In today's world of cryptocurrencies, you might be aware of which is the world's first cryptocurrency or first digital asset, it is none other than Bitcoin. Bitcoin is the world's first cryptocurrency and it is among the most known, most used cryptocurrencies in the world. It is a very popular cryptocurrency that is preferred by most investors and people. As Bitcoin is the world's first cryptocurrency and also the most known cryptocurrency it has influenced or we can say affected the old finance techniques, the traditional finance technology, and the earlier developed financial bodies or institutions in a major way. It being the first it has had some positive as well as some negative impacts on the old and traditional financial technologies and institutions.
So, in this following article, we will learn and know about how the cryptocurrency Bitcoin has impacted traditional finance!
Knowing About Bitcoin
What is happening to Bitcoin year by year?
The name and use of the Cryptocurrency bitcoin is increasing year-by-year. More and more financial institutions are switching to using Bitcoin, and this is affecting the previously well-established financial institutions and other cryptocurrencies. Also, an interesting thing to know is that the market capitalization of it increased to around $1 trillion in the year twenty21 and now it has exceeded a lot.
Now, let's know why Bitcoin has become a main player the the crypto market, Below is the list of the reasons due to why this is happening:
- It is not controlled by any central authority which means it is Decentralized.
- It has a limited supply.
- It runs in blockchain technology.
- It is a safe and transparent cryptocurrency.
Bitcoin is often referred to as the digital gold and this is because of the reasons listed above. Also, this is happening because Bitcoin has proved its worth in the market to investors and the people.
But making an investment in Bitcoin comes with its own risks, some of the risks are:
- Continuously changing prices: The price of Bitcoin changes at a very fast speed.
- Unpredictable Nature: The nature of the cryptocurrency Bitcoin cannot be predicted.
- Losing of money: As you all might be aware bitcoin's price is affected by many various things, due to which at times can even lead to a huge loss.
These are a few risks that come with making an investment in Bitcoin.
So after getting to know about the risks and good features of Bitcoin, let's get into some of the ways in which bitcoin has affected traditional finance.
How did Bitcoin shape the Fiscal Topography?
Bitcoin was formed in the year 2009 and before that, there were many other financial institutions and other cryptocurrencies as well. However, after the launch of Bitcoin, these traditional financial institutions have been affected in good ways as well as bad ways. Though this Bitcoin and its features were loved by investors in a short period of time it became very popular, and due to this, the previously developed financial institutions were affected. Let's understand both the good and bad effects Bitcoin had on Traditional Finance. Bitcoin has changed the whole crypto space in a new way. The traditional institutions have collapsed and in this place, bitcoin has made a place for itself, this cryptmarket is highly competitive, and even in such a highly competitive market, it made itself a main player in the crypto market.
How did this happen?
- Bitcoin has built trust for itself by most people and this is because it has leveraged blockchain Technology in the best way possible. It is not run or controlled by a single central authority which is the best part of it and in traditional finance, it was controlled by a central authority.
- There is no need for a middle person or third person we can say. The need for a bank is totally removed. Banks are not involved in the transactions and the transaction only takes place having two parties involved: the computer and the person initiating the transaction whereas in traditional finance the bank always used to be involved.
- Bitcoin can be used and traded by people who live in an area where there are no banks, so people from any region can use Bitcoin In contrast traditional finance cannot take place in each and every region it can only take place in the regions that have banks.
- The rise and returns of bitcoin have attracted a large number of investors, traders, and speculators whereas in Traditional Finance there are no good or attractive returns due to which not many investors, traders, or speculators are attracted to it.
- The fees required by bitcoin are very low so most people can afford it while traditional finance is very expensive due to which a large number of people cannot afford it.
- Bitcoin takes just a few seconds or minutes to complete cross-border transactions and traditional finance takes a long time to complete cross-border transactions. In simple language, we can say Bitcoin is fast and traditional finance is slow.
These were some main reasons why Bitcoin has taken over traditional finance.
Impact of Bitcoin on Traditional Finance
- Bitcoin is of a Decentralized nature which means it is not controlled by any government or any regulatory system, due to which no rules or regulations are implied on it and no one can keep a watch on what is happening in it. Due to this a large number of people face fraud and scams and due to this reason the regulatory systems and the government are being questioned for not putting any regulations and rules on it. Also due to this consumer rights and the protection of the consumers is becoming a big issue.
- The sector of banking is affected on a large scale because of bitcoin. As I have told you in Bitcoin there is no inclusion of banks or third parties. And also The same happens with blockchain technology due to which the banking sector is collapsing. Following this Bitcoin and the blockchain technology many companies have started making use of the blockchain technology in their cryptocurrencies due to which the need of banks is reducing a lot. Also, many Decentralized Finance applications are being developed and in this, as there is no need for banks, the banking sector may collapse also there is a positive side to it as without the inclusion of banks the investors of people can buy, sell, and earn interest by itself without the banks being included.
- Bitcoin is becoming very useful and it makes use of blockchain technology. But this blockchain technology costs very much. And also the thing is that this blockchain technology can prove very useful in many sectors such as the healthcare sector in which it will help to reduce costs and help other people out there. It is not just helpful in the finance sector but it is also very useful in the sector of management, supply chain, etc., and many more. Institutions are looking out how to put this blockchain technology in use in many different sectors and reduce their cost.
- The price of Bitcoin changes at a very very high speed, due to which what will happen next cannot be said. So if the institutions invest a large sum of money and it results in loss then the institutions can make a huge amount of losses which may ruin the financial ability or financial status of the people which is a point of concern for the people.
- Bitcoin is a subaltern digital currency and also it has a fixed and limited supply, so as you know when decisions regarding the inflation targets have to be made at that time it may cause trouble in framing the monetary policy which means it can affect the monetary policy of the country.
- The introduction of Bitcoin and many other cryptocurrencies has led to worldwide competition between the financial institutions with these crypto markets which are Decentralized bodies and it is leading to very high competition in the market.
Read Also: What-is-Bitcoin-and-how-does-Bitcoin-Mining-work
Bitcoin has impacted Traditional Finance a lot and it is continuing to do so. The nature of Bitcoin, that is it is not controlled by any central authority, has given a very high competition to traditional finance. Though as we all know bitcoin has opened new doors for development and innovation and Technology it has also challenged traditional finance and led to a very high competition. Also, it has raised a question of security because of its Decentralized nature due to which a lot of frauds take place. Blockchain technology on the other hand has proved to be useful for various sectors and also can be used to reduce costs in various sectors.
Stay up to date with all the latest Cryptocurrency News on Coinography.
Q1: Tell me about one main impact of Bitcoin on traditional finance.
A1: The main impact of Bitcoin on traditional finance is the challenge and competition it has given to all the centralized traditional institutions.
Q2: What are the benefits provided by bitcoin?
A2: Bitcoin is super fast in transactions taking place across countries and borders and also the transaction fees are low.
Q3: Has Bitcoin influenced the decisions of monetary policy?
A3: As bitcoin is a subordinate digital asset it has led to difficulty in the decisions related to inflation that are taken and also it has impacted the central banks.
Also, Read Here Is How Bitcoin Works in the World of Cryptocurrency