcoins are mined? These uncertainties contribute to its classification as a high-risk asset, primarily embraced by a minority of investors.
Of course, both gold and Bitcoin share the trait of consensus. Gold’s consensus has been built over centuries, tested by history, while Bitcoin’s consensus stems from its fixed supply. Consider this: if Bitcoin had an unlimited supply, would it still hold value?
People are naturally inclined to invest in scarce assets. Although many other virtual currencies have emerged since Bitcoin, most have faded into obscurity.
It’s undeniable that many impressive digital currencies have surfaced, each claiming to surpass Bitcoin. Yet, none have managed to challenge Bitcoin’s dominance. Why is that?
Consensus!
Imagine if you invented a groundbreaking technology that solved a problem no one else could. You would be remembered as the pioneer. But what about the second or third person to follow? Everyone knows the first emperor of the Ming Dynasty was Zhu Yuanzhang, but how many can name the second or third without studying history? Consensus is the most powerful narrative in the virtual world.
Many projects, at their launch, heavily promote how advanced and revolutionary they are. Isn’t this essentially an attempt to build their own consensus?
Despite the rapid development of digital currencies, none have surpassed Bitcoin. The reason, as you may have already realized, is consensus.