Financial Disruption - Is the Financial Revolution Happening?

Thirteen years ago, Satoshi Nakamoto mined the Genesis block that kicked off the start of the Bitcoin network. Encoded into the block was a message from Satoshi: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” a message in reference to a headline from the same day. More specifically, the message reflected the environment Bitcoin was born into, and Satoshi’s rationale for creating a new financial system.

Bitcoin was born into a worldwide financial crisis, and the UK was not exempt. Amid a lending draught and credit crunch, Chancellor Alistar Darling was considering another round of cash injections after its previous £37 billion bank bailout failed.

The bank bailouts demonstrated the significance of private sector financial institutions, with large institutions being protected by the government from issues they created themselves. It also showed a clear shift in monetary policy toward heavy government involvement in markets. Under this new policy, governments control economic stability through cash injections to the private financial sector.

It’s with this context that Satoshi’s quote embodies the rationale for creating this new financial system. The current financial system was heavily intertwined with the powers of the government and the relationship between government and finance was only going to strengthen.

Bitcoin was created as a silent protest to this movement, creating a new financial paradigm free from government control. Ever since the Genesis block was mined, cryptocurrency has become a disruptive force to traditional finance and has championed the promise of a financial revolution. Thirteen years after this historic event, is the financial revolution finally happening?

The rise of digital assets has led to the moving of value to a system that doesn’t require third parties to facilitate traditional banking services. Instead, value is provided to smart contracts, cutting out the middleman and compounding that value through transparency.

Despite this progress, we are witnessing a stronger relationship between the government and financial systems than ever before. The Federal Reserve recently reported that inflation in the U.S. has ballooned 8.3% in 2022. In response to growing inflation concerns, the agency is expected to raise its benchmark interest rates by another 75 basis points.

The current state of U.S. economics is unfortunately being played out around the world, presenting a financial situation similar to what Satoshi observed back in 2009. Despite this, the financial revolution that Bitcoin created is still going strong.

U.S. economist Milton Friedman once stated that monetary policy is a technical matter that is better suited for a computer, not the central bank. Nearly 10 years later, Bitcoin fulfilled Friedman’s belief, and the continued development of Web3 has taken it a step further. In the same way that we learned to move information over the internet with Web2, we are now learning how to move value with Web3.

Moving value can take many forms. One of these is bitcoin, which is “a currency without government.” The philosopher and former option trader Nassin Nicholas Taleb described it as such in 2018, adding that, “Its mere existence is an insurance policy that will remind governments that the last object the establishment could control, namely the currency, is no longer their monopoly.”

The financial revolution was never meant to supplant the traditional financial system, but instead to create an alternative to bring the power back to the people. Rather than replace traditional finance, digital assets are creating a new monetary policy that can coexist with the systems already in place. For the financial revolution to reach its conclusion, there needs to be a way for these systems to work together.

Crypto and DeFi have proven to be volatile without regulation. This is capitalism without government intervention at its height. Despite projects like Luna creating a large impact on the market, there are still projects looking to continue championing the idea of a monetary policy independent of central banks.

To help create innovation in this area while deterring bad actors, measures need to be put in place for a global body of regulation. In order for this to happen, we need a gateway that has existed between both local and international models to take form. Traditional financial vehicles, regulated in the right way, can help spur the next generation of finance while eroding the governmental power over finance.

Since the birth of Bitcoin, cryptocurrency has presented a new paradigm that disrupts the world of traditional finance. Despite the same issues of global economics persisting since the Genesis block was mined, assets like bitcoin and ether continue to push toward a financial revolution. For digital assets to make the next step into this revolution, we need traditional financial vehicles to create a regulated environment where central banks and smart contracts can coexist.

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