Crypto: The revolution that scares traditional economies!

Bitcoin and cryptocurrencies have taken the news by storm, attracting media attention and fueling debates across the world. Proponents of cryptos see them as an opportunity for a fairer and more transparent financial system, while skeptics and detractors see them as a speculative bubble about to burst. But what is it really? Why do these cryptos cause so much fear and controversy?

Rethinking the roles of money

In its early days, bitcoin was the target of criticism from many economists, who questioned its ability to perform the traditional functions of a currency. According to these “Central Bankers”, the volatility of bitcoin prevented its ability to fulfill the three fundamental roles of money: the unit of account, the instrument of payment and the store of value.

These discussions triggered heated debates. However, El Salvador’s adoption of bitcoin has managed to make some critics think twice and give them a hard time questioning bitcoin’s usefulness. Today, even the staunchest critics of cryptocurrency should take time to think before criticizing Satoshi’s invention.

Nevertheless, the transition to using Bitcoin as a benchmark currency has not been easy for skeptics, especially international organizations like the IMF, which have a very tough stance on President Bukele.

Despite everything, Bitcoin has proven that it can be an alternative unit of account, capable of valuing a wide variety of goods. It has also demonstrated its usefulness as a payment instrument, making it possible to carry out exchanges without borders. And finally, it has been able to position itself as a store of value, attracting long-term investors.

The traditional model shaken

For centuries, trust has played a crucial role in the monetary field. Governments and financial institutions constantly strive to maintain this trust.

However, economic crises have often triggered currency crises, where loss of confidence stems from the inability of the currency to maintain its economic fundamentals. In other words, confidence in the currency is fragile, and a failure can have disastrous consequences for the economy and society as a whole.

The current monetary system relies on a group of policy makers who have the discretion to set monetary policy. This concentration of power can foster malign practices and corruption.

Governments may resort to extreme measures to keep their economy afloat, such as creating money through printing money, which leads to an increase in the amount of money in circulation. The consequences of such decisions are visible with the deterioration of commercial banks, including Silicon Valley Bank, which is currently in trouble.

However, crypto assets have radically challenged this centralized operation by offering an equivalent or even superior form of digital trust. Emerging cryptos such as bitcoin are often seen as the pioneers of a monetary revolution.

The end of monetary sovereignty?

As mentioned earlier, trust remains an essential aspect of every currency. In developed economies, currencies issued by Central Banks, such as the Euro, the dollar or the yuan, enjoy an almost absolute level of confidence from the population due to the solidity, credibility and stability institutions that support them.

However, in countries where confidence in national currencies is weakened, as illustrated by the drastic fall of the Zimbabwe dollar or the Venezuelan bolivar, the adoption of cryptocurrencies represents a beacon of hope for citizens wishing to escape the inflation.

Bitcoin, in particular, offers a revolutionary alternative. It puts an end to the obligation to use a specific currency in each country visited. Bitcoin breaks down these barriers, although there is still some way to go for widespread adoption and use.

This questioning of monetary sovereignty and the role of traditional institutions is a reality that governments and financial institutions can no longer ignore. The growing popularity of cryptocurrencies raises questions about the very future of this sovereignty.

Savvy states have started to re-examine their monetary system, while others are working on digital currencies issued by central banks. China has taken a head start with the launch of its digital Yuan.

For example, since 2021 bitcoin has been used as the official currency in El Salvador. In Iran, the government has already legalized bitcoin payments for imports.

These initiatives disrupt established norms and present major challenges to traditional monetary models. Faced with this frantic race towards cryptocurrencies, States and banking institutions seem to feel a certain apprehension.

Imminent upheaval of traditional economies!

Bitcoin has the potential to disrupt current financial infrastructure with its decentralized system that bypasses traditional intermediaries. This allows every user running a full node to become part of the transaction process, distributing power to everyone.

Funds transfers on the Bitcoin network take place directly between two parties, without requiring the intervention of intermediaries for the management and distribution of the currency. Additionally, the chain of trust now relies on an algorithmic construct within the Bitcoin network. Each transaction must be approved by all of the full nodes in the network to be validated. As a result, a single error or disagreement can cause the transaction to be rejected, thus enhancing the security and reliability of the system.

Theoretically, streamlining operations between individuals and economic actors on the Bitcoin blockchain can revamp the current financial infrastructure. Indeed, this new decentralized configuration makes it possible to dispense with governments and their intermediaries for the management and regulation of economic policy. The power to increase or decrease the currency supply is no longer vested in one or a group of authorities, but is in the hands of each individual in the network.

Conclusion

The rise of cryptocurrencies has sparked heated debate and controversy, challenging the traditional roles of money and shaking up the centralized economic model.

Although bitcoin’s volatility drew initial criticism, its recent adoption by El Salvador and its growing success as a unit of account, payment instrument and store of value has silenced critics. Cryptocurrencies offer a revolutionary alternative to traditional currency and can provide a ray of hope for citizens of countries suffering from inflation and loss of faith in their national currency.

The revolution is on, and bitcoin and cryptocurrencies may well shake the foundations of financial infrastructure as we know it. Now is the time to embrace these challenges and explore the opportunities they offer for fairer, more transparent and more equitable financial management for all.