Can Bitcoin Replace Traditional Finance?
Bitcoin is a global phenomenon. Since it was created back in 2009, it has changed the world of financial transactions. It was designed as a peer to peer cashless system, with transactions recorded on a decentralized blockchain. No single entity controls the blockchain and there are no geographical or regulatory borders. This makes bitcoin – and blockchain – very attractive.
The Rise of Bitcoin
In the beginning, bitcoin was a novelty. It was practically worthless and for several years, nobody outside of tech circles really knew it existed. By 2011, the idea of decentralized cryptocurrencies was catching on and other cryptocurrencies began to emerge from the shadows. Today, there are numerous altcoins, including Ripple and Litecoin, but bitcoin is still the best-known.
Bitcoin has entered the mainstream and it is now possible to buy everyday things using bitcoin. All Shopify stores now have the facility to accept bitcoin as a payment option. You can add bitcoin to your Microsoft account, and if you fancy a last-minute vacation, CheapAir accepts bitcoin as payment for flights.
You can also trade bitcoin for monetary gain. Buy and sell bitcoin or trade in it via a CFD with easyMarkets.
So, where does bitcoin fit into the world of finance right now?
In a world without bitcoin, financial transactions are controlled by vast financial institutions. Major financial institutions like PayPal act as third-parties in most transactions that take place online and offline. They provide merchant accounts, payment processing, and everything else you need to send money from A to B. Dig a little deeper and you’ll see that money is generated and controlled by governments and banks.
Bitcoin Compliments Traditional Financial Transactions
Bitcoin offers another option. It is open and transparent. It has its own settlement network and all transactions can be verified. Bitcoin runs on a peer to peer network that operates online. It is available globally. To send or receive bitcoin, all you need is a bitcoin wallet and an internet connection. Because it eliminates third-party financial institutions, it is faster and cheaper in many cases.
Researchers from Imperial College in London have looked at how bitcoin fits in with traditional financial systems. They concluded that bitcoin has the potential to fulfill a lot of roles in a more effective way.
Online banking is becoming increasingly common, but a lot of people don’t trust the system. Tales of scams and fraud are rife, and banks often wash their hands of the problem, refusing to reimburse customers who have lost their money.
Bitcoin transactions on the blockchain are verified, so it is impossible to make a fraudulent transaction. Records cannot be altered, and hacks are very rare. This makes bitcoin a safer system.
The Downsides of Bitcoin
The biggest drawback of bitcoin is its extreme volatility. Whilst the bitcoin price peaked at nearly $20k in December 2017, it has since dropped dramatically. Today it is worth less than $5k. For this reason, it is unlikely that bitcoin will replace traditional banking anytime soon.
Nevertheless, major financial institutions are integrating blockchain technology into their own systems, so it is likely that in the future, bitcoin and the underlying blockchain will become a part of our everyday lives.