Over the past several years, before the popularization of combining financial and technological trends emerged to the extent of creating fintech trends, the general public was familiar only with the concept of digital currencies, bearing in mind that banks are using their power to confront it the way they can. However, the situation after fintech trends became the subject of scientific and academic researches is very different.

Blockchain technology was initially operated as many areas which, like all those advanced enough and too complicated things, was something that only enthusiasts use, showing that its development gives them more emotional satisfaction than material gain. The solutions are out of the act reflect upon one timeless, others contrived, but the way it is personified usually be tied to the defenders harsh attitudes to the current system unfair and that is a big change necessary.

Since the digital money was not designed to only represented a revolution, but to the actual, gradual changes opened the way, its concept has not been disputed in the way rejecting a priori an idea, but it is also a kind of fight from the centers of financial power against a phenomenon that is a little makeup the threat progressed slowly.

The sudden decrease in the value of digital currency bitcoin that occurred several times was the result of a number of moves, from hacking platform, destroying the system of electronic mining, to shopping at the market and sold at almost zero price when the giants of Wall Street sought to eradicate, but the relationship of supply and demand did his.

The focus has, however, for long been only on bitcoin as a phenomenon, but only when it went down deeper into what causes his indestructibility, it was observed that there is actually a system in which the function that that is in fact revolutionary. Today there is less sharp opponent, much less those who deny the success of bitcoin, as it was followed by a phase in which they are just leading global banks and corporations have shown a willingness to infrastructure that allowed traffic cryptocurrency use in their own business. This is a great milestone for joint technological and financial developments and from it could arise one of the most productive moments of banking in the previous financial history.

This model conceived in the created joint database which can be customized in many ways, while retaining all the performance you have. Transactions limited models, such as those that occur with bitcoin is based on a specific way of contracting or forced preservation process model, as it ethereum, who at blockchain can perform the tasks of general purpose.

There is already a huge number of companies in the world to experiment with ethereum, and usually work in a closed environment, and interest in investment occurs just at companies that still retain the status of market giants, but are aware of how the strategy and the domain of business it is necessary to adapt trends can be discerned.

The first application and experimentation around blockchain begins, first of all, in the sphere of transmitting and sharing digital content, while in common with what is related to the accounts and finances in general far less represented. From the results of recently published research on digital currencies, in the drafting of which participated and the German Bundesbank, it is possible to conclude that the financial sector in the next few years, expect more complex transformation than anything that happened in the last few decades. The emergence of digital currency has shown that space for promoting electronic payments and earn the transaction does not exist only in the improvement of services provided to the end user, but also in that which is to support these activities.

There was created as an attempt to improve bitcoin network on which it is only a possibility of performing transactions, but has not been adapted to other activities that, otherwise, in banking practice with money, such as savings and the like. Therefore, the role of ethereum is just to try on the basis of decentralized networks that exist in cryptocurrency create options that will allow such coverage in contractual relationships takes just a digital money, without having to be a value expressed in global currencies.

A few years ago such an idea seemed to say the least as vain, but now it does not initiate only alternatives, but there is a huge interest entities in the financial world mainstream. In time bitcoin breakthrough in global financial waters expectation that JP Morgan be interested in investing in this technology it would be absurd, but to date this financial giant has invested millions of dollars in financial startup Digital Asset Holdings to investigate the potentials of bitcoin.

In private chains cryptocurrency there is no element which completely defines the characteristics of the chain, without the possibility of observing it somewhere else. Here, in fact, lie all potential transactions in such networks, because of defining values ​​to be created opportunities for exchange, storage, withdrawal and allocation of resources without involving a physical cash or any other unit of measurement in the process.

The advantage is that when transferring the assets will not be necessary complex calculations, because the funds are not actually dislocated from the chain, but only changes the record that exists in the database.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Bitcoin is used for different types of online payments by the user is sent to the recipient’s address in the message, combined with a private key, known only to the sender. Each user on the side has a file that serves as a wallet that represents an arbitrary amount of pairs of keys. This allows access only to their money and the use of an amount just one time, when it comes to real money.

Reviews on this phenomenon in the beginning were far from analytical, more in disbelief and without a lot of serious dedication to this issue. The one thing that caused many economists to bring wrong conclusions is the assumption is that bitcoin works as real money, which is not the case. Although there is as a medium of exchange, it does not imitate all the traditional functions of money, what is of value and unit of account.

This can be explained more clearly by using the example of that in the last few months have seen a big rise in the value of bitcoin. In classical economics, that is the same as bitcoin money here to talk of deflation, as well as when it is in the moments when, after reaching an extremely large amount of this bitcoin bubble bursting, a value drastically drops coming inflation.

However, with the bitcoin this is not the case, since the inflation and deflation have no effect on the growing bitcoin economy, because its value is created after the users voluntarily accepted as currency in actual transactions. They can be exchanged for the existing currency, the value applying on a particular day, but not bitcoin price denominator. It is, however, a part of many investment portfolios, and the laws of supply and demand are the banks which have had owned it and bowed their value by offering it to the market at extremely low prices. At the same time, it lasted only until the bankers have not exhausted the stocks and lost the ability to continue to affect the value of bitcoin, which gradually comes to the realization of the original idea – that the money managed by all who use it, not just the selected central banks.

This idea certainly easily becomes accepted by the population worldwide, overburdened debt and loan installments which we come to collect exactly the moments until their currency differences are not in favor. Alternative payment methods existed before, but the bitcoin become interesting to the public from a completely different reason. The total value of bitcoins on the stock market could be represented in billions of dollars, but it is what has become so popular topic in economic circles just questioning whether it is about someone’s hidden intention to destroy entire financial and banking system in the world.

This was the reason that in many reviews of this phenomenon points to the potential danger and risk, and is not that exactly what make systems at the time of dealing with their own powerlessness. At this time bankers are becoming aware that the end of the era in which sovereign dominated the world of money, which is why the public is increasingly placed a warning that it is a dubious and risky form of investment.

A lesson as such can be drawn from current trends and orientation of a large number of market investors is decline of confidence in the euro and dollar, as well as the announcement of a new, gradual redistribution of wealth, which is initiated by distrust of citizens in the financial, primarily banking system.

Under these circumstances, a confidence in bitcoin grows because its value is not affected by the decision of any center of power such as the political and economic establishment, which is why his influence in financial flows revolutionary. One thing that might be called as certain is the dominance of the financial elite that caused the crisis is slowly coming to an end, and the fear of bitcoin and identifying its deleterious effects only the initial stage of entering the market for a long fight from which will go out as losing those most damaged system.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

The data from the foreign exchange market for 2016 showed that the exchange turnover on a daily basis has reached the amount of 5.067 billion dollars. This huge sum is a key source of daily financing activities of banks, that, due to transaction costs, even when they are marginal, ensure bank liquidity in a system that runs on the principle of inter-related investment funds daily resources.

However, the possibility of conversion of funds from one currency to another was not where banks were willing to stop at earning a commission, though they went a step further and offering the ability to purchase certain currency at a higher or lower rate, guaranteeing themselves profit from changes in foreign exchange differences. One of the key advantages that banks have are the currency derivatives where misuse of it can cause losses that can affect the entire society.

One of the key fields where manipulation with rate difference takes place is in everyday exchange between euros and dollars. To speculators on exchange rate difference this currency pair, which is the most popular on the market, brings earnings expressed in billions of monetary units on a daily basis brings. Besides that, key irregularities became very visible during the big oil crisis in 2013. The exchange rate of the US currency, as the one that is being used by the world’s leading economies and largest global consumer of energy is conditioned by the price of oil and it is inversely proportional to its growth and vice versa.

When the information come from the market in the United States are received information regarding the observed phenomenon that increases the purchasing power of citizens of this country, the price of oil in the U.S. market is growing, but the level of growth depends on what the effect of this trend has on the price on the London market. In those circumstances the dollar exchange rate was lower against the euro and the same relationship was applied in cases where, due to the increase in oil prices, mostly because of the blockade of exports or deliveries as a result of conflict in the Middle East there was a decrease in the dollar, as the world’s largest consumer, the United States, due to increased production costs so trying to fight for favorable export.

