Good morning dear virtual friends, how are you today? We are witnessing a rapid rise in the price of Bitcoin, which is breaking its historical boundaries. In recent days, the price of Bitcoin has exceeded 27,000 USD! Will the global financial system change due to cryptocurrencies?
Whether it is about inflating a bubble that will sooner or later burst or about the permanent progress of cryptocurrencies, we can find out if we take a look at the history of the development of the cryptocurrency system.
Although Bitcoin appeared in 2009, the mathematical, ie cryptographic bases were broken earlier. The cryptographic algorithm used to encrypt the cryptocurrency system is an RSA algorithm named after the initials of its authors, Rivest – Shamir – Adleman.
The basic algorithm was created in 1977, as an algorithm for asymmetric encryption. This means creating a pair of cryptographic keys and encrypting the content with one key and decrypting with the other. Asymmetric cryptography was created in response to the problem of symmetric encryption when a large number of participants exchange messages with each other, and thus keys.
A pair of keys in asymmetric encryption are called public and secret keys. The public key is known to all participants in the exchange of encrypted data, while the secret key is known only to the owner - an individual who sends his encrypted messages. Sixteen years later, in 1983, the RSA algorithm was improved by the American cryptographer David Chaum. Based on a modified algorithm, Chaum created the digital currency DigiCash in 1989. Unfortunately, the system did not come to life, but after a full ten years, Bitcoin appeared, which took over all the technical solutions of DigiCash.
Of course, the Blockchain system was also created, in the 1990s, or an open public book that made it impossible to counterfeit digital money as well as falsify transactions that did not take place. It can be concluded that cryptocurrencies took a long time to gain financial strength.
The economic crisis of 2008 was undoubtedly the catalyst for their rise. It was a crisis of trust and that trust in the banking system, trust in public institutions, trust in the value of FIAT money itself. After the crisis, gold, together with other custodians, became more expensive, but Bitcoin, whose one of the basic features is anonymity, as well as limited money supply, captured the imagination of a new generation of investors for whom gold is a technological relic.
The anonymity of the public book also led to the use of Bitcoin and other cryptocurrencies by criminals to hide the income from their illegal activities from the authorities. In the first days of the adoption of Bitcoin, many expected the authorities to ban its use. Whether because of its structure or the global nature of the Internet, the authorities decided not to act quickly and instead observed and learned.
Today, regulators and their governments are beginning to monitor and sanction crypto-criminals. Despite the anonymity, seizures of cryptocurrencies are on the rise, while at the same time central banks are preparing to launch their own digital currencies. The new currency does not come without risk to the existing system, so for an individual safe safekeeping of cash in digital form, eliminates the need for banks as deposit holders.
If banks do not have deposits, their ability to lend is significantly reduced and this phenomenon could transform the entire international financial system.
Whether there will really be a transformation of the world financial system or it is just a matter of temporary growth of digital currencies, cannot be said with certainty, but the near future will certainly show that.