FIAT MONEY, COMMODITY MONEY, DOUBLE SPEND, BFT & CONFIRMATIONS EXPLAINED | ep 8


Welcome to another great episode of Crypto Jargon. the series where I break down the complex terminology we use in reference to cryptocurrencies and blockchain technology. In this episode I am going to explain the difference between Fiat Currencies and Blockchain based Currencies as well as what is censorship resistance, Double-spend and Byzantine Fault Tolerance which are terms referring to cryptocurrencies. This episode is sponsored by Ledger: Maker of the best hardware wallets on the market To find out more about it, check out the description of this video, where you will find the link and my tutorials on the Ledger Nano S and Nano X devices. Ok, so let’s get started with Fiat Money or Fiat currencies, which is a term used a lot lately, especially in comparison to cryptocurrencies. The term fiat derives from Latin which means (“let it be done”) used in the sense of an order, decree or resolution. This is not a term that we see used in general conversation when referring to the paper money we use but it is in fact how most of the paper issued currencies are classified as. Fiat money is used to describe those currencies that are government issued and used as a legal tender, but are not backed by any tangible assets or commodities like gold or silver for instance. There are some currencies that are backed by such commodities and these are known as commodity currencies but the majority of governments today are issuing fiat currencies which is easier since they can print as much as they need without having to own any physical assets to back up the value of these currencies. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government. They are mostly backed by taxation and other government means of creating value but should there be a political or economical crisis, these currencies would devaluate enormously, which happened in Turkey just a few months ago, this year it also happened in Venezuela, Argentina, Zimbabwe, Sudan, Iran …and the list goes
on and on and on … this happens all the time around the world. So this is what fiat money is, currencies printed by a central authority and declared a legal tender and trusted by the citizens purely based on their trust in the government. Enter Bitcoin and the crypto revolution. In 2008, at the peak of the US and UK financial crisis Satoshi Nakamoto published the Bitcoin White Paper which was born as a response to the ever-growing danger of further financial collapse and against the control of the central banks. It introduced the idea of a decentralized model for a monetary system through a publicly shared, distributed ledger (in other words the blockchain) where records are being agreed on and shared between all the participants of the network. This new model is more than a currency, it is in fact digital data, information, code … which in many cases causes confusion as to how can it be called money but in its use cases, it is not too different to the already growing digital payment networks that most of us have been using over the past decade. Except, it is encrypted, not controlled by any central authority and thus, it is censorship resistant, unlike the fiat money which we hold in banks and other government-controlled institutions who are able to freeze or block accounts if they choose to. So here lies the key difference between fiat money and the decentralized model of blockchain-based crypto. Now let me explain why Bitcoin in particular is the game-changer here and what it did right.. or different to any other attempts of creating digital currencies before it. And yes, there have been many attempts before, even as early as the 90s but none were successful. In one sentence, Bitcoin was the first digital currency to solve the double-spend problem of its predecessors. So what does that mean? Double-spend is referring to sending the same transaction to 2 or more different recipients and with digital data, it is very easy to just copy and paste the same thing and send it to multiple recipients. What Bitcoin did, or Satoshi in this case, is to introduce the data mining process and the blockchain in order to create a consensus on the network about which of the two transactions will be confirmed and be considered valid, which is how double spending is obstructed. This is what we mean by Byzantine Fault Tolerance A method for computing systems to reach consensus through a certain mechanism. The term is taken from a paper named “The Byzantine Generals Problem” published in 1982 by
Leslie Lamport, Robert Shostak and Marshall Pease. the Byzantine Generals’ Problem can be illustrated as a hypothetical historical situation in the times of the Byzantine empire which was in the distant past , way before modern tele-communication was invented, where multiple generals and their individual armies situated in various locations out of reach of each-other must communicate the rules and time to carry out a coordinated attack on a city. Communication in those days was shared by messengers who had to travel long distances, and could easily be compromised. When some of the armies receive communication that is deceptive the whole operation ends in a major failure. Such cases were not rare in those days. In the cryptocurrency world, the Byzantine Generals Problem is the situation where network participants issue incorrect information to others about transactions taking place that have not really taken place. This could lead to network failure, if it hadn’t been for the Byzantine
Fault Tolerance. As I said, Bitcoin was the first digital currency to successfully resolve this issue by implementing the independent confirmations required for each transaction before it is considered complete. this is why Bitcoin is a perfect example of a Byzantine Fault Tolerant cryptocurrency. Each transaction is confirmed at least by three independent participants of the network, these are the miners, and once a transaction is recorded on a block, each consecutive block is adding more and more confirmations to it, so the older a transaction is, the less possible it is for it to be tampered with. All the full nodes have a copy of the complete history of the blockchain with all the transactions, these are not being stored in just one or two databases but on all the hundreds of thousands if not millions of computers worldwide who operate full nodes on the blockchain and this is how decentralization and security of that data is achieved. “Full Node” by the way and “Blockchain” and “Blocks” …and of these terms are explained throughout these series so make sure you check out the description box below where you will find links to these episodes Enjoying this content? Why not grab a copy of my book: Crypto Jargon A-to-Z The most thorough dictionary that exists to date it contains all the crypto terminology you need Just go to www.ojjordan.com/cryptojargon and grab your digital copy today.

5 thoughts on “FIAT MONEY, COMMODITY MONEY, DOUBLE SPEND, BFT & CONFIRMATIONS EXPLAINED | ep 8”

  1. Do you believe the world's government and the banks will allow the crypt currency to go on as is without taking control thus demanding a piece of the pie from users. Just wandering.

  2. Yes weve had a topic about the Byzantine Generals problem during one of our comsci lectures back in college. Interesting application of the concept

  3. banks and governments will try to stop cryptocurrency by all means, but i believe that will be difficult because they will need to shut down the whole internet. I only wish that we will be allowed another option to have and hold our assets and live harmoniuosly between the fiat and crypto world.

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