From the Nature of Money: The Fiat Currency Trust Crisis and the Birth of Bitcoin

In the aftermath of the Second World War, the world was in dire need of a new economic order. So in 1944, countries gathered at Bretton Woods in the United States and signed a new set of international financial rules - the famous Bretton Woods System.

The core system is simple: the U.S. dollar is pegged to gold, and the currencies of other countries are pegged to the U.S. dollar. Specifically, an ounce of gold is fixed at 35 US dollars, and governments can hold US dollars and convert them to gold when necessary. It's like a financial game where gold is the bottom building block, the dollar is the only token that can be exchanged for blocks, and the rest of the currencies are built on top of the dollar. But there is a major caveat to this system: the U.S. must ensure that the "amount of dollars printed" does not far exceed its gold reserves. Otherwise, other countries would question the fairness of the game and demand that the tokens be exchanged for building blocks.

The problem, however, was that in the late 1960s, when the United States was caught up in the Vietnam War and massive social expenditures, the government needed huge sums of money, so it began to overissue dollars. The rate of money printing far outpaced the accumulation of gold reserves. It was like opening a buffet and selling tickets until the guests realized that their plates were empty and realized that the credit party was overdrawn. 1971, France and many other countries began to question the true value of the dollar and demanded that the U.S. redeem the dollar in gold. Faced with the pressure of the imminent depletion of gold reserves, President Nixon announced the suspension of the gold exchange mechanism, essentially suspending the gold standard - the world formally left the monetary system based on physical assets and entered the so-called "fiat currency era".

From now on, money is like a hot air balloon that has been unhooked and no longer needs to be sandbagged to lift off. Central banks could issue unlimited amounts of new money based on political needs and economic incentives. As long as the market is willing to accept it, they can keep printing. But it is also this turn of events that has allowed the fiat currency system to gradually degenerate from a certificate of exchange "secured by assets" to a piece of credit paper "based purely on trust". The more sensitive a person is to the system, the more he or she can realize that this seemingly stable game has long been laying the seeds of an out-of-control situation - and this alertness is precisely the germination point of the idea of Bitcoin.

Just as the market was still reveling in the illusion of asset prosperity and soaring housing prices, the U.S. housing bubble quietly burst, and a series of unimaginable disasters ensued. Lehman Brothers filed for bankruptcy on August 15, 2008, AIG was on the verge of collapse, Wall Street went from collective euphoria to panic and chaos, and the entire financial system was instantly out of order.

Institutions that were once considered "too big to fail" have collapsed one after another, and the models, credit ratings and risk controls that we used to believe in have all collapsed in the face of the reality of panic. A brutal truth has emerged: the financial order we have come to rely on is a trust bet on the judgment and greed of a few.

When banks make mistakes and the entire population pays for them, and when the power to make or break the currency is in the hands of a handful of unelected central bankers, many people realize for the first time that what we are relying on is not a free market, but an unequal gamble of trust. The birth of Bitcoin sprang out of the cracks of this broken trust.