In the aftermath of the 2008 global financial crisis, a fantastic innovation emerged by the name of Bitcoin. The mysterious technology developer, Satoshi Nakamoto, wanted to offer an alternative to the traditional payment system. With Bitcoin, people would no longer have to worry about government control, interference by banks and other financial institutions in their transactions and financial transactions.
Today, the reality of digital currency is here. Be it mobile money or digital currencies like Bitcoin, the truth is that the revolution has already begun. Then COVID-19 hit and pushed the digital currency reality even further. Due to restrictions to slow the spread of the pandemic, many people and companies have returned to using digital currencies.
As Bitcoin has millions of users today, this creation is making an impact on the traditional financial industry. But before we delve into how this is happening, have you heard of the bitcoin exchange? It is a fantastic place to trade the digital yuan and other supported cryptocurrencies.
Bitcoin Technology Security
Security is a genuine concern in the financial sector, which faces numerous security risks, from common theft to cyberattacks. Banks have lost money through bank robberies in the past. While the risk is relatively manageable, it still persists. However, cyber-attacks are now the number one security threat for the financial industry.
Criminals don’t need to physically attack a bank to steal money. Instead, they can do it virtually from the comfort of their homes. Banks investing in technologies have created an opportunity for cybercriminals to attack and steal effectively. Bitcoin’s blockchain technology has the power to change that.
Banks and other financial entities can adopt blockchain technology as a risk management measure against cybercrime. The technology applies cryptography to encrypt data, making it nearly impossible to hack. If banks and other financial entities can embrace blockchain, they can relax as the threat of cyber-attacks will be a thing of the past.
derive funds
Before Bitcoin, the financial sector was the main custodian of money. Most people and organizations kept their money in banks and other financial institutions. Financial institutions also handle most of the financial transactions. The industry moved a lot of money, from accepting payments to managing funds transfers and lending operations.
When Bitcoin and other cryptocurrencies arrived, many funds moved from the traditional financial sector to cryptocurrencies. For example, at the end of 2021, Bitcoin alone accounted for about 2.9% of the world’s total money and this is just one cryptocurrency. The numbers show that Bitcoin technology is causing more funds to be diverted from the traditional financial sector to cryptocurrencies.
Elimination of intermediaries
Bitcoin technology is also eliminating the role of intermediaries in financial transactions. Blockchain is decentralized, which means that no single entity manages it, while central banks, commercial banks and other entities control everything in the traditional financial sector. For example, central banks determine the amount of money in circulation.
The decentralized blockchain system provides a peer-to-peer transaction network. Instead of going through intermediaries, you negotiate directly. To illustrate this, let’s use the example of someone who wants to pay for an item using a credit card. This transaction will involve intermediaries such as the individual’s bank and credit card issuer.
However, with the decentralized blockchain system, people would go through the bank and credit card company and pay the seller directly. In addition to eliminating unnecessary delays, this direct transaction would also reduce costs because the individual would not have to pay intermediation fees.
Conclusion on Bitcoin Technology
It is undeniable that Bitcoin technology is impacting the financial sector, not just in one way. Some of the effects are already taking place. However, considering that the technology is still young, we can only imagine the magnitude of the future impact on the financial sector.