What has repeatedly happened in recent years is that, precisely at a time when the market was the most active, was that the daily volume of traffic was the largest that has occurred to the simultaneous growth and oil prices and the dollar exchange rate against the euro. Changes in exchange rate between the dollar and the euro and therefore are among the most unpredictable trends highest risk for long-term forecasts, but also a permanent source of income, as well those who assess opportunities, and banks on every transaction earning a certain amount.

Therefore, in addition to market derivatives, foreign exchange market registered the highest growth in total global trade. Markets, particularly futures, of certain listed goods have already reached the level at which the traffic is based on trade agreements that go beyond the actual stock exchange stocks, thanks to the fact that traders futures, for example, oil, aluminum or cereals are not looking for the physical delivery of goods over which have ownership.

The situation with gold from the stock exchange agreements has far more than what is physically possible to excavate from mining, showing how many market phenomena in fact are fictitious and to what extent are confined to the papers. However, all this is negligibly small, even negligible fictitious in relation to the money which circulates. If the starting argument takes the information that is primarily about forty international currency market total assets worth less than ten billion dollars, and that today it is almost 530 times more, or 5.300 billion, the only conclusion that we can reach is that the growth fictitious.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Further than the hesitancy of the legislator, the response of the banks to the questioning of their profession is also strongly to be feared. From this standpoint it might seem that the banks have not yet realized that a peer-to-peer system the bitcoin is based on reduces the scope of depository banks, since a bitcoins deposit does not exist as such, it is hard to see how the banks could justify their deposit services under bitcoin.

The ongoing printing of money that occurred in Japan, United States and China also happened it the EU, which in general public created an image of unsustainability, especially in the longer term. The opinion that is generally accepted is that the global scene today is characterized by currency wars of enormous proportions due to the fact that the United States, followed by Japan and later China, and finally the European Central Bank began to introduce monetary incentives through additional printing money, or programs to purchase bonds that increases the level of available resources, but also causes a condition that is unsustainable in the longer term.

While for the economies of these countries this was a signal that in the future could be a very complex problem, global financial centers have recognized it is a generous source of earnings. Changes in exchange rates were conditioned by political and economic developments in the countries that use them, but also moved that behind the scenes pulling the leading banks in the world, after which it seemed that once completely reliable guarantor factors are not expected to reverse the trend.

Forex trading, that became increasingly popular over the past decade, has attracted millions of users around the world, which contributed to the vertiginous growth of the daily trading volume, a growing number of those who observed the legality of trading and the ability to predict the directions of growth, but also an increasing number of reports that start with the word “despite” and explanation a situation in which there was an unexpected change in circumstances.

Since there are logical rules on the basis of which the trends of changes in exchange rates can be predicted to the fifth decimal, but since, at the same time, one may also come up with unexpected shifts in this area, there is only one possible explanation and that is that there are devices used to manipulate in order to enable additional income for certain entities. The currency market is huge and it continues to grow, which prevents any intervention, agreements and coordinated actions of a number of participants with high-stakes, especially so that it reflected at the global level could shake up relations between currencies. This does not mean that there are those who are not able to influence the courses.

The mismatch of the political situation, reports on the economic growth of a country, inflation, employment data and other parameters with courses leading world currencies is explained as an outcome of activities performed by the biggest global banks. As one of the key subjects of currency exchange various mechanisms they are contributing to the instability of exchange rates, mostly because a huge proportion of them are related to the speculative schemes. In such environment, only about five percent of foreign exchange transactions are related to investment, trade in goods and services that have impact on the real economy, as well as remittances from inhabitants from abroad, while the rest of the leading banks in the world belongs to the segment from which derive key sources of funding and the duration of, or in the currency exchange and the commission that thanks to exercise.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

One of the biggest threats in today’s economy is a deflation. When prices are falling steadily, consumers and businesses are less inclined to spend and invest. Also, the weight of debts automatically increases, as they do not degenerate with prices. In particular, central banks target an inflation rate of more than 0 percent to 2 percent to reduce the risk of deflation. If in inflation rate is excessively low, interest rates are lowered and the money supply is increased.

By observing the data related to the global economic growth and policies of leading central banks in the world there could be noted that since 2014 there were billions of share repurchases, while at the same time huge amount of money was spent in order to lift up prices of corporate shares from the companies themselves. The fact is that the reason for the governments to borrow was covering their operating costs, while companies have borrowed to increase, to develop new segments, as well s to buy their shares making up the prices. However, none of them was able to follow the rule of selling or buying at lowest or highest since during the crises corporations have taken advantage of such a chance to buy back their own shares at a reduced prices. Those prices are high again, they give the impression almost each and everyone wants to buy, even though it must surely end. It is easier than ever to predict what will happen when stock prices will collapse.

Since the global financial crisis emerged of 2008 a real war against savers has begun to lower interest rates and consequently the recompense of savings, followed by the lower refinancing rate almost on zero level and Quantitative Easing programs. The increase in liquidity caused by quantitative easing programs does not wash out the real economy, but is largely directed towards the financial sectors. The accumulation of public debts has reached such a level that monetary policies will have to transform, and inflation will make its return with its instruct of dislocations, unemployment and various types of injustices.

Measures that the leading central banks have applied in order to trace the path to economic recovery, combined with tighter regulations and heavier taxation has led to an end of private investment and a deflationary spiral. In this situation it became very obvious that currencies, especially those that are under control of the leading central banks, are not only an expression of the value of commodities like the indicator, but they serve as a connection between the present and the future. Price stability, which describes the situation, where price fluctuations are very low or do not exist, does not concern the decisions of economic subjects as they are standardized across all economic areas. On the other hand, the behavior of economic subjects, responsive to inflation or deflation, influences the development of inflation. Individuals try to preserve their real cash balances because they are not fooled by the monetary illusion created by inflation and they require the maintenance of their purchasing power in real terms.

It is difficult to envisage that virtual currency, without the assistance of a government, without regulatory mechanisms and likely to cause unstable inflation, may one day be used on a large scale. A strapping regulatory framework would also be required to guarantee that different users are not harmed. If account, exchange and transaction costs are low with cryptocurrencies, it is notably because there is no protective covering and recourse in case of prejudice to the users. In the traditional monetary system, several components work to protect the citizens, but these structures have a cost, where deposit protection is a good example. Regulatory requirements are increasing according to the use of the currency in order to cover the new risks that appear. The bitcoin network allows the currency to change owner, but does not allow lending funds.

It seems that the method of spread of monetary policy is not working, or is at least detained. The spread means that the effects of changes in the key rate have a collision on the economy as a whole, down to the rate of inflation, which can be explained by the caution of banks to lend to the private sector as a result of recent stress tests and the rules set during 2010. Therefore, explaining the meaning and the purpose of the digital currency has lead to defining its level of soveregnty in comparison with the existing monetary system or the position of leading central banks, where many people think that a country is sovereign and that if it has contracted a debt in a currency, it is free to reimburse it in another country it chooses.

All of these shows that the users are hence reliant on its volatility, which is the spot on which bitcoin enthusiasts must not fail to turn down any liability, clearing up that the rate of conversion of the regular money into bitcoin may be dissimilar from what is relevant when we convert bitcoin into regular money. This does not mean that one might require bitcoin address in order to send money, since an e-mail or a phone number is as much as necessary, though the beneficiary does not have a digital wallet in some of major supported currencies they will receive bitcoins which could be exchange on other platforms.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

The usage of blockchain in financial sector could revolutionize the situation fundamentally by reducing the significant amount of complexity of the reconciliation processes. This platform intends to make this process straightforward by performing only one computation and submitting a harmonized representation to the stakeholders, consequently eliminating dissimilarities in theory. 

To make this transformation take place, a greater part of mining instruments will fall behind the idea that it should correspond to three-quarters of the computing power of the network for two weeks in order to reveal that it runs the engine correctly and can consequently enforce this new standard reasonably. Experiencing any kind of bugs at this time will lead to solving problems at the earliest stage in order to prevent any risky situation before broader implementation.

