CryptoCash, Fiat and Forex Analogy

CryptoCash Analogy

David Chaum is the individual behind the idea of using cryptography in cash, beginning 1983.

Consider this concept:

I am in a group of young campers and I am the leader. I take random pieces of paper and write in each of them, "Anyone holding this note can give it back to me and redeem a dollar" . I then sign each paper and give it to my campers. If my campers trust that they cannot forge my signature, then the value of each paper will be a hundred dollars. The campers can use the pieces of paper to trade. Therefore, because I created only few pieces of paper for my campers, they will become limited in supply. Therefore, the value of my pieces of paper will increase as my campers interact with other campers. Therefore, my notes will become a form of exchange among campers globally. This is the foundation of bank notes, which is also the basis of cryptocash.

Forex Trading Analogy

So if my campers are from Camp A, I will label my notes A. My campers will interact with notes from other Camps, say B, C, D.

Therefore if I place a value on my note A as 1 dollar, and the leader of camp B chose his note value as 100 dollars, Camp C as 300 dollars and D as 500 dollars; it will mean that notes from Camp D will have a higher value.

Therefore, my campers will want to own notes from camp D. Members of Camp D might decline to trade unless they need something that is cashless from Camp A. Therefore, as leaders of Camp A, B,C and D, we have to meet up and agree on a common exchange rate that does not make D notes lose its monetary value.

Currency Value Analogy

However, if Camp D leader sees less supply of D notes and prints more to give his campers more notes, this will mean other campers will have D notes as well. This will reduce the value of D Notes and make C notes more valuable. This is why some currencies gain value over time as others lose value.