The greatest milestone of finance is arguably the financial markets that spurred in 17th century Holland, as it marked the beginnings of transactions that took place in a central and physical location. Financial innovation is something that takes place quickly once established, and bitcoin is a prime example of dynamic change in how transactions are being conducted.
Historically significant financial innovations aren’t one time wonders, instead they usually leave a lasting impression on the world itself. When analyzing bitcoin and the code behind it, it becomes obvious that the development of the blockchain is a significant breakthrough. For the first time in history, a public ledger was created that manages itself with no central entity involved.
For centuries, banks have acted as intermediaries for all facets of financial life. An innovation like bitcoin takes away the need for such an intermediary, providing feasible financial independence. This financial independence has its pros and cons, allowing for complete control of assets with all risks involved. Bitcoins aren’t assigned to individual people, instead they’re assigned to numerical sequences called private keys. The software behind bitcoin doesn’t care if someone takes your bitcoins via stealing your private key, as the software is neutral.
Such financial independence allows for savings in many situations, primarily being those in transactions. An intermediary is optional for sending money, receiving money, and storing money. The only fees involved are called miner fees, which are substantially lower than conventional payment vehicles like PayPal for example. A bitcoin user can easily store his/her bitcoins without the use of a bank or online exchange.
Such independence doesn’t have to be constraint to finance, as it could be applied to many technologies going forward. In fact, it’s likely that email, DNS, amongst many other facets of the internet, would’ve be drastically different if a technology like bitcoin was available a few decades ago from today. Marc Andreessen recently elaborated on this very potential possibility in a Coinsummit conference shown below.
Bitcoin is also the first deflationary currency that can be viably utilized day in and day out. Gold is also mostly deflationary in nature, but conducting transactions with gold is an inconvenient task. It’s clear that digital currencies are here to stay, but how would a deflationary currency like bitcoin, which is capped to 21M units, affect the financial world? Deflation is something that Ben Bernanke has particularly been wary of, as shown by the implementation of the quantitative easing program.
Granted that too much deflation and too much inflation both lead to detrimental scenarios, it’s important that a balance of some sort is created. If bitcoin continues to grow in adoption and market cap, it could very well address the issues that an inflationary fiat currency would pose. Too much inflation creates a rise in prices as it relates to consumer goods, but a rise in wages is not necessarily guaranteed. With an inflationary currency like the US dollar, it’s guaranteed that every now and then a rise in wages is necessary to accommodate for the rise in prices. On the other hand, a deflationary currency deflates consumer good prices, and wage declination is more likely. This is simply due to capitalism, as times of prosperity are not guaranteed to trickle down, but times of distress are.
Bitcoin will lead us into a world with both fiat and digital currencies, with bitcoin being the primary digital currency. This is due to the network and infrastructure bitcoin has around it, where a larger percentage of investment is directed towards bitcoin over competing alt-coins. In a world with both fiat and digital currencies, people are likely to balance their positions in each currency class to create an equilibrium in consumer prices and wages. This leads to a financial world that’s composed of both inflationary and deflationary currencies that counteract each another to eventually reach a balance.
Is Bitcoin the Greatest Financial Innovation of All Time?
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