It would be too optimistic and even unreal to expect that this technology could transform the payment industry in the next several years since the current technologic usage is not tailored to the performance of mass payment resources that require short-time responses, as it is the case with payment cards.

The formation of a private blockchain, shared with the smart contract tools, comes out to be the ultimate explanation to optimizing the reconciliation procedures between financial institutions at the same time as lasting visible to the supervisory body. In any type of transaction services this is supposed to ease the automatic transmission of verified information, while automating the confirmation procedures and definite supervisory and that is the reason why these segments would take an advantage to a great extent of optimization, effectiveness and protection.

The creation of new units of account for most cryptocurrencies that operate on blockchain platform is programmed once and for all by an intangible algorithm, without possibility of modification if not by a majority decision of its users. In that regard, new units in the bitcoin system, new units are created every ten minutes as compensation for the formation of blocks by miners and only in that way.

Initially fixed at 50 bitcoins per block, it is currently 25 bitcoins, i.e. a growth of the money supply in bitcoins in the order of 10 percent per year. This fee will be divided by two every four years, which implies a limit of 21 million which will be reached around 2140, though 99 percent of this limit will have been reached by 2032. The bitcoin is ultimately an intrinsically deflationary currency whose value is destined to grow over time, which should give it a competitive advantage as a store of value. The very low transaction fees explain the emergence of a third demand factor for bitcoins as a means of payment.

A number of online vendors, more particularly specialized in the provision of Internet services and the online sale of rather exotic items, now accept to be paid in bitcoins, due in particular to the almost total guarantees of anonymity associated with them. The latter factor of increasing demand for bitcoins is still in its infancy, if only because at present only a very small number of items can be paid for in bitcoins and most sellers continue to display their prices in dollars, euros and other currencies.

The battle between customary payment systems and peer-to-peer payment systems, and therefore between state currencies and cryptocurrencies, is likely to be the subject of regulation. In the camp of bitcoin and its derivatives, two positions are already taking configuration. The first, faithful to the purpose of the existent promoters, is to fight frontally against attempts at state control, to further modify the anonymity, invulnerability and closed nature of the system, even if it is at the cost of a less user-friendliness and increased consumption of resources.

This trend is illustrated, for example, by Darkcoin or the analogous Zerocoin project, which aims at complete anonymity of transactions. The other more conciliatory trend is alternatively to seek reputability by respecting the regulatory constraints and by giving the operators the means to satisfy them in the role they have chosen. This is the beginning of a division from which two manages of systems appear, where the biggest part of users choose to be in good standing with the authorities rather than defending central orientation.

It can hence be expected that a vast majority of users will select as reserve currency one of which they are sure that the value will not decrease over time, the bitcoin being a good candidate. Others will favor currencies standing on a material asset such as gold or currency guaranteed by the state, but in any case it is a subjective persuasion about the promise made by the money establishment.

It should be noted that the mere coexistence of several currencies is a protection of the public against the loss of value or the disappearance of one of them. At the first sign of depreciation of a currency, users could convert their assets into a safer one, which would certainly accelerate the decline of the fragile currency but prevent them from ruin. The position of each of the money issuers would therefore be delicate. They should be vigilant and quick to respond to the first signs of depreciation, but the numerousness of issuers would limit the effect of the bankruptcy of one of them, and the system as a whole would be robust.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

To attract the general public blockchain must surmount several major challenges, such as the user experience that is sometimes complicated when buying or handling bitcoins, but the key challenge is likely to be the confidence to be gained from potential users.

Besides that the study predicts that those who come through the best will be those who have succeeded in creating a very important trust capital and capitalize on it. The study relied on the historical information of 8 of the 10 largest investment banks in the world and sought to figure the type of consequence of using the blockchain on costs. The Accenture concluded that this technology would accomplish about 30% savings in operational costs through streamlining and reducing certain functions.

Blockchain platform is the one that will have to demonstrated extreme robustness to date, that has never been hacked since its initiation. It does not necessarily need to undergo the bitcoin, especially because there are other cryptocurrencies. The taken business of bitcoins could be explained by the fact that they are sites hosting bitcoin that have been copied, but not the blockchain platform as such.

This is good news for investment banks that are more and more looking to reduce their costs to better value their advice and increase their returns to the commercial banks. In addition to the use of bank support purpose, blockchain could also be used for data management, such as the cost of index reproduction, thus increasing data quality and lowering transaction costs. The most important feature of this platform could simply be explained to the potential customer what it would gain by using the service, without the need to qualify the details of the technology used.

For this rational motive, many banks have invested in this new technology since 2014 announced that they will work together on a blockchain application in international trading. Similarly, the Wall Street clearing house DTCC also published a report suggesting that their project will use blockchain in the clearing process. But this technique, which relies in particular on the encryption of data, must be clearly understood by the banks but also by the regulators, the latter being still in the observation phase.

According to the announcement of DTCC, without going so far as to predict the end of banks, the idea that a certain number of banking functions may disappear in the near future for the benefit of actors using the blockchain is a possible upcoming, but everything will depend on the use proceedings, since the transfer of money abroad seems very promising, for example.

It highlights in particular “the very low intermediation costs of services based on the bitcoin, compared to bank charges”. However, due to the powerful regulatory barriers, particularly on credit activities at the heart of the banking business, it predicts, above all, the development of cryptocurrencies in countries where money is unwell controlled and where the cryptocurrencies can have a function of safe haven. More generally, in the short and medium term, cryptocurrencies and blockchain are of particular interest to developing countries and gropus of people that do not use banking services.

It is also necessary to add that assorted trends come together at the same time and call for a redefinition of the role of banks. First of all, the crisis of lasting confidence inactive by crises and various cases which correspond to a certain ideological antagonism of the original community of bitcoin confronted financial institutions. After that, the technological world and the growing number of startup in the financial sector are positioned on the financial market, is bursting.

Under this polymorphic pressure that is constantly gaining in resources and visibility, traditional financial players are involuntary to change their practices. Projects based on blockchain, that are spreading all over the markets of developed countries, are a of a major trend that is quickly changing automatically by conventional actors, who sometimes struggle to adapt.

For their part, the banks do not remain in remission in any case, and try to turn the threat into an opportunity. The method adopted is generally the same nd consists of the incentive for the suitable technology to adapt it within actual systems, by developing actual private or partially private blockchains, or by subordinate with startups of the blockchain ecosystem. This manner of operation describes quite asymptomatic the state of mind of the banks, forced under the threat of cooperating, but also to scientific research more or less indiscreetly internally in order not to be surpassed by technology.

In order to continue control over their systems, experiments are accumulated around private blockchains, where only a limited number of players can record transactions or have the registry. Public blockchains are more complex to use for banks that do not want to lose control of their content and must follow with regulations such as Know Your Client (KYC), which is not compatible with the character of transactions on a public blockchain, where the privacy of a customer is one of the key principles.

Regarding the situation within the private blockchain, for example, where the connections would be concentrated in a few selected associations or even within the different sections of the same bank, the attraction of the blockchain for the bank is simply cutback in costs. According to a 2015 Santander report, the use of blockchain could save banks 15 to 20 billion dollars a year by 2022, thanks to a reduction in “infrastructure costs related to international payments, trading and compliance”.

The blockchain could for example modify them to administer with clearing and clearing houses, which are complex, concentrated, and which can take two and a half days to guarantee complete clearing. At the same time blockchain transactions would be more reliable and quicker, with the lower transactional costs at the same time.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Having in mind that the period without any constructive action has lasted too long, there is a strong decision of bitcoin enthusiasts to overtake the force and to encourage a new version of supplement to the blockcahin world, which competes the very first version and proposes an irreversible adjustment of the rules of the software that governs the bitcoin, in order to boost the control of the network and that it deals more transactions.

For the achievable incorporation of additional protocols, the enthusiasts will be focused on bitcoin combination in conjunction with fiduciary currencies. Bitcoin in practice never ceases to evoke a real interest. The technology on which this currency was built is thus becoming a key factor in the investment strategy of large banks. Savings could be as much as 12 billion dollars per year by 2025 through the contour of certain functions. Banks and financial markets are increasingly interested in this technology.

