In the aftermath of the global financial crisis of 2008, a fantastic innovation in the name of Bitcoin emerged. The mysterious technology developer, Satoshi Nakamoto, wanted to provide an alternative to the traditional payment system. With Bitcoin, people would no longer have to worry about government control and the interference of banks and other financial institutions in their financial transactions and dealings.
Today, the reality of digital currency is here. Whether it is mobile money or digital currencies like Bitcoin, the truth is that the revolution has already begun. Then COVID-19 came and propelled the reality of digital currency even further. Because of the restrictions to curb the pandemic’s spread, many people and businesses reverted to using digital currencies.
With Bitcoin having millions of users today, this innovation is affecting the traditional finance industry. But before we delve into how this is happening, have you heard about the Bitcoin Prime? It is a fantastic place to trade in the Bitcoin and other supported cryptocurrencies.
Security is a genuine concern in the finance industry, which faces numerous security risks ranging from ordinary theft to cyberattacks. Banks have lost money through bank robberies in the past. And while the risk is relatively manageable, it still looms. However, cyberattacks are now the main security threat to the finance industry.
Criminals do not have to attack a bank physically to steal money. Instead, they can do so 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 this.
Banks and other financial entities can embrace blockchain technology as a risk management measure against cybercrime. The technology applies cryptography to encrypt data making it almost impossible to hack. If banks and other financial entities can adopt blockchain, they can then relax since the threat of cyberattacks will be a thing of the past.
Before Bitcoin, the finance industry was the primary custodian of money. Most people and organizations kept their money in banks and other financial institutions. The financial institutions also handled most of the financial transactions. The industry dealt with a lot of money, from taking payments to managing funds transfers and operating loans.
When Bitcoin and other cryptocurrencies came, many funds moved from the traditional finance sector into the crypto. For example, by the end of 2021, Bitcoin alone accounted for about 2.9% of the total money in the world. And this is only one cryptocurrency. The figures show that Bitcoin technology is causing more funds to divert from the traditional finance industry into cryptocurrency.
Elimination of intermediaries
Bitcoin technology is also eliminating the role of intermediaries in financial transactions. Blockchain is decentralized, meaning no single entity manages it. However, the central bank, commercial banks, and other entities controlled everything in the traditional finance industry. For example, the central bank determines the amount of money in circulation.
Blockchain’s decentralized system provides a peer-to-peer network of transacting. Instead of going through intermediaries, you transact directly. To illustrate this, let’s use the example of someone who wants to pay for some item using a credit card. This transaction will involve intermediaries like the individual’s bank and the credit card company.
However, with blockchain’s decentralized system, the individual would surpass the bank and the credit card company and pay directly to the seller. Apart from eliminating unnecessary delays, this direct transaction would also lower costs because the individual would not have to pay the intermediaries’ fees.
It is undeniable that Bitcoin technology is affecting the finance industry, not just in one way. Already, some of the effects are occurring. However, considering the technology is still young, we can only imagine the magnitude of the future impact on the finance industry.