The growing use of cryptocurrencies and the affect in banking system, financial markets, equities and monetary policy?

The first cryptocurrency appeared in 2009 in decentralized markets. They are not issued or endorsed by a central authority such as a government or a monetary financial institution. Acquisition can be done through the mining process in order to confirm the pending transactions. However, cryptocurrencies can be bought and sold through exchanges and stored electronically. The increase in exchange volume shows that it is now accepted, with famous banking systems changing and adapting to the rapid developments considering adopting a blockchain system similar to cryptocurrencies where peer-to-peer technology and decentralized system have the ability to upgrade the role of banks in the modern financial infrastructure. There is a favorable attitude towards the adoption of cryptocurrencies but also the investment by financial institutions in them.

The idea of ​​easy money and the growing volume of transactions with the constant fluctuations of prices in its short life cycle, not knowing the instability and the risk created many upheavals that hindered the wide acceptance as a means of investing and saving in the financial markets. The attempt to stabilize the price of currencies has led to fixed currencies where they can be pegged to a currency such as the dollar or to the price of a commodity such as gold having linked their market value to external factors and through algorithmic buying and selling mechanisms is restored. part of the short-term instability.

The main reason for the creation of cryptocurrencies is due to the use of encrypted transactions that guarantee some anonymity and transparency through the chain of blocks, thus reducing transaction costs as no intermediary is involved. Despite the advantages, the loss and exposure to digital risks is an important factor and in combination with the initial growth where it is located, raises many doubts in the universal use as a public through monetary exchange as it should maintain its purchasing power while keeping inflation as low as possible. , sufficient to encourage spending instead of storage.

The decentralized cryptocurrency system based on technology without an intermediary has the potential to replace a banking system in which a monetary policy is responsible for decisions that affect the economic fortunes of countries. An example is the financial crisis of 2008 where central banks had a negative impact on consumers and the economy as they were responsible for the debilitating recession. However, it suffers from multiple disadvantages including limited supply as it is a product of e-mining and the lack of legal status in most economies. Following technology, central banks are in the process of developing their own digital currency in order to remove intermediaries, thus reducing transaction fees, such as retail banks, and will use encryption to ensure that it is not copied or tampered with.