In this environment, at the same time as the national currencies will be put into competition, which will inevitably lead to the abandonment of many of them, different conceptions of the means of settlement and of new disciplines of monetary creation may be proposed to the judgment In user actions, from which will emerge the most satisfactory solutions.

The current debate between currencies and goods, virtual currencies and state currencies will be decided by the users themselves. All the same, it is likely that this process will leave no chance for inflation currencies, and will put in difficulty those that will remain in discretionary hands.

During 2015 thirteen international financial institutions, including Bank of America, Morgan Stanley, Citi, Commerzbank and Société Générale, joined an undertaking to accommodate and use this blockchain practical application that could overturn their business. The plan of implementation is supposed to be realized by 2024 and in these conditions, the blockchain appeared as a possible recourse to banking institutions whose authority was decreasing.

This type of plan was initiated because of the great benefits of public blockchains like bitcoins is that there is no obstacle to entry where anyone can create a service that works on the blockchain platform. It is difficult for organizations in the financial sector to disregard the subject since blockchain technology in theory allows carrying out all types of transactions for the price that is two to three times lower that the current transaction costs of banks are right now. It is based on a network without a central control body, therefore without the connected infrastructure and administrative costs.

In peculiar, anyone, with a large quantity of assurance, can establish a bank in bitcoin that accepts deposits from customers and issues credits in bitcoins. It is in this sense that the bitcoin can disrupt the bank on credit activity by breaking down this barrier to entry. Decidedly, the studies on the blockchain applied to finance do not end up making this technology the new target.

According to the study published by Accenture there are reasons for optimism in banks that plan to implement the elements of blockchain platform in their further transactions. It is estimated that this movement could save up to 12 billion dollars each year thanks to the application in particular of this technology to back-office function.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

To understand the scope of fintech and blockchain revolution it is necessary to recognize a speeding up of hi-tech innovation. While observing these processes there are two phenomenons that became more and more visible and those are the tendency towards better connection with related parameters and the increased rivalry with fintech start-ups.

In the world of growing innovation there is an obvious tendency towards better connection with rules and their fulfillment, as well as changes in banking practice. For example, if a majority of “minors” agree on the possibility of the transaction, then it is validated, time-stamped and entered in the common register. A new block is then added to the blockchain in chronological order and definitively. This approach, which is at odds with the current model, however, faces certain slowness and a high cost because of the computing power required to verify each transaction, limiting its development.

On the other hand there is a growing rivalry among FinTech start-ups that take advantage of their quickness to have a strong impact on the outdated financial sector. This practice has been developing since the crisis of 2008, both in the securities and in cash system. The key problem that was visible from the earliest days of blockchain development was that the current banking system that is planned to be improved is that it requires outsized technical resources, as well as huge number of people on each side involved in these parts of transactions, such as the institutions who play roles of the lender and the borrower. The key element of change introduction is openness, fundamentally through the exploit of a blockchain.

By enlargement, a blockchain, literally a chain of blocks, denominates a secure and distributed information, shared by its various users, containing a set of proceedings, each of which can verify its validity. A blockchain can thus be assimilated to a large block public, anonymous accounting book that could not be falsified. This parallel statistics is a simplification and in reality, the names do not appear in plain text in the blockchain.

Instead, there is a bitcoin address, which can be considered as account numbers. A bitcoin address enciphers the hash of a public key. This huge book of records of transactions allows storing all the exchanges made between the associates from the creation to the present state. The main idea is that security and sustainability are ensured by all the participants that are to say by the community, that come to an agreement.

Smart contracts could be characterized as sections that are programmed to carry out specific actions. The traditional contract, which defines the obligations of the parties and their modalities, is superimposed on a computer program, which automatically checks that the conditions are fulfilled and executes the terms of the contract accordingly. Each block of the blockchain is a page of the transaction register.

The page contains a list of transactions and some other metadata. The red transaction is a special transaction that creates bitcoins and gives them to the author of the block. No central conciliator exists, it is therefore decentralized, which means that it is stored on the servers of its users. Indeed, even if investors were totally uninterested in the future of the bitcoin, this blockchain is already reused in many areas that require a trusted third party.

The blockchain becomes the agreement of an individual and an individual, even at a distance, without the controlling authority. The blockchain makes the virtual world the community it had ceased to be. To accept this interactivity, the conditions must be checked via the blockchain on which the smart contract is layered, and the resulting consequences can be generated from this blockchain.

Consequently, the smart contract as it is understood today consists of lines of codes stored on a blockchain, which activates as a result of transactions on this blockchain, which reads and writes data. The block also contains a hash of the previous block. The minor also had to verify that the previous page is valid, i.e. all transactions on the page are valid, that the previous minor has not allocated more bitcoins than expected by the protocol and that hash of the previous page is satisfactorily small.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Blockchain and fintech play a central part in the digital revolution that shakes the world of banks, insurance companies and more financial markets in general, therefore it is the reason why a new arrangement will allow the revision of the positive law in order to empower the issuance and the conduction of certain non-admitted financial securities to the operations of a central securities custodian by using this platform.

The use of blockchain is increasingly considered in many financial institutions, but the way to apply it is quite complex. In this regard, there are two key components that are distinguished: 1) determining the mechanism of the system, and 2) enabling acceptance.

The key challenge for financial institutions today is to determine the mechanism used within blockchain system and apply it in their operations. This is a long process that involves an extremely complex research and testing, which will demonstrate the justification of the adoption of this advanced platform in daily transactions due to lower costs of operation and higher speed transfer of funds.

Bitcoin is based on a distributed database blockchain that is seen as a large register that contains all the transactions made. This database is replicated on all nodes. Blockchain is the computer technology used to create virtual currencies. Many institutions are also interested in applying the features of blockchain, which is a technology of storage and transmission of information at minimal cost, that is also secure, transparent and that operates without central control.

Even if this acceptance changes almost completely in certain activities, for example that of officials who will have to develop towards a greater part of advice and representation to the detriment of the mechanical tasks of registration, conservation and restitution, the opponents will probably be fewer and less powerful than in the monetary field, which in general will promote the adoption of cryptocurrencies.

At the same time, the diversity of fields of application will favor the existence of different payment systems, hence different units of account. As it is the case with other blockchain backed cryptocurrencies, the bitcoin was created from a computer technology that represents secure and functioning information storage and transmission technology without central control. The blockchain is similar to a huge, public, anonymous virtual registry of all transactions made by users.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Bitcoin trade is the system of fundable bits that are moving from one computer to another and no financial institution plays a role in this process. The initiative in the earliest days of bitcoin was to produce a digital currency that was independent of any kind of national authority or government and that would create electronic payments worldwide without the need for control, directly and in particular anonymous.

Among the key benefits of bitcoin is the reliability of transactions, whose safety is not conditioned by mutual agreement the seller and the buyer, but specific mathematical guarantees, cryptographic proof that the transaction was executed. Changes in demand of bitcoin cause the price change, but most owners do not see it as a limiting factor, because they except earnings target to achieve the right to bitcoin, counting on its future. All this indicates that the key component to successful trading this cryptocurrency is the optimism regarding its future and character that will soon have a smaller reference to media reports and statements of those thanks to whose policies and strategies gap between rich and poor today the largest since the creation of society.

This leads to an assumption that if one of the next versions of cores does not allow miners to create blocks larger than one megabyte, the development of bitcoin would be limited. Although the state of affairs is currently not in the nearer future, the rapidity of change in the geopolitical scenario and, above all, the impact of new digital technologies on game rules in the financial markets are greater than ever. On the other hand, the slowdown has at least two harmful effects on the system. The first one is that involved parties who convey very small amounts will face the most significant deadlines.

Transaction of zero nominal value apparently cannot pay large commissions, which goes for what creates the burning of the currency, for instance in time-stamping a document. For the monetary authorities, running the conversion between old and new organizational supervisory models is certainly not simple, especially for the growing mistrust between governments and confusion in international political relations. The second problem is that the system as such could be destabilized, which might make it very vulnerable under these conditions.

