Definition Of Initial Coin Offering

Initial coin offering, commonly known as ICO, is the mechanism used to raise funds for

financing cryptocurrency-related ventures and it is mostly used by startups as a way of evading the regulated capital-raising mechanisms used by banks or venture capitalists. For example, the Ethereum cryptocurrency project has already raised a lot of money in ICO. This investment model is closely related to Initial Public Offering (IPO) whereby interested investors purchase

shares of a certain company. In ICO, the resulting coins are called tokens and they can be equated with the shares of a company that are sold to the investors. ICO has dominated the blockchain community, and many view ICO projects as securities that are unregulated. This can enable the founders to raise the capital required to undertake a certain crypto venture. To make it simple, crowdsourcing eliminates the hustle that is very common in the capital venture process.

In every ICO campaign, a given cryptocurrency percentage is sold to the initial funders of the

project as an exchange for a legal tender or another cryptocurrency like Bitcoin.

Every cryptocurrency startup must create an elaborate plan in its white paper explaining what the project is about, the problems that the project will solve after its completion, the amount of money needed to fund the venture, and the percentage of the coin that the pioneers will keep for themselves if the project succeeds. However, if the venture fails, the funds are returned to the financers and the ICO is said to have been unsuccessful. If the funds are enough, the project is initiated or the funds can be used to complete the project.

Generally, ICOs can be easily structured with the aid of technologies like ERC20 Token

Standards, which ease the process of developing any cryptographic assets. Investors contribute to the ICO development by sending their funds in the form of Ether or Bitcoin to a set smart contract that can store their funds and, later, distribute the equivalent value of the new token.

Anyone can participate in an ICO because this venture has few restrictions, if any, assuming the fact that the token is not a security. Compared to the global pool that many investors find themselves in, with ICOs one can easily raise astronomical profits if things go well. However, there is a large margin of risk because they are extremely speculative since most of them raise pre-product money.

What Is A Block Chain?

A blockchain functions as an open-source ledger where users record, control, and amend

transactions. The blockchain is no different from other platforms, say for instance Wikipedia. Just as Wikipedia is an open source platform where a single publisher is not responsible for fabricating content, blockchain too does not give full power to just one miner.

However, as we move towards a deeper level, we find that Wikipedia is running on the internet through a client-server model of a network. Here, users are first provided with permissions to amend content in the website’s pages that are all stored on an integrated server.

So, a user accessing the page on the website will be provided with an updated version of the

original copy for any particular entry on Wikipedia. Also, the regulation of the whole database system stays with the administrators, who are granted permissions and access through the main authority at the center.

Wikipedia’s system operates similarly to the databases of other centralized and secured systems like insurance companies, government, or banks. So, in such cases, there is a primary owner who has the authority to manage, protect, and access any update to the system against malicious activities.

However, the distribution system and the database involved with the blockchain technology are quite distinct. While Wikipedia’s original copy is amended on the server, which is not visible to the users (clients), the blockchain offers updates independently. Every update to the system is done on the master copy, which is visible to all users.

This difference makes it very useful, as this method eliminates the requirement of third-party organizations for digital affiliation. However, we cannot consider blockchain technology as new. On the contrary, it can be termed as a modern combination of innovation and proven methods. In other words, it came into existence because of three technologies: a protocol to incentivize, cryptography with an encrypted key, and the internet. And Satoshi figured out this concept and changed it into a billion-dollar industry.

Thus, the blockchain technology prevented centralizing the system as building and securing digital relationships is absolute. Here all digital transactions are supplied using a robust, elegant and straightforward network framework that works as a peer-to-peer system.

Building Digital Trust

Maintaining trust in the digital world is often linked to authorization and identification. In simple terms, people online would like to know whether the person on the other end identifies himself honestly and if he can complete the job he claims.

The blockchain system offers a secure tool of ownership that completes all necessary

authentication criteria. The encryption key is enough to identify the authenticity of the owner. Thus, there is no need to share detailed personal information that would otherwise have created the opportunity for hackers to attack.

