1. The Birth of Cryptocurrency

First, we need to understand what money is and the history of money. In traditional finance, money is essentially a tool of exchange with a value. Early forms of money included ancient stones, gold, silver, and copper coins until today’s paper money. As time progressed, money gradually transitioned to paper and electronic money, which made it easier to circulate and carry. The issuance of modern currencies is usually controlled by a country’s central bank (e.g., the Federal Reserve) and is secured by specific anti-counterfeiting codes.

With the creation of money, the issuance of currency has gradually increased, especially during times of economic expansion. Each country has the right to issue its own currency, and this is usually carried out by a centralized institution. However, as the number of currencies increased, abuses occurred. For example, the housing crisis in the United States in 2008 triggered a global financial crisis that devalued the currencies of many countries and eventually led to a financial crisis.

It was in the aftermath of this financial crisis that a man who goes by the name of Satoshi Nakamoto came up with a white paper on Bitcoin, introducing the concept of a decentralized cryptocurrency. Bitcoin is a peer-to-peer cryptocurrency that utilizes an uncreative mechanism to combat the indiscriminate issuance of money in the traditional financial system. As a result, cryptocurrencies have gained more acceptance in this context. In the past, currencies were not recorded and verified through consensus algorithms, miner mining and blockchain ledgers as in the case of Bitcoin, but with Satoshi Nakamoto’s white paper and the birth of Bitcoin, as well as the combination of computer technology and cryptographic algorithms, a completely new form of digital currency has been formed.

Simply put, Bitcoin is an electronic currency that can circulate globally and is able to be traded as long as you are connected to the internet. In the beginning, the circulation of bitcoins was transacted through forums and other online platforms, such as the purchase of a pizza with bitcoins, an event that marked the first time the value of bitcoins was recognized. The nature of money is to be used for exchange, and money is only meaningful if it produces value in actual exchange. Therefore, the value of Bitcoin as an exchangeable currency is gradually being accepted by the market.

Next, we are going to explore the difference between traditional finance and decentralized finance (DeFi). The mechanism of currency issuance in traditional finance is usually controlled by the country’s central bank, and this centralized mechanism can help the government to regulate the economy, support the development of enterprises and carry out credit financing. However, the monetary leverage of traditional finance is so great that, for example, during the epidemic, the U.S. government stimulated economic flows by directly handing out money. Countries such as China, on the other hand, stimulated consumption by issuing red packets and coupons.

In contrast, Decentralized Finance (DeFi) avoids the intervention and risk of third-party institutions by conducting peer-to-peer transactions on the blockchain through smart contracts. Once a smart contract is written, it is automatically executed to ensure the security of the transaction. Currently, blockchain platforms like Ether have provided a secure and efficient infrastructure for decentralized finance, making these transaction systems more reliable and transparent.

In the future, with the development of cryptocurrency technology, decentralized finance (DeFi) will further expand to cover more areas, such as the combination of cryptocurrencies and traditional finance, the digitization of real estate assets, and even the digitization of national debt. For example, Venezuela’s national debt is already traded through cryptocurrencies, and more and more countries are beginning to include cryptocurrencies in their economic systems.

In the long run, cryptocurrencies rely on mechanisms such as stablecoins to enable cross-border payments and asset management on a global scale, which will further expand the cryptocurrency ecosystem. Despite centuries of traditional finance, cryptocurrencies are still in their infancy and there are still many who question their value and future. However, as more and more people recognize the underlying technology and ecosystem of mainstream cryptocurrencies such as Bitcoin and Ether, the market size of cryptocurrencies is likely to grow rapidly in the future. Today, Bitcoin’s market capitalization has surpassed one trillion dollars, which means that its market position is gradually increasing.