At this phase the blocks are only filled up to 40 percent approximately and half of the transactions are established in just less than 7 minutes, i.e. 90 percent of them in less than 23 minutes, 99 percent in less than 46 minutes and all of them in less than 85 minutes. In cases when the blocks are packed to 80 percent, yet one half of those transactions will still not be completed after 18 minutes. The extent of a block is defined by the number of transactions that the minor inserts, which is now limited to one megabyte. Any kind of elevating this limit would result in accepting a larger number of transactions per second and this increase can already be achieved by adjusting a parameter that is hard-coded in the client node.

Overabundance of these blocks means regard of risk taking for allowing awaiting transactions to build up in the knots of the network at the risk of flooding them, consequently maintaining for an inexact continuance the transactions with the lowest costs. Considering this strategy it is anticipated that bitcoin will remain very proficient for large amounts and the spam of proceedings of very low value will vanish altogether. Overcrowding of the network will also benefit miners who can charge high fees, which will pledge the future of mining and network security when premiums will not be big enough.

In this time period, the general cost of transaction was multiplied by 35. Taking into account the tripling of the transactions carried out during this period, the cost was multiplied by 12 so it does not represent just a growth, but an exponential increase. A common value of transactions is also accelerative and many companies from this sector have begun to make business to business payments and a growing number of them have a mining cost that is too low to be observed as a significant expense. High value-added on chain transactions could thus gradually crowd out small payments that will have to find other spaces.

This created an expectation that an altcoin will sooner or later appear from the lot and take over, but at this stage it is improbable. What is really happening is that a market is being formed between chain payments, secured by minors and more customary off-chain payments. Payments outside the blockchain could surely be made through altcoins, but decreased security, increased unpredictability and deficiency of liquidity, which do not always make this instrument very captivating.

Changing these settings, like any change of any importance, involves putting into circulation a new version of the software, which each user is free to install or not. The most important rivalry is not between bitcoin and an altcoin, but between on-chain and off-chain transactions. As soon as a user installs the new version, the user population splits into two and the blockchain is divided into two branches, one for each version, defining two different currencies, among which users can still choose. As users install a new version, the make communications protocol of the blockchain recurrently switches them from one division to another and thus from the old to the new form of money. They can consequently, by objective action and not a simple vote, preferred for the new rules of money management or stick to the old ones.

If some projects show up, offline payments will become safer than conventional payment methods. Online payments will always be the safest and most popular option, but adapted alternative offers will still cut down the pressure on this type of payment. It is good to have to develop real alternatives to on-chain transactions and allow a market to develop between fully trustless proceedings on the blockchain and offline transactions balancing partly or entirely on a third party.

As off-chain transactions, in one form or another, will develop, growth will sooner or later slow down for miners. With the appreciable investment involved and the regular division of the mining premium, they will be encouraged to increase the number of transactions to compete with “offline” payment solutions. We believe that bitcoin should multiply its turnout by 100 percent in order to be feasible as a store of value. At present, the bitcoin network allows about 300,000 transactions per day and its capacity is clearly inadequate for most financial applications, while the Visa network is known to manage hundreds of millions of transactions per day. Additionally, the bitcoin has for some time been quite concentrated with longer verification times, as seen on the charts that concern the last two years.

The idea is to make them discuss the parts of the protocol in order to define the perfect size according to a global agreement chosen by the users. This makes the storage of data in the blockchain more efficient by introducing the impression of references to transactions, the size of the blocks is eased and therefore the rate is increased. This problem seems to be conceptual and before validating a connection, each miner goes through and checks all the transactions that compose it in order to find a double-spend and an invalid transaction. The block is being rejected in case at least one of them is found, though the explanation of block rejection could be because it is being outsized.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

When it comes to the scarcity of goods such as gold it is guaranteed by the limited amount of it as the resource on the whole world, having in mind that the extraction of gold has generally always required a long time. The confined supply of metallic coins has been a decisive factor in the stability of the purchasing power of these commodities, which in some sense explains why it has been designated by the market.

In this sense the technology provided by the blockchain platform makes the imitation of bitcoin impossible and the emergence of bitcoin is ordered by a public algorithm which gives the legibility to its creation. When compared with gold, it is also limited in supply, because the number of bitcoins cannot exceed 21 million units by 2140. Regarding that, bitcoin is an asset whose purchasing power is conjugated to increase in accordance with the growth in demand on the market.

Besides that a currency must be divisible in order to be used for dealing in transactions of low value. Traditional currencies have a benefit at this point because they have lower units, such as cents, eurocents etc. that allow performance of transactions of smaller value. In this sense gold is less practical, because it is not divisible to infinity, which is the reason why over centuries civilizations were trying to replace gold coins with some type of money of smaller value, using silver and bronze. In this sense bitcoin has the biggest number of advantages because it is exceedingly divisible, since every single bitcoin can be divided into 100 million subunits called satoshis.

Another important feature of money and tradable goods is its possibility to be transferred in  order to ease transaction with smaller number of restrictions. In this sense traditional currencies have a satisfying level of ability to be transported, particularly because electronic payment made possible to cut down provision restraints in order to transmit funds at any desired location.

Nonetheless, some national policies can trim down the mobility of particular currencies. When it comes to gold, just like any other good it is not easily transportable because of its weight and therefore the creation of paper money and other financial products backed by gold was meant to extend the usage of this precious metal as a medium of exchange, making easier to trade assets, especially those of a higher value, such as real estate etc. In the field of cryptocurrencies it is the internet that enabled to carry out transactions in bitcoin anywhere in the world at very low cost in comparison with the traditional methods. This process has one restriction and that is the need to have software support on both sides of transactions and have the authority of having a serviceable network whose decentralized nature makes a control of capital unachievable.

A certain monetary system must be placed in a time-tested and secure institutional framework in order to pledge the respect of the right to make a transaction. Traditional currencies are a part of the system that is dominantly under control of banks, where governments put a lot of precariousness, because their activities may increase the risks of default on public debt and since they use negative interest rates that are similar to a tax on deposits, that risk is even higher, especially with the expectation of picking up deposits in the event of financial undependability or bankruptcy of a state and its implication on their creditors.

Regarding the gold keeping, it is an activity performed by specialized companies that meet particular requirements. It has to be noted that some institutions are issuing on the paper market in an amount that exceeds securities compared to the precious metal reserves actually available which results with the condition in which many certificate holders will never be able to convert the amount of gold they poses on paper into real precious metal on the premise of high demand for conversion, since the paper market is hence to be avoided.

The security content that stimulates the bitcoin is the one that is connected to the digital ecosystem and therefore it is crucial to be cautious with online portfolios. A large number of platforms for bitcoin holding have proved to be fallible against piracy and these providers must consequently be scrupulously chosen. For offline storage, it is generally advisable to use several portfolios on various devices in order to prevent the total loss of assets in case of the problem with particular device, because the bitcoin wallet shares the destiny with the engine where it is installed and in case of any damage electronic money can be lost without any possibility of backup. This is why it is highly recommended to install wallets only on devices that are in good condition, strong, resistible and properly secured.

Regarding the ability to be a subject of exchange money is supposed to be able to be transfer at any time to anyone who is supposed to receive it, so the size of the market is therefore a determining reference point. Traditional currencies are generally exchangeable with any trader and individual in a given territory, except in times when hyperinflation occurs, but this feature is principally due to the fact that currencies take the advantage of the forced price. Still a currency that needs the involuntary price is to be recognized is nevertheless a quality that must be looked carefully.

The situation with gold is that it is easily listed by specialized traders, since their monetary attributes are however very restricted, because most traders do not routinely use this feature as a mediator in trade. Regarding this bitcoin is easy to exchange on specialized platforms and on online trading sites. For the time being, however, there are too few traders willing to accept this commodity as an intermediary on an international scale so that it can be moderately described as medium of exchange.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

It has become conventional today to compare bitcoin with electronic gold, because by arrangement this currency manages its rarity, and its blockchain remains principally adapted to sizable transfers more than to many payments of diminutive sums. The key principle emphasized in these comparisons is that if something is supposed to be compared with gold could also be used as a store of value.

