Being innovative and acting innovatively is an imperative in all areas of the economy today, especially in the financial system. Processes should become cheaper, more efficient, but also more flexible, products more dynamic, more accessible and more individual. In addition, new target dimensions are to be achieved that have long been neglected, such as ecological and social sustainability. More and more people are using bitcoin platform such as Bitcoin 360 to achieve financial goals.

Bitcoin 360

Cryptocurrencies as a technological innovation

The technical core is about a coordination problem in a distributed network structure. Although there are many different cryptocurrencies today, their basic principle can best be explained using Bitcoin. Bitcoin was featured in a 2008 white paper by an author or group using the pseudonym Satoshi Nakamoto. The first sentence formulates the ambitious goal for Bitcoin.

Bitcoin should therefore enable two people to send each other a form of electronic money directly.  They can do this without the intermediary of a financial institution. Anyone who makes a transfer today does not do so directly. They instruct a bank to transfer an amount from one account to another.

Although the rights of customers are contractually regulated, it is technically a hierarchical relationship in which control remains with the financial institution. The direct peer-to-peer approach aims to separate the financial institution from the process, known as “disintermediation”. “Peer-to-peer” means a network of computer connections in which the computers involved are more or less equal.

 

Potential for the financial system?

On a technical level, cryptocurrencies are still a niche phenomenon that represents the solution to a special problem. Bitcoin and some other cryptocurrencies can now reliably map a limited number of transactions in a distributed network. However, this raises the question of whether this special solution creates enough added value to justify the enormous costs it causes. Today the answer is rather no. The willingness to accept is still low, the problems are significant and the negative consequences enormous, from power consumption to ransomware and dealing with investors.

Today, cryptocurrencies are primarily supported by their existence as an investment object in the context of financial innovation. However, this should not be used to conclude that the technology potential is much more limited, as the illustration shows.

However, this development is quite risky when it comes to the question of the social benefits of cryptocurrencies. With the combination of horrendous market valuations and weak but fascinating technology, you run the risk of wasting your energies looking for the problems that fit your supposed solutions. Instead of letting the direction be set in this way, it is now more important to ask what social goals you want to achieve with your financial system.