Nevertheless, the relationship cannot be only based on authentication. There is also a need for enough money, authorization, correct address, transaction type, etc., which all requires distribution to balance it out in the overall network. This distribution strategy decreases the chances of forming a centralized body that would otherwise promote failure and corruption.

Furthermore, the distributed network should commit to security and recordkeeping. So, any

authorization of a transaction will result in permission from the entire spread-out network.

Authorization and authentication, when carried out like this, allows the relationships to generate without the need for expensive investments. In fact, modern-world entrepreneurs have risen to indications of this technology, which is influential, innovative, and inconceivable. The blockchain technology has evolved as the base for all transactions carried out in the digital world, where it is building stronger digital relationships.

What is liquidity?

Liquidity has to do to with volume and efficiency. You can think of it as friction. If you get into an asset, you want it to be as frictionless as possible. That means you get in when you want to and you get out when you want to. There are a few situations that may make that untenable. One scenario that could happen is when everyone wants to sell, you will find that there are no buyers – that’s not a liquid market. You may discover that finding a seller or finding a buyer is not easy because there is lackluster interest in the asset; or you may find that there are not enough exchanges supporting the market, which reduces the potential trader’s access to that asset. These

are just a few ways the asset is illiquid – there are more. But you get the point. When you

consider an asset, you need to assess its liquidity and its volatility. Liquidity without volatility does not give you tradability, while volatility without liquidity doesn’t give you predictability.

This is partially the reason Bitcoin is more valuable and in demand than its alternatives and the USD-BTC pair is a popular investment tool for day traders. It is also because there is sufficient liquidity to make your trades almost seamless and efficient. This is called a liquidity premium, and it is one that you should be willing to pay, as the payoff is worth it.

But that is a fiat-crypto pair (meaning it is the trade between a fiat currency and a

cryptocurrency). What about a crypto-crypto pair? Well, there are several large volume and

liquid pairs that you can work with. One such pair is the BTC-ETH pair.

With respect to tradability, you should have your basket well differentiated between fiat-cryptos and crypto-cryptos, and even have a basket that is fiat-crypto-fiat or crypto-fiat-crypto, or some other three-way combination.

You want to be an expert in at least two or three combinations, and that expertise comes in the form of study and practice. You have to study the fundamentals and you have to practice the art of reading the charts. In the trading business these are called the fundamentals and the technical. You have to study the fundamentals – which includes knowledge of the asset, how it works, market sentiment, regulation, and analysis. On the other hand you have to know how to read the

charts. The charts and the analysis of the movement of price is a comprehensive mathematical and statistical representation of the psychology of the market. It is fairly plausible to understand where the market is moving in the future by looking at sufficient data from the past. That’s the technical aspect of the analysis.

Become an expert at BTC vs Ethereum and BTC vs USD to start.

What Is Double Spending?

Double spending can be defined as an activity when an individual transacts more money than the required amount. Most currencies online face this issue. Traditional currencies keep check on such problems by paying real cash or acquiring the help of reputed third-party organizations like banks, credit card services, PayPal, etc., which all transact the amount and record the changes in the account balances based on the transactions.

However, Bitcoin functions in an open digital world, where third-party organizations do not

influence or monitor it. Its philosophy counters the traditional approach we witness in the

financial world. Thus, if I say to you that I have 20 Bitcoins with me, how will you come to

know that I am not lying about it?

Thus, to keep everything in check, a public ledger was fabricated that records all the transactions. This public ledger is referred to as Block Chain. I will discuss it in detail in later. This public ledger lets you trace all the Bitcoin transactions right from the very first time they were recorded.

But Bitcoin is a digital currency, and is not monitored by any intermediaries. This technology’s philosophy counters the monitoring activities practiced by third party enterprises. So, if you say that you own 25 Bitcoins, how will I trust that you are being honest or not? The solution is that public ledger with records of all transactions, known as the blockchain. (We will learn about it

later.) There is no way you can lie about the number of coins in your possession, when this

technology fabricates a way to trace every transaction right from the start.