Money is a commodity mostly wanted because its role as an intermediary in trade. There are several criteria that traditional currencies and tradable goods fulfill and they are all found while comparing them to bitcoin. Regardless the extent to which bitcoin meet these criteria, it is significant to highlight that it has all of the necessary elements of an item that changes value according to the level of the supply and demand shown on the market.

First of all, it comprises a store of value, which implies certain purchasing power over time, then it is sustainable, it must be scarce, i.e. with limited offer, its ownership has to be secured, it must be easily transferable and exchangeable and it has to be must be easily divisible. Through the history many societies have tried numerous commodities, such as gold at the first place because of the initiation of national currencies and that is still the only big difference between gold and “electronic gold” in this sense.

Merely by its strength blockchain is also modified to record nonphysical proofs of existence, etched for timelessness. Any symbol and any code correspond with a factual or essential object that can find its place in it, certifying the date given to it by this global network. For instance, it may certify credentials, communication, contracts, and proofs of claims, identification or assets to be insured. Utilization is immeasurable to cognition necessitous environments of credible property. The blockchain allows total belongings between programs or individuals that do not know each other.

The key principle was that a structural currency must constitute a store of value. Its purchasing power must remain certain over time and therefore it has to be long-lasting. This is the reason why the monetary content of for example consumer goods has failed, because it is perishable and cannot make up reserves of value. The physical properties of gold make them long-lasting and that is why the market valorizes these objects over time. In this regard bitcoin is durable, because its source code is not destructible and its computer properties do not take down its purchasing power.

When it comes to the amount in which it is offered on the market, traditional currencies have a value that depends on their rarity, i.e. the amount of money printed by a particular central bank. Money supply must consequently be limited to preserve the value of medium of exchange in order to protect its purchasing power over time.

It is surely challenging for an individual to falsify the fiat currency, though central banks have an unlimited power of monetary creation, limited by the economic policies of governments that create them. This means that they have the legal monopoly of imitating, which lawfully destructs the scarceness necessary to keep the value of goods over time and that is the reason why traditional money has inflationary nature and continually loses their value.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Electronic money keeps hold of a strong connection with traditional money since both of them are articulated in the same unit of account and are pledged on an asset, while bitcoin relies only on an agreement between their users, without a legal framework drawn up by any centralized body.

Also, its users are the only players in the virtual currency, so the situation is the opposite. In this case it is the informal, which challenges the formal one of the central banks, knowing that this type of currency is not subject to any financial institution. Financial institutions are supposed to act as intermediaries in information gathering, risk management and liquidity. It is highly unlikely that this type of currency will fit into this circuit.

This economic point of view looks at a new phenomenon in the world of money, that of digital currencies such as the bitcoin. The use of these currencies for the time being remains very marginal and limited to basic transactions, but some see a much greater potential and foam their acquisition. In our system, therefore, a boost in the exchange rate means that the currency appreciates. Evidently, exchange rate convenience should also be assessed in relation to inflation. In fact, if the exchange rate rises, but in the other country the prices have risen, it may be that the overseas purchasing power of our currency remains unchanged or even worse, which is the situation with the actual exchange rate.

Since the relationship of trust requires at least two individuals, with currencies of which the sender is not known, it is a safe bet that one is closer to money laundering than to the procedural confidence based just on currency itself. However, a huge gap separates them from fiat currencies because they are not supported by governments and central banks. The absence of a regulatory framework and regulatory mechanisms is very challenging and individuals interested in purchasing these new currencies must for that reason remain careful and be aware of the natural risks.

The exchange rate is determined by the acquiring of demand and supply of currency in the foreign exchange market, called Forex. The demand and the offer of a currency is due to the exchange rate from a foreign currency to international trade. In this regard there is an expectation that bitcoin would evolve in a way that would allow their users to determine an exchange rate and that in doing so it would really be a currency, though traditional currencies have the three functions and in that regard there is a confidence in the unit of account, a value and savings reserve and a protocol instrument.

While taking this into account there should be noted at the first place that the price of bitcoin is very volatile. When this component is observed at fiat currencies it is the stability of exchange and inflation rate that generates confidence of investors. Besides that, with no passing through financial mediations, this function is not sufficiently respected because of the guarantee of deposits. This opens the question whether it is reasonable to consider bitcoin or any other cryptocurrency a safe heaven, because there is no guarantee for its value, however, regardless the smaller volatility of other currencies and commodities the level of safety of transactions is higher than within traditional money transactions.

The exchange rate fundamentally depends on the balance of payments of a country, and on the first place it is derived from the two key factors – from trade and from financial investments. In the first case it comprehends imports and exports of goods, including tourism from one country to another while regarding the later it involves activities such as purchase of foreign treasury bills, since this amount of exchange is linked principally to the level of interest rates that engage capital for good returns.

An aggregation of cryptocurrencies was established in the channel of the bitcoin, but the major principles remain the same. The creators of other cryptocurrencies tend to advocate the fact that their network is less inconvenient to support, that transactions are done much faster and that the reward in terms of new currencies created is more beneficial. Some are counting on a faster or longer expansion of the money supply, though in that case difference has no effect on the purchasing power at the certain moment regarding these cryptocurrencies. Even riskier exchange rate transactions, such as currency purchase and sale transactions with the aspiration only to make profit from the change in exchange rates over time affect the value. Depending on the situation, monetary authorities may choose that the exchange rate openly follows the forces of demand and supply, or they may prefer not to diverge from a certain value.

There should be noted that cryptocurrencies are one of the main restraint in the fight against piracy. In order to overcome the financing of pirate sites, corporations have signed agreement with electronic payment companies, such as Visa, MasterCard, American Express, PayPal and Skrill to ensure that illegal actions cannot be financed, which is declared through agreements between monetary authorities that give advance to the international monetary system.

Regarding this, the real problem is more in the misgiving of a particular currency, especially in those that lose the status of safe heaven they used to have, than in confidence in the cryptocurrencies, as evidenced by the increasing download of bitcoin returns the problem to national currencies and their particular monetary systems and central banks’ policies. Not alike it is the case of bitcoin, the derivation of national currencies is centralized and in most countries this role rests with a central bank.

The growth of the amount of assets is not fixed, so the choice to increase or decrease the supply of money depends on the objectives traced by the entity that issues money. In this area traditional currencies have several advantages in this area, since certainly a banknote is not decomposable by itself, however a central bank system favors inflation over the long term, which continually degrades the value of the state currency.

There could be some doubts regarding the ability of central banks to make good decisions, since in most industrialized countries, central banks mark a low and stable rate of inflation, which ensures the maintenance of the value of the currency. It must be admitted that this system works very well when one looks at the low price increase over the past two decades.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

The more bitcoin is being compared with traditional currencies, the more it becomes apparent how some characteristics of money cannot be applied to it. Traditional currencies are characterized by three functions that serve for their legitimization and those are a unit of value accepted by all, a tool of reserve of value and saving, and a mode of settlement of current transactions.

Since bitcoin does not meet these three founding principles of a currency, its apprehension requires examining the extent to which these new instruments respond to the traditional definition of money and to what extent they turn aside from it, raising the question how to frame the existence and the use of this cryptocurrency.

More than an amount of centralization, bitcoin brings about a field for actors within the society. Traditional currencies, irrespective of their format, fulfill various functions, from the simplest to the most complex, that are essential for all processes in modern financial systems. They were given many roles that fundamentally go beyond being the measuring component and basic means of payment, since they also endow with admission to savings and borrowing, as well as other financial transactions. With the emergence of clearing houses between the various marketplaces, bitcoin is making possible to avoid soaking the network with microtransactions. This multiplication of mediators at the end of the day reinforces the strength and smoothness of the protocol, while maintaining peer-to-peer processes at the same time and as in any market, the line of work is structured.

