Although bitcoin is very popular due to speculation, the vision behind the largest cryptocurrency by market cap was to enable peer to peer payments in the absence of supervisory bodies. As the world’s first truly decentralized digital asset is capable of linking people across borders by providing them a reliable and secure way of transferring funds, financial institutes such as banks are challenged by bitcoin.
The current financial system of the world comprises of financial institutes such as banks who are not only capable of creating money but also equally empowered to control it. While the banks are all in control of the financial system, their authority is threatened by bitcoin in a unique manner.
Banks are often alleged to create money out of thin air and introduce inflation while doing so. As banks are able to print as money as they wish, they are held responsible for the increasing inflation rates. While the world was open to only fiat currencies with infinite supplies, now there’s an alternative with a finite supply, bitcoin, that fights inflation and distributes control.
Opposed to centralized fiat currencies that can be controlled, manipulated and influenced by banks, bitcoin strictly follows the fundamentals of supply and demand. No matter what, the price of bitcoin is only affected when there’s a change in its supply and demand. If the demand for bitcoin exceeds its supply, the price of bitcoin increases. On the other hand, if the supply of bitcoin increases than its demand, the price of bitcoin falls.
Besides, bitcoin doesn’t need a central authority to verify and authenticate transactions. Whenever a sender sends bitcoin to a receiver, bitcoin miners spread all over the world authenticate the transactions. As any miner in the world is capable of validating transactions made on the bitcoin network, it is ensured through mining that the power doesn’t rest in the hands of a single body.
This explains that bitcoin is much more than a fancy investment capable of returning massive gains. In addition to distributing authority all over the world, the first digital asset of its kind, bitcoin, also provides an alternative to fiat currencies losing value due to inflation. Therefore, bitcoin opening up a decentralized environment and serving as an alternative to fiat for users to proceed with financial activities means that it’s popularity, adoption and growth pose a great threat to the banking sector.