Thus, for every Bitcoin transaction, miners go through the ledger and check for malicious

practices of double spending. If everything is found perfect, the transaction is validated and recorded in the public ledger. It sounds simple, but it is not. 

Is Bitcoin dead?

Because of the rapid rise in value of Bitcoin, especially in December 2017 when its market price quadrupled in just a couple of weeks, and its subsequent price retreat in January 2018, many people were led to believe that Bitcoin's just an asset bubble that has already popped. 

In other words, they believe that Bitcoin's as good as dead.

But while the huge returns Bitcoin and other major cryptocurrencies have generated in a

relatively short period of time is reminiscent of the Internet and Holland Tulip bubbles in the

past, it's fundamentally different than those two assets. As such, Bitcoin and other noteworthy altcoins have a much brighter future compared to the two aforementioned assets.

The following are indicators that Bitcoin isn't dead yet and more importantly, it's going to be

around for a long, long while.

More and More Legal

Not to say that Bitcoin's an illegal endeavor but what I'm saying is that it's becoming more and

more accepted as legal tender. You see, one of the most serious challenges facing Bitcoin with regards to being accepted in the financial services mainstream is acceptance by government monetary authorities (lawmakers and regulators alike), which is hampered by its decentralized and autonomous nature. 

Governments hate what they can't control so Bitcoin's not exactly in their good graces - at least not yet. But recent developments in major economies indicate that government acceptance, in general, is becoming more and more likely.

Japan announced back in April 2017 that it would officially start treating Bitcoin as a valid or legal alternative payment method and as of 2018, it already is. This has made Bitcoin practically part of the Japanese mainstream financial system as more and more merchants in the Land of the Rising Sun have officially started accepting Bitcoin payments.

As more and more major world economies accept Bitcoin as a legit payment method, the rest of the world is highly likely to follow suit.

More Stores

More than just government pronouncements, Bitcoin's acceptance among merchants continues to rise because of the confidence shown by some of the world's biggest companies in accepting payments using the granddaddy of all cryptocurrencies. These companies include Microsoft, Overstock, and Rakuten.

But more than just riding on the bandwagon of these big companies, there are fundamentally

sound reasons for the rising number of merchant acceptance of Bitcoin. One of them is transaction fees, which are much less than what credit cards charge to its merchants. Other practical advantages Bitcoin as payment has are the ability to reach new customers from regions in the world that are not yet reached by mainstream banking institutions and elimination of chargeback fraud. With the expected rise in mainstream acceptance by merchants, demand for Bitcoin is expected to rise and of course, its price can be reasonably expected to rise over the long term as well.

Wealth Storage

Concerning cryptocurrencies' ability to store

value and its relationship with functional value? 

The increasing acceptance of Bitcoin in many

of the world's financial markets, particularly in countries that are experiencing economic distress, gives the granddaddy of all cryptocurrencies increasing functional value. In such distressed economies as Bolivia and Venezuela, local currencies' values continue to deteriorate to the point of becoming worthless. In such economies, Bitcoin is becoming more and more accepted as a mode of payment, which means its functional or utilitarian value is increasing. So as their local

currencies are becoming less and less valuable, Bitcoin is becoming more and more precious and as a result, is becoming an even better storage of value for citizens of such countries.

Walking Dead...No!

As you can see, Bitcoin's very much alive and kicking and based on the indicators I've just

enumerated, you can expect it to continue staying alive. Bitcoin, being the granddaddy of all cryptocurrencies, has the highest market capitalization and best performance track record, both of which will continue to make Bitcoin more and more accepted in the international financial mainstream. And as that happens, the likelihood of Bitcoin dropping dead will become even more statistically impossible.

How to Store Your Bitcoins or Altcoins Safely

I mentioned that if you do your homework and follow my advice, your cryptocurrencies can be practically impossible to steal or hack. In this Post, I'll spill the beans on how you can do that, which can be summarized in 3 words - a cryptocurrency wallet.