ECB has published a document named “Virtual currency schemes” in 2012, explaining what are the standpoints of this institution regarding virtual currencies and in what way are they supposed to differentiate from electronic currencies that have physical corresponding item, such as banknote or coin, even if this element could evolve for the bitcoin. As a currency, the bitcoin is the object of numerous criticisms of an economic nature, but disparate and even contradictory. Criticism of national currencies is more founded in countries where the central bank is not very autonomous and where members of the government have greater decision-making power over the issue of currency. Since the objective of price stability is less appreciated in these conditions, the value of currencies becomes much more unstable, and episodes of strong inflation can take place.

The free banking system previously anticipated by Hayek implied the elimination of central banks’ strong impact on financial processes and the issuance of currency by commercial banks. The economists from the Austrian school considered that free competition would request the most secure currency as a common prevalence for mass distribution. Part of those critics was also related to the fact that Hayek’s vision does not determine conflicts between currency as a public good and the fact that commercial banks are taking an advantage from it. On the other hand the main critics of conventional or Keynesian insight point the finger at him of not being guaranteed by the national authorities of being unable to be shaped by the level of demand in order to satisfy the needs of the economy, and of being deliberately deflationary.

Electronic money is, in fact, only an improved form of fiat money, based on a bond of confidence that has progressively made it achievable to make a replacement for the sounding and tentative entity, as an appearance of conceptual and dematerialized value, in order to go to a document accepting value, first in contracts and then later between lines of account of the banks. Bitcoin is a simple virtual currency that is not accepted by all as a reliable standard of assessment, since for many subjects the record of its usage do not last long enough in order to represent a foundation for setting rules.

In some respects, cryptocurrencies are similar to goods. Conceptually, the mechanism of monetary creation mathematically simulates the extraction of a precious metal, but also they are particularly rare. Scarcity, corresponding with high demand, is primarily what supports the price of listed goods and that is also the principle that the idea of restraining the increase of the supply of cryptocurrencies is based. On the other hand, in the same way that it is increasingly difficult to extract precious metals from the subsoil, where the finest deposits that have been exploited first, the production rate of cryptocurrencies decreases with time.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

Central banks are able to influence the foundation of money throughout the refinancing rate, but also by calling commercial banks to place an assured amount of deposits accumulated from the community on the account that banks of the central bank in forms of reserves.

For example, the European Central Bank is autonomous of the countries from which, according to the Treaties of the EU, which propose that it cannot even receive a simple advice. This is what is called the independent central bank’s doctrine. Banknotes issued by the ECB and the national central banks are the only banknotes with a legal fond in the European Union. Central banks worldwide use these operations to carry out mandates reflecting economic objectives for the central financial institution.

For example, the ECB has the main goal to maintain inflation rate close to 2% on annual basis via most favorable distribution of resources and growth, while the aim of the Federal Reserve in the US is to have reasonable inflation targets in order to support growth and employment rate. The autonomy of these financial institutions is also supposed to ensure avoiding the infidelity of the political assessment in order to give attention to producing a conventional and coherent economic framework, according to the formula that favors rules over the discretion right to take some action. In this framework, a variety of constraints imposed by the traditional monetary foundation path may come into sight to be a commotion, which explains why even financial institutions are trying to test the alternative models of money creation, as well as the new means of payment.

A sharp growth of bitcoin price from the beginning of 2017 indicates that the interest in bitcoin constantly increases. It is often emphasized that the uneven changes in the value of bitcoins on a daily, weekly or monthly basis are not conditioned by guaranteeing profits to investors, as this is not the case with global currencies, precious metals, oil or any other stock exchange goods whose change, except the level of supply and demand dictate and economic and political developments in the countries that use them as a means of payment or trade them. Majority of those investors pointed out that bitcoin does not have a value, stating it in order to deter investment in cryptocurrencies.

The incorrectness of this assertion is quite easy to prove, although between value and price does not stand an equal sign, the fact that one purchases bitcoin for of an amount of assets denies this claim itself. What further points to the steady value of cryptocurrencies is that even if the market turmoil and efforts of financial centers to destroy its price was even so low that there would be no denomination banknotes world currency which could be made without a decimal number, and its value would still exist. This is confirmed by two factors, where the first one is usefulness and the second one is scarcity. If we illustrate this using the example of clean air, we would understand that it has value because it is useful, although it is abundant, why it does not pay. However, if due to any pollution it was preserved only in separate rooms, its price would depend on the willingness to pay to join those who want to breathe through their lungs.

As the most significant digital currency, bitcoin, since its very first days, has been compared with national currencies, though it works on completely different principles. Several things that bitcoin and national currencies have in common are not typical cross-section for only these two categories, but for anything that exists on any type of market, where its value has the possibility of being changed.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

One of the main reasons why bitcoin was created is the dissatisfaction and distrust in the existing financial system where monetary creation is principally offered by commercial banks in their lending business. Accepting their disposal means of payment against the institution that declares these agents, credit bodies, generate new liquidity in accordance with the requirements of the financial system and market as a whole. One of the most important purposes of each central bank is to control the inflation rate, while make the circulation of money easier and helping investments to expand.

Quite the opposite, deflation is seen as a risk by economists because money creation accompanies growth. The total fixed volume of 21 million was the main reason why bitcoin was the subject to criticism. In fact, this ceiling reflects its creators’ doubt of the quantitative easing programs that firstly the central financial institution of the United States, Federal Reserve, started to practice after 2008. However, this restraint also leads the bitcoin system to have potential deflationary outcome.

The times after the world economic crisis were characterized by strong expansion of investment that aggregated the need for higher level of security of transactions between agents. On the other hand, the crisis generally led to a retrenchment of credit activities, because consumers cut their expenditure and real estate buying, while the business sector postponed their investments by choosing to set out of their supplies. Since banking is not automatically balanced on a day-to-day basis, there was created a particular money market where banks loan to each other in order to resolve the problem of lack of short-term liquidity, though they can also call the central bank, which embraces the advantage of money creation and establishing the monetary base in terms of issuing banknotes in order to grant liquidity to commercial banks guaranteeing that way the price stability, as well as promoting the security and effectiveness of the payment system.

The possibility for these banks to be refinanced via the mechanisms that institutions of the countries where they operate have established opportunities to manipulate the activities in order to create the need for monetary creation, since commercial banks pay a price for liquidity supply. Central banks could thus buy or extract a repurchase of particular financial securities held by commercial banks against the provision of liquidity.

Bitcoin came into primary focus of global media when the financial crisis in Cyprus occurred and caused one of biggest concerns about the future of the European single currency. The worries about the future of the euro have caused the bitcoin to triple its value in less than a month, reaching the price of 141 dollar for the first time in first days of April 2013. This was one of the most visible examples how a search for an alternative is shifting the demand of the investors who are willing to take new market challenges, looking for more security at the same time.

The fact that the financial world has been witnessing a great turnaround, which was at that time largely represented the exception, not the rule, has made to the occurrence of bitcoin being backed with fierce confrontation. This type of confrontation was seen because of the unpredictability of the bitcoin’s price can be reviewed as a lack of knowledge on questionable reliability of decentralized governance, since it is difficult to rely only on the efficient credit control without a support of the governmental plan and central banks’ monetary policies. There were numerous studies on the supremacy of common goods, open-source assumption and a certain sort of what some called digital collectivism that, all together, have shown that the fact that this group of enthusiasts has no centralized organizational control does not necessarily mean that the whole system is expected to be reduced to into disorder.

The refinancing rates that act as the prices at which central banks allow the credit money usage represent the main structure of the money market and when those rates are high, the demand for liquidity by the banks is low. This reflects on the interest rate of the credits that banks offer to their clients, creating the liquidity shortage, since many individuals or businesses are not able to have an access to this money. This causes dissatisfaction, since the trend is present everywhere and not a single bank can offer something that differentiates completely from the rest of the financial sector. In that terms having decentralized system is something that causes bitcoin’s key advantage, regardless how exposed to peripheral shocks this cryptocurrency is because of the lack of a centralized regulation system.

