Examining the history of Bitcoin certain perspectives and events stand out. The principal reason as per the Bitcoin whitepaper that led to Bitcoin development by Satoshi Nakamoto was due to the inherent weaknesses of traditional financial systems in aiding commerce, especially via the internet. For instance, it is not possible to initiate a completely non-reversible transaction owing to the trust-based model assumed by present financial institutions.
Eventually, this trust-based model with the use of third parties as custodians of the ability to facilitate trade leads to the emergence of disputes which are common in any commerce transaction (Yli-Huumo, 2016). However, in order to resolve such disputes, Satoshi Nakamoto was of the view that mediating such disputes results in an unnecessary increase in transaction costs. In addition, traditional financial institutions limit the size of transactions a party can conduct, therefore, making it impossible to initiate commerce activities involving small casual transactions (Nakamoto, 2008).
Also, the same financial institutions and other third parties as well as merchants because of the trust-based model have to put up with the hassle of collecting lots of information while being wary of their customers. As well, with all this hassle there are still more uncertainties and extra costs which otherwise would be avoided if there was a way to trade by using physical currency. However, this is not possible because it’s entirely not practical to move physical currency via communication channels without having to use the services of a third party (Nakamoto, 2008).
There is also another school of thought that ties the invention of Bitcoin as an antidote to the financial crisis especially its emergence followed the 2008-2009 global financial crisis (Nakamoto, 2008). During the particular financial crisis, several banks and other financial institutions were on the edge of collapse (Binance Academy, 2020). Several governments across the world more so, in the United States moved in to bail out these institutions to avoid them falling into bankruptcy. Noteworthy, governments undertook this role at the expense of their citizens who are taxpayers. Eventually, this illuminated the fragility of our economies more so, the present financial system where the monetary system heavily relies on banks and other financial institutions. These entities do not have their own money but use depositors’ funds to create other monies in terms of loans which are often overpriced when lending to borrowers, with no or little return to savers (Yli-Huumo et al 2016).
Besides, governments just like financial institutions don’t own any monies apart from the revenues remitted by taxpayers but state agencies can print new currencies to support their agenda such as bailing out financial institutions. Research has shown that state officials and their mandarins are the biggest beneficiaries of investment returns in such financial and other entities. Hence, it is a total waste or embezzlement of taxpayer’s money by bailing out these institutions due to their inherent weaknesses and to profit the state officials and partners at the expense of citizens. Berentsen, and Schar, (2019) argues it is the mandate of banks and other financial entities charged with the mandate of being in charge of depositor’s funds to make prudent decisions and carry out their fiduciary responsibility. Nonetheless, the 2008-2009 financial crisis exposed these weaknesses, and the birth of Bitcoin and other cryptocurrencies aim to correct the ills of governments and other centralized authorities.
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