How Bitcoin & cryptocurrencies are revolutionizing the financial system.
In our centralized monetary system, the government can create and control Swiss francs through the SNB. We have to blindly trust their decisions. New digital currencies such as Bitcoin, Ethereum and co. could lead to a fairer, democratic monetary system.
Digital progress, political and economic challenges, but also and a loss of confidence in national currencies act as a breeding ground. Innovative ideas for new monetary systems such as cryptocurrencies are sprouting from this breeding ground and are already thriving and growing.
Now you may be asking - could a new currency system solve all these problems? In this article you will learn more about the history of money and why a new currency replaces an old one. Is it time for a new currency system? Good question - it is currently being widely discussed. Before we try to answer it, let's first take a look at why our current centralized monetary system is repeatedly called into question.
Our current monetary system for the Swiss franc, also known as the fiat currency system, is centralized and controlled by the Swiss National Bank (SNB). This means that the state and the SNB have the power to create money and control its value. Unlike a gold-backed system, our fiat currency is not linked to the value of a physical asset such as gold. Instead, its value is based on the public's trust in the state as the issuer of the currency. Over time, states have put more money into circulation, leading to potential debt or being used for political purposes. The SNB is responsible for regulating this process, but it acts on behalf of the government and is subject to political interests. You can find out more about this topic in this article.
Problems of centralization
So you can see the weaknesses of the fiat money system: the control of the central authorities and the unlimited creation of money. This makes our monetary system unstable. If the government prints too much money, there is a risk of inflation. This means that the currency loses value and the prices of goods and services rise. Inflation is another word for price increase. You are currently experiencing this yourself in many countries in Europe, including Switzerland. If the prices of food, housing rents, train tickets, clothes or petrol become more and more expensive due to inflation and you don't have more income at the same time, you can afford less for the same amount of money. The government or the central bank is deliberately aiming for constant, slight inflation. This means that the SNB's target value is 2% inflation, which devalues the Swiss franc every year. Many people don't understand this and only when they get older do they realize that their savings are no longer worth anything. You can read more about inflation and how cryptocurrencies can stabilize it in this article.
Certain countries can also exploit their centralized power for their own purposes by expanding the money supply indefinitely and wasting money. If mistakes are made, national monetary systems can collapse. Venezuela is a case in point: Venezuelans have completely lost confidence in their currency and institutions. Venezuela's central bank reported an inflation rate of almost 3,000 percent for 2020. Just imagine that! With such an increase in prices, the Venezuelan currency is worth next to nothing. This is hitting millions of people in the country hard. Do you think that's fair? These frightening figures illustrate the drastic effects that a flawed monetary policy can have and how it affects the lives of millions of people. Venezuela's unstable currency has not only led to extreme price rises, but also to a collapse of the economic system and a worsening of social inequality. As a result, many Venezuelans are looking for alternative ways to protect their assets and protect themselves from hyperinflation.
What is needed is a long-term stable monetary system that is not subject to the power of individual central authorities. This is why the groundbreaking idea of a decentralized monetary system was born years ago. The cryptocurrency Bitcoin laid the foundation. With Bitcoin, there is no central institution that controls and can change the money supply at will. The amount of Bitcoin is unchangeably pre-programmed to 21 million. This means that no central party can print Bitcoin at will and thus devalue it. Bitcoin inflation is therefore also pre-programmed to remain unchanged. These characteristic features make Bitcoin an attractive alternative to traditional fiat currencies, especially in times of economic uncertainty and political instability. In contrast to fiat currencies, which are controlled by state institutions and central banks, Bitcoin offers its users a high level of security and independence from state intervention.
The blockchain technology on which this currency is based is revolutionizing the way in which transactions are processed and information is stored. Due to its decentralized nature, it offers a high degree of security and transparency. Each block in the blockchain contains a chain of transactions that are cryptographically linked and verified by a large number of nodes in the network. This makes it virtually impossible to manipulate data. This article shows you how blockchain works and what the technology is already used for in our everyday lives.
The future of cryptocurrencies remains exciting, as they not only offer the opportunity to revolutionize the existing financial system, but could also challenge traditional banks and payment service providers. Companies such as PayPal and Square have already started to integrate cryptocurrencies into their services, which is driving further acceptance and adoption. In addition, large technology companies such as Facebook are working on introducing their own digital currencies with their Libra (now Diem) project. All these developments show that cryptocurrencies could increasingly become part of our daily financial lives.
The beginning of Bitcoin
The first decentralized cryptocurrency, Bitcoin, was developed in 2009 by a mysterious person or group under the pseudonym "Satoshi Nakamoto". The idea behind Bitcoin was to create an alternative to traditional currencies and financial systems controlled by governments and centralized banks. Satoshi Nakamoto published the Bitcoin white paper, which explained the basic principles and functioning of the cryptocurrency, and launched the Bitcoin network based on the groundbreaking blockchain technology. Since then, Bitcoin has had a huge impact on the world of digital finance and has inspired a wide range of other cryptocurrencies that have emerged as alternatives to traditional fiat currencies.
Sources and further reading:
- SNB: Objectives and tasks of the SNB
- NZZ: What's next for inflation in Switzerland
- Handelsblatt: Swiss inflation falls within the central bank's target range
This article does not constitute investment advice or a solicitation to buy or sell digital assets or other financial instruments or to enter into any other financial transaction. The main purpose of this article is to provide general information. No representations or warranties, express or implied, are made regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Therefore, it is advisable not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained herein. Some statements in this article may contain forward-looking expectations based on our current views and assumptions. These statements are subject to uncertainties and may lead to actual results, performance, or events differing from the statements made in this article.
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