Particular occurrences, such as cyber-attacks, errors in cryptogram, regulatory transformations, transaction of volumes and dysfunctions of key may have an impact on the value of the bitcoin, though the margin of arbitrage gives rise to financial assumption which additionally makes the circumstances more complex and therefore bitcoin cannot serve as a mean to determine a value, which, on the other hand, is a crucial characteristic of traditional money.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

The name of the most common cryptocurrency, bitcoin, also refers to the protocol describing this virtual money and its implementation in the payment system. This cryptocurrency is decentralized and anyone who wishes can join the network by installing the software.

Generally accepted theory regarding the origin and the formation of bitcoin is that it was created in 2009 by one or more crypto programmers using the pseudonym Satoshi Nakamoto, although the preconditions for the development of this technology were created decades ago. The history of work on technology that created the base for cryptocurrency development has four decades long history, since the first RSA encryption that used a public key to encrypt confidential data and a private key to decrypt them was used in 1977.

The following years were characterized by the development of the mechanism of compression that was used to securely and efficiently store and verify a large volume of data that are today used by the bitcoin protocol. At this phase of the late 1970’s there was established the system for calculating all transactions contained in a data block. Later in the 1990’s the programming industry witnessed a wide range of researches related to cryptographic protocols that represented the foundation for development of electronic currencies that were centralized and proprietary.

An article written by mathematicians and digital money enthusiasts Stuart Haber and W. Scott Stornetta, entitled “How to Time-stamp a Digital Document”, announced the key principles of what would later be a platform on which bitcoin works. This article was later quoted by the author signed as Satoshi Nakamoto in his white paper where the principles of blockchain were explained.

One very significant turning point in the development of transaction protocol occurred in 1994 when   a computer engineer and a researcher in cryptography Nick Szabo advanced the idea of “smart contract”, which represented the computer transaction protocol that executes the terms of a contract. During the following decade Szabo was working on uprising of the project called BitGold, that was conceived as a decentralized digital currency based on chains of proofs of application and using countless elements that later were shown as the groundwork of bitcoin, such as timestamping, digital signatures and public keys, but at the first stage of the development it proved to be vulnerable to attacks, while later there were many efforts made in order to overcome this problem.

Later in 1997, the invention of Hashcash by Adam Back represented the proof that this system could work, justifying further research and development in this area. In fact, this idea had already been explored by Cynthia Dwork and Moni Naor in a report entitled “Pricing via Processing or Combatting Junk Mail” published in 1993, but Adam Back had no information about their achievements in this area. At that time Szabo described the possibilities offered by the advance of new technologies in an article entitled “Formalizing and Securing Relationships on Public Networks”. Consequently, many contracts can be implemented without difficulty if the possessions that represent the subject to the contract include a computer code guaranteeing the implementation of the contract provisions.

The next big step was the first peer-to-peer distribution via transfer platform called Gnutella, developed in 2000 by Tom Pepper and Justin Frankel. From the economic approach, it is a classified currency that is not issued by any banking institution nor is linked to a currency settlement. Also it is not commodity money, nor a fiat currency, given that it has no required price.

However, the development of technology enabled bitcoin to have particular elements of trading instruments, even though it does not share key characteristics with them. In that sense there are similarities with fiat currencies although cryptocurrencies are not backed by a material asset, since it has value only because economic actors agree to use it and since the internet makes trade between them achievable. It is more leaning on the monetary exchange function than to that of a store of value, even if its deflationary character can hypothetically lead to it.

The first public announcement of bitcoin occurred in 2008, which opened the space for the first blockchain to be at the beginning of 2009. At that times a repayment for finding a block was 50 bitcoin and is divided by two every 210,000 blocks, which is scheduled to happen every four years. Since December 2012, the return is 25 bitcoin, and according to that division process the year 2140 will be the one when no return will be provided, while the number of bitcoin will have reached a maximum of 21 million.

The rationalization of the nature of bitcoin transactions can begin from the straightforward paradigm of the contract of sale. The smart contract would guarantee that, when the seller broadcasts their possessions, the other party in fact receives the corresponding amount in exchange and, on the other hand, the buyer who pays the price is guaranteed of receiving the goods. In the earliest stage bitcoin was created by a closed community of enthusiasts that used it for internal practice. It is likely to state that they were then used for all intents and purposes as elements of allegation of an identity based on a vision that was contrary to accepted belief of the world in reaction against the establishment.

To illustrate the value of the smart contract mechanism Szabo used a simple example a car rental contract. Under this contract, one pays customary sums in order to use the car owned by a certain rent-a-car company. In this case the smart contract will routinely test out at each due date whether the amount owed is well paid by the renter of the car.

Provided that the imbursement is made, the renter will be the only individual allowed to use the car thanks to the process of authentication. In the event of non-payment, the car is automatically blocked and cannot be used by the tenant, and the renter regains control. The first order, first to generate bitcoins, then as anticipated, but only at one remove, to seize them, was consequently linked to what they served to demonstrate or transmit a certain way of existence and an assured way of seeing the situation.

Fundamentally, the bitcoin was not very diverse from what one finds in the world of fine arts, since for their enthusiasts it represented a way of living and demonstrating its distinction.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

There is a belief that the negative interest rates only concern banks, which perceive their deposits with the ECB not rewarded, but commissioned up to an annual interest rate that is still under zero percent. In reality, there is not a single entity that could borrow from their bank at rates below zero.

Repaying less than the totality of the borrowed capital is not allowed at any point in financial system and when one borrows 100, one has to pay 100, plus interest, which is the reason why even loans with a reference rate beneath zero do not get their charges descend.

However, there is another perception of this issue where as a substitute of seeing interest rates decrease as an instrument that a growing number of central banks uses in order to recuperate the temporary global demand, they consider zero rates, and especially the postponement of the negative interest rate area is not only the symptom, but also the symbol of a growth at the level of the world economy of enormous financial and monetary disproportions of unparalleled strength. The imbalances that are basically a direct consequence of the regulatory strategy choices completed after the economic crisis by the major central banks, initiated by the Fed.

This perception of zero rates comprises the belief that they are not a tool that would appear in the files of the central bankers, but an apprehension sign that indicates that the circumstances, both in developed and in emerging countries, are now attaining an alarming edge that is even now sincerer than right before the last financial crash. This viewpoint is followed by an unbending disapproval, even though it was articulated in very cautious standings of the outlines of studies, as well as in contemporary responses of central banks to current issues. The key problem is not whether these reproductions are theoretically acceptable or not, but that they have fundamentally been calculated before the factual expansion of the globalization, so their position of accounting therefore remains principally that of state economies, while the actual financial and monetary subjects, even of comparatively not large sized, are nowadays occupied in a day-to-day situation of intercessions without limitations.

Fundamentally, they are not considered to entirely assimilate and account for how international refinancing streams are now taking a key position in the broadcast of financial compulsions, particularly those produced by the decisions of the most important central banks in the world, as it is the case with the spread of the bubble economy to emerging countries through the quantitative easing strategy and the extremely threatening counterattack that generates its closure. In fact, they represent primarily temporary reproductions that disregard the central position of what was perceived as standard. More precisely, they lead to not seeing their ultimate impact on the principles of real growth. In that case a continued practice of zero rate policy lead to a progression of misrepresenting inducements that reduce productivity increase.

From this standpoint, each and every rise in the US inflation rate over the past several years is only a minor feature in comparison to the real intimidation that includes the detonation of global debt, the simplification of policies, the extension of the increase leverage rates, as well as the strengthening of the currency war powered by the development of quantitative easing procedures. There is a common explanation of this situation that refers to the typical connection giving to which rates drop or rise in action, bearing in mind an increase in inflation that gives rise to an opposite system with the persistence to accept as true that it is the decrease in particular rate, which will allow inflation to rise, actually leads to the lowest level of inflation rate with conjunction in the direction of a deflationary negative balance that the central bank wants to evade anyway.

This type of clarification would be connected to the intensification of the scarcity of securities, which appears as a automatic consequence of the crisis, but also because of quantitative easing policy, and that would have the consequence that the actual interest rate of money with fixed yields, which means the one subtracted from the nominal rate of the bond after withdrawing the inflation rate, now includes a liquidity, whose outcome, for a given nominal rate goal, is to diverge the interest rate, while at the same time the inflation rate moves in the opposite way from this premium change of the value.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018