A cryptocurrency wallet is where you store your cryptocurrencies. This may be considered a

cryptocurrency investing because the financial assets you're dealing with have no physical

counterparts, i.e., they're digital. And because they're digital, you can only store them via a

digital storage facility, i.e., a cryptocurrency wallet. The only question is what type of wallet

will you use?

There are two general types of wallets: hot storage and cold storage. Hot storage wallets are those that are online or Internet based. Cold storage wallets, on the other hand, are those that are offline or aren't connected to the Internet. So which of the two is best for safely HODLing your cryptocurrencies? If the only way to steal or rob your cryptocurrencies is via hacking, then the obvious answer is cold storage or offline wallets, which come in two general variants: paper and hardware. And I suggest using both.

But before I explain how these two cold storage wallets work, allow me to explain how

cryptocurrency storage, particularly the blockchains, works. When you buy cryptocurrencies from any particular exchange, your transaction is assigned a public key that is linked to the number of units of a cryptocurrency that you bought. Your cryptocurrency exchange, on the other hand, assigns private keys that corresponds to your public keys. Therefore, your private

keys are your lifeline to your cryptocurrencies, and if you lose or forget them, you can say

goodbye to your cryptocurrencies.

For others to successfully "steal" your cryptocurrencies, they must get hold of your private keys. It's like your ATM card's personal identification number, which will allow other people to withdraw from your account without your permission. When you leave your cryptocurrencies in your hot wallet, i.e., your cryptocurrency exchange account, you put them at risk of being hacked and stolen. That's why as soon as you're done buying your cryptocurrencies, you must transfer

them, including your private keys, to your cold storage or offline wallet.

Ok, now that we've got that covered, I can explain how the paper and hardware wallets work. The paper wallet isn't really a wallet but more of a backup. Write your private keys on a piece of paper and put that paper in a place where it's virtually impossible to steal or destroy them. A very good place to do so is a fire-proof vault or safe. Another's a safety deposit box.

Hardware wallets are USB-type devices that you can store your cryptocurrencies and its private keys in. These are devices whose sole purpose is to hold your cryptocurrencies and as such, they're offline most of the time. To use them to receive or transfer your cryptocurrencies from and to your cryptocurrency exchange account for executing transactions, you only need to plug it

into the USB port of your Internet-connected desktop or laptop computer and follow

instructions.

Cold storage hardware wallets are much safer compared to software wallets, i.e., apps installed on gadgets for two reasons. One is if it's installed on a device that's mostly online, then the risk for getting hacked is still fairly high. Second, even if you install it on a device that you only connect to the Internet for transacting in cryptocurrencies, there's still a risk of loss if that computer is damaged beyond repair or even if it can still be repaired, the computer technician to whom you'll have it repaired can possibly hack the drive and consequently, your wallet. With a hardware cold storage wallet, the risk of losing your private keys due to hardware damage is

much, much lower. Further, using a paper wallet as a backup can help mitigate such a risk. Some of the most popular hardware wallets include Trezor, KeepKey, and Ledger Nano. They may cost a bit, but they're worth the investment.

Why Cryptocurrencies Work

Now that you've seen why compared to gold, fiat currencies aren't real money; it's time to turn our attention to cryptocurrencies as a solid alternative, why they are much closer to gold than money as we know it today is, and why they'd work better than fiat currencies. 

Low Risk of Disruption

The only way anyone can stop or shut blockchains down is by shutting down the Internet itself. And by now, I believe you know that is practically impossible. It's like

saying somebody can keep the sun from shining or the wind from blowing.

Portability

Unlike fiat currencies, cryptocurrencies can be easily transferred from one account to another

using online gadgets such as computers, tablets or even smartphones. With fiat currencies, you'll need to do so physically or through the same bank. Plus, you don't have to bring them with you physically because they're stored in the Internet. So you can go anywhere with a good Internet connection and bring your cryptocurrencies with you regardless of the amount!

