Restrictions of Bitcoins money offer: understanding of the Ethereum economy and cryptocurrencies

While the world continues to cope with the challenges of a growing economy, cryptocurrencies such as Bitcoin and Ethereum have proven to be an alternative. One of the most important concerns about these digital assets is the way they manage their limited money offer. In this article we will examine how Bitcoin has been designed to prevent excessive creation of money and approach some of the most commonly cited criticism of lack of expansion.

Define its money and limits

Before you immerse yourself in the details of the monetary policy of Bitcoin, it is important to understand what is meant by «money» and its limits. The most common definitions of money are among the most widespread:

• M2: This close measure of the money supply focuses on the total amount of traffic (M1), bank deposits (M2) and other liquid assets.

• M3: This broader definition does not include only the currency in circulation, but also the revision of accounts, savings and other liquid assets.

Unlike traditional Fiat coins, cryptocurrencies like Bitcoin have a fundamentally different monetary policy. Unlike Fiat coins, which are issued by governments and are subject to their discretion, cryptocurrencies are decentralized and led by a consensus.

Ethereum solution

Ethereum, the second largest cryptocurrency after market capitalization, was developed to take some of the restrictions associated with traditional Fiat coins. Here are some important functions that illustrate how Ethereum refers to money supply restrictions:

• Descentralized record technology: Ethereum Blockchain is an Open Source main book that records all transactions throughout the network. This ensures that each participant in the system has the same registration and verifiable of all transactions.

• Intelligent contracts

  : Intelligent contracts are self -contract with the conditions of the contract that have been written directly in code lines. They allow automation and ensure that transactions are performed correctly and transparently.

• Gas ​​mechanism: The gas mechanism of Ethereum is intended to prevent excessive creation of money by imposing a limited gas supply, which essentially represents a measure of the calculation that is necessary for the execution of intelligent contracts.

Limiting the money offer: How Bitcoin hits the Ethereum solution

While Bitcoin and Ethereum intend to approach the problem of the limited offer of money through decentralized technology of records and intelligent mechanisms based on contract, there are important differences between their approaches:

• Currency Fiat Vs. Decentralized token: Fiat coins can be created relatively easily by governments or central banks, while the decentralized symbol, such as Bitcoin, requires a decentralized consensus mechanism.

• The volume of the transaction compared to the transaction value: While the volume of the transaction is low by both the Fiat currency and the digital assets compared to their real objects, the value of transactions in Fiat coins is much higher.

To solve this problem, Ethereum has implemented various mechanisms to limit the offer of money:

• Gas ​​mechanism: As we have already mentioned, the gas mechanism ensures that each execution of the intelligent contract requires a certain amount of calculation energy (gas) before continuing.

• Restrictions of the dimensions of the block: the size limit of the block, which determines the maximum number of transactions that can be contained in each block, helps prevent the excessive position of the money by limiting the total volume of the transaction.

Diploma

Although Bitcoin and Ethereum have unique approaches to manage their money offer, both systems want to prevent excessive creation.

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