Whenever there is a need for a new product or service in the economy, a new commodity is created. This idea forms the basis of inventing and introducing a new concept and/or commodity. Bitcoin is one of the innumerable types of cryptocurrencies or digital currencies that are available. The first type of digital currency that was invented and introduced in 2009 was Bitcoin. The person who created and introduced the concept and use of Bitcoin goes by the alias Satoshi Nakamoto. This article delineates the origin of Bitcoin through the perspective of why there was even a need for a new financial model.
What Is Blockchain Technology?
Bitcoin is regulated by Blockchain technology. Blockchain is the technology that keeps a record of transactions and trading that are taking place with Bitcoins on platforms like crypto crash fortune. It is a unique database that acts as a ledger for storing transaction information. This information that is stored is not revealed to the public. Therefore, Bitcoin provides pseudo- anonymity to the people in the bitcoin network.
The structure or style by which information is stored by this type of technology can be understood from its name. Information is stored in blocks. These blocks have limited storage capacities and when the storage capacity of each block is met, it gets chained to the pre-existing set of blocks. Information storage takes place by following a chunking methodology.
Origin Of Bitcoin
As discussed in the previous section, Bitcoin is operated and regulated by Blockchain technology. The principles that govern this type of technology are what makes Bitcoin so popular as a financial structure. Bitcoin provides pseudo-anonymity and it is a decentralized monetary system. This means that, unlike the traditional monetary system wherein people have to trust a third party (the government and banks) with their finances, Bitcoin provides autonomy to people and facilitates direct transactions to take place.
From the advantages of bitcoin as a new monetary system, you get an idea of why there was a need for a new financial model. The existing traditional financial model has the following disadvantages:
● The centralized nature of the existing monetary system poses some significant issues. Firstly, people's finances are controlled by a third party. This means that people have to trust that this third party, composed of the banking system and the government, will be able to protect their wealth. However, bank accounts have been hacked on many occasions.
● The centralized nature of the monetary system also means that the fact that the functions performed by banks like storing money, authorizing transactions, and much more, are all chargeable. Banks deduct a certain percentage as the fee for their services. This system negatively impacts the ease of transactions and also charges customers with a few for the services provided.
● There is a lack of control over one's finances when it's entrusted with a third party. People have to follow the policies, rules, and regulations of banks to avail the services of the bank.
● In this traditional monetary system, say you need to purchase a commodity from a company. To pay that brand or company for the commodity you want to buy, you need to disclose your bank account information to that company. Therefore, there is a lack of privacy or protection of identity.
● The traditional monetary system relies on the generation of fiat money. This system is not able to keep up with the new way of life where most activities, including monetary transactions, are occurring online.
Financial Crisis Of 2008
When you deposit money in a bank, the money you deposit is used by the bank for giving loans and other investment purposes. However, these are all risky endeavors and may result in money loss. In the USA, in 2008, owing to risky lending decisions and other investment activities of banks, there was a huge loss of money. This led to bankruptcy. This major crisis of finances brought disadvantages and risks associated with the traditional monetary system. People understood that it was risky to trust a third party with their wealth. Consequently, people felt that they needed a new monetary system. In 2009, Bitcoin was invented and introduced, which seems like more than just a coincidence even if it was in the works for years prior.
All the aforementioned factors played a big role in cultivating the need for a new model of finance with the 2008 Financial Crisis being the most significant event that fueled the need for a new monetary system. Bitcoin was basically born after the bank crisis and fiat financial failures that almost ruined the global economy.