Better Value Storage

You can only consider an asset as a good value storage if it's able to keep relatively unchanged levels of utility or satisfaction over time. Applying this to financial assets, it means having the ability to maintain purchasing power over time. A financial asset's ability to keep value can be estimated through what is called as fundamental analysis, which takes into consideration both the quantitative and qualitative aspects of such an asset.

The ability to keep or store value has become the primary foundation for investing or HODLing cryptocurrencies like Bitcoin, Ethereum, and others. But can cryptocurrencies be really relied on

to store value and if they are, can they do it well?

The Gold Comparison

Don't be surprised to find cryptocurrencies being compared or likened to precious metals, i.e., Bitcoin to gold and Litecoin or Ether to silver when justifying cryptocurrencies' ability to store value over the long term. One of the reasons - albeit a shallow one - is the color of

cryptocurrencies. Bitcoins are visually represented as color gold while Litecoins are visually represented as silver. But there are more than just visual cues that justify the belief in cryptocurrencies' ability to store values like the two most precious metals on Earth. We mustn't dismiss behavioral economics that underlie both asset classes. When more and more people start

believing that cryptocurrencies like Bitcoin, Ether, or Litecoin are able to store value the way precious metals like gold and silver can, it can help push the prices of these cryptocurrencies upward. When their prices do go up over time, then it's highly possible that they'll be able to keep or maintain their values within a specific period of time.

Comparisons to precious metals, e.g., Bitcoins to gold, can be a very strong factor that can

influence the perspective of general markets regarding Bitcoin’s and altcoin's abilities to retain or store value in the long term. And this can have a huge impact in terms of the number of investors who'll view cryptocurrencies in general as good investment vehicles.

Limited Quantity, i.e., Deflationary

Just like gold in its physical form, cryptocurrencies like Bitcoin typically have a limited quantity of units, which is defined or set in their respective blockchain protocols. Bitcoin, for example, has a cap of only 21 million units that can ever be created. Litecoin on the other hand has an 84- million unit cap that's also controlled by its operating protocols. This is what makes cryptocurrencies deflationary or disinflationary over the long haul.

Remember our discussion earlier on supply and demand and how asset values are affected by changes in both? Because cryptocurrencies have a fixed number of units that will ever be minted, their supplies relative to the quantities of goods and services it can buy in the future is effectively shrinking. That means its purchasing power can be expected to increase over the long haul and can have deflationary effects on goods and services.

Independence from Other Asset Classes

Compared to all other financial asset classes such as stocks or fiat currencies whose values

fluctuate depending on the pronouncements or moves made by central bankers or financial

regulators, the real value of gold and silver can't be manipulated by any central monetary

authority regardless of their macro-policy decisions. Because of its autonomy from any

monetary authority, precious metals like gold and silver are able to withstand price shocks over time, which makes them very good storages of value in the long term.

Cryptocurrencies are like gold in that they're generally decentralized and autonomous by nature.

This means just like gold, government decisions or policy changes have little direct impact, if at all, on their long-term values. The amount of decentralization and autonomy can be a hot discussion topic among cryptocurrency users and investors, where some favor the full autonomy version while others feel more comfortable with some compromise, i.e., hybrid combinations of

some form of governance (not from the government) and decentralization. In general,

cryptocurrency governance models can vary greatly with some adopting a balanced power

structure among its users when it comes to major decision making on one end while others go for the benevolent dictatorship model on the other hand. And in between the two are various other combination or hybrid models. But generally speaking, cryptocurrencies with more decentralized systems may do a better risk in terms of hedging against the risk of their values being influenced or tampered with by regulators.

Underlying or Intrinsic Values

Assets that are considered to be true storages of value have underlying characteristics that serve as foundations for their values. In layman's terms, such assets have intrinsic utility values, i.e., practical uses that give them their values. Gold, for example, is used for manufacturing jewelry and electronic parts such as semi-conductors. Land or real estate's underlying value or utility is their capacity for having structures built upon them and the amount of foot traffic their areas get.

