Understanding Bitcoin in the Modern Financial Ecosystem
The global financial system continues to evolve. Apart from growing bigger and spreading more expansive, the system is experiencing changes in innovations and new technologies. In 2009, a mysterious entity introduced Bitcoin. Bitcoin has since become a core element of the modern financial system. Bitcoin is now among the most prominent trading assets on most trading platforms, such as the bitcoin revolution, which features alongside traditional trading assets like CFDs, investments, and forex.
When Bitcoin launched, the traditional financial system didn't seem to pay any notice. However, when Bitcoin started attracting users, attention erupted like a volcano. Initially, the old financial system players saw Bitcoin as a threat to their existence and operations. As a result, they attempted to fight Bitcoin in various ways, including pushing for its ban.
Despite their efforts, Bitcoin has stood the test of time and surpassed anyone's imagination regarding growth and popularity. Today, significant amounts of money have moved from the traditional financial system to Bitcoin and other cryptocurrencies. People are using Bitcoin to pay for their purchases in many places. Moreover, Bitcoin is now one of the most attractive investment assets.
What does this mean for the modern financial system?
Bitcoin and Digital Payment
Bitcoin is primarily a digital currency. It means that it is a means of payment like fiat currency. But it differs from fiat currency or other conventional forms of payment in many ways. First, Bitcoin exists only as a digital or virtual currency. You cannot touch or see it. So, even Bitcoin payments happen digitally.
Second, Bitcoin is a decentralized peer-to-peer digital currency. And this means that no intermediaries are involved in Bitcoin transactions. For example, when you buy an item online and agree with the seller on the amount in Bitcoin you are to pay for it, you send the payment directly to the seller. And this is not the same with credit card or bank payments, where credit card companies and banks act as intermediaries.
By eliminating intermediaries, Bitcoin provides a better payment method than traditional payment forms. Without intermediaries, there are no fees, and this makes payment cheaper. It is time we relook into the role of intermediaries like credit card companies in payment transactions. Do they have any critical role? Bitcoin shows that they are not necessary.
Decentralized Finance
Bitcoin relies on blockchain technology. Blockchain creates a decentralized and distributed digital ledger that records transactions chronologically. The records are permanent and immutable. This technology has shaken the centralized financial system and structure to the core.
First, it has removed centralized control by governments through central governments. Traditionally, the central government could determine how much money to print and circulate in the economy, influencing inflation. With Bitcoin's blockchain technology, this is a thing of the past.
Second, the decentralized system that Bitcoin operates in has shown that the government, commercial banks, and other financial institutions do not need to interfere in the modern monetary system. At least not in the manner that they have been doing. The 2008 crisis revealed the problem of having centralized control.
Trust and Transparency
While still on the issue of the 2008 financial crisis, one of the main problems was trust issues. The big financial institutions exploited the high trust people placed in them to orchestrate illegal and unethical practices leading to the crisis. Bitcoin came in the immediate aftermath of the situation as a solution to this problem.
Blockchain's highly encrypted and secure cryptographic system makes it impossible to manipulate people's trust like before. Every transaction in the blockchain is shared widely, and nobody can alter it. So, Bitcoin has left no room for fishy businesses in the modern financial system.
Conclusion
Bitcoin is part of the modern financial system. It is bound to transform the system and make it better, safer, and more convenient.