When it comes to underlying utility value, cryptocurrencies have a lot of potential. In particular, cryptocurrencies hold a huge promise in terms of changing the way financial transactions are done online, which include contracts enforcement, records keeping, and payments. As the use of cryptocurrencies like Bitcoin, Litecoin and Ether becomes accepted in more and more markets, their practical utility values increase even more, which can increase their values over the long haul.

Impossible To Fake

The blockchain technology is a revolutionary one in terms of facilitating online transactions and data or record keeping. Being such, it's practically impossible to produce counterfeit versions of it. And as blockchains continue to evolve, it becomes even more impossible - if such a term exists - to produce fake cryptocurrencies that can be used to buy stuff.

Impossible to Control

Particularly for cryptocurrencies whose market capitalizations are already in the billions of

dollars such as Bitcoin and Ether, one would need a huge amount of money to transact enough units of such cryptocurrencies just to be able to influence or manipulate their prices.

Relative Security

Lastly, cryptocurrencies are virtually impossible to rob if you do your homework of using the right kind of storage, which we'll talk about later. But if you just leave them in your

cryptocurrency exchange account, that's the only time when it's at high risk of being hacked and stolen. So if you follow my advice later on regarding storage of your Bitcoins or other

cryptocurrencies, you can make your cryptocurrencies so safe that they'll be practically impossible to steal.

Digitizing Money

The establishment of fiat money has made it easy - even mandatory - to create digital ones. The advent of the Internet and establishment of monetary authorities that control and issue money have made the idea of digitizing money, i.e., making the most of digital or online currencies and letting such authorities keep tabs on who owns how much, a feasible and even necessary one.

Proof of this is the evolution of alternative modes of payment to the point that they have become the main methods for transacting today. 

For example, credit cards, fund transfers and PayPal have become standard forms of payment these days. And in the United States, in particular, paying in cash is looked upon as

unconventional or even suspicious in some cases. The ramifications of this evolution are huge.

One of them is the ever shrinking amount of physical money circulating in many of the world's biggest economies and financial systems.

Becoming exceedingly digitized, how does money in its digital form work? And a more specific concern with the digitalization of money is this. What systems are in place to prevent double spending of money, i.e., what's to stop me from digitally reproducing my money so that I'd have  so much more than what I actually have? You know, like creating duplicate copies of my favorite songs for listening on my different devices.

Most financial institutions today address this issue with centralization. What this means is

there's only one party responsible for keeping records of financial transactions under a particular system, i.e., keeping track of who owns what and how much. Everyone who transacts under such systems has an account, which has a specific ledger under which all transactions and balances are recorded and maintained. Everyone - including you and me - trust the systems of financial institutions to keep accurate records of our balances and these institutions, in turn, trust their computer systems. In short, the solution of centralization of records is based on a ledger that's stored in one big-ass computer system or network. Prior to the creation of the blockchain, there have been many attempts to create alternative digital forms of payment that have failed

because of one very important issue; preventing double-spending sans a central authority. That's why the centralized records keeping solution has persisted until this day - it generally works.

Fiat Money

The word "fiat" is a Latin word that's best interpreted as "by decree." This means that any fiat currency, i.e., paper money, only has value because their respective governments say so. As a result of such legal decrees of value, paper or fiat currencies are also called "legal tender" which means they have to be accepted for payment of goods and services in their respective countries.

That being said, you can now see that money as we know it today has value only because of its legal status, which is declared by governments. 

As I mentioned earlier, the trust in the value of

money has shifted from something (gold) to someone (the government).

Now fiat money as we know it now has some pretty serious issues. These are being centralized and are practically unlimited in quantity. Being centralized means that there's a central or lone authority that has the power to issue and control its supply, which in the case of the United States dollar is the Federal Reserve. It's also practically unlimited in quantity because the Federal Reserve has the power and capability to print or mint more units of the US dollar if it chooses to

do so. 

Now, why is this a serious concern?

The reason is one of the most basic principles of economics; supply and demand. To be more

specific, this means that when the supply of an object is increased, the value of that object will

tend to decrease assuming demand for that thing remains constant. Conversely, when the supply of an item is decreased, assuming constant demand, the value will increase. So if the Federal Reserve or any monetary authority prints more money, it'll flood markets with more of that currency, which can make it worth less, i.e., buy less of goods and services. So when you see the prices of goods and services rising substantially over the long term, it's not necessarily because they became more expensive but because the value of the currency, e.g., the United States dollar,

has dropped due to increased supply.

What is Money?

To better understand or appreciate cryptocurrencies, it's important to get a good grasp of the nature of money. This is because cryptocurrencies are a form of money and by understanding the true nature of money, especially what important characteristics it should possess, you'll be able to better appreciate and understand the nature of cryptocurrencies. And in turn, you'll be able to better understand the principle of hodling.

What is Money?

At its very core, money is something that is used to represent the value of other things. If you study history, you'll see that the values of things have been expressed in different forms and money, the primary way by which values have been expressed has come in different shapes and materials. Case in point, things like gold, shells, wheat and salt have been used in the past to represent value and as a medium of exchange. But for something to be able to continue representing value, the people who are using it must continue trusting that a medium of exchange is indeed valuable and more importantly, its value will persist for a long time so that they will still be able to benefit from it in the future.

How People's Trust in Money Has Evolved

Only until one or two centuries ago, societies had always placed their trust in something when it comes to the value or representation of money. But the way people trust in money has shifted from trusting something to trusting someone. What do I mean by this?

In the past, people would use stuff like gold, wheat, salt and even seashells as a medium of exchange or money. But over time, people caught on to the fact that using such things as a measure of value and medium of exchange can be quite burdensome. Can you imagine buying your groceries with seashells or salt? What if inflation was very high the last several years and you want to buy a month's worth of groceries? Can you imagine bringing that much salt to the supermarket? And if you're the grocery owner, can you imagine having to weigh the salt being paid to you by your customers and needing a very large space and vehicle to store and transport all that salt? And what if it rains? Do you get the picture?

Because of such inconvenience, people were forced to improvise and come up with a more practical value storage and payment solution; paper money! So this was how it worked in the beginning. When you take up a bank or the government's offer to take physical possession of your gold bars for storage, they'd issue you certificates or bills for the amount or value of the gold you deposited with them. Say your gold bars were worth $500, the bank or the government taking possession of your gold bars would issue you a paper certificate or bills worth $500.

Now think about this. Which is easier to carry around - paper bills worth $500 or gold worth

$500? Another thing to think about is this. Which is easier to cut in smaller pieces or value, paper bills or a gold bar? If you want to buy a bag of chips for $5, you'd only have to give the cashier five $1 bills, but if you're carrying around $500 worth of gold, you'd have to cut it proportionately to an amount that closely or exactly represents $5.

Another thing worth thinking about back in the day is this. If you wanted your gold bars back, all you'd need to do is give $500 worth of bills or certificates back to the bank or government to redeem your gold bars. It's that simple. Because of the convenience and practicality it brings, paper money has grown so much in popularity and has become the primary means by which goods and services are bought and sold all over the world today.

Back in the day, the value of the United States dollar was linked or based on gold. The money of the United States of America was valued based on its gold holdings. This was referred to as the Gold Standard. But over time, the macro economy has changed and as a result, the link connecting the value of the United States dollar to the value of gold was cut. As a result, Americans - and the rest of the world, considering the US$ has become the world's primary currency - had been conditioned to shift their trust from gold to the Federal government. 

In other words, people have been conditioned to shift their trust when it comes to monetary value from something - gold - to someone who assumed responsibility for the value of the dollar, which is the Federal government. And the only reason this system continues to work is trust because let's face it, there's no real underlying asset of worth behind the value of the dollar or other currencies. This was how fiat or paper money was born.