Breaking the state monopoly on funds: how blockchain is changing finance

Started by alexfernandes, Aug 21, 2022, 10:17 AM

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There are three essential elements to any monetary system: money supply, funds transactions, and money ownership. In a standard financial system that relies on fiat money, these components involve the circulation of money, transfers of funds through trusted financial institutions, and banks keeping records of their customers' balances.

The state has the upper hand in this system, issuing and controlling the money supply and overseeing commercial banks. However, Bitcoin creator Satoshi Nakamoto aimed to challenge this monopoly. Nakamoto believed an e-currency built on cryptographic proof had the potential to create a new financial order independent of central banks and without the need for third-party intermediaries.

Thus, Bitcoin became the first decentralized monetary system, with algorithm-controlled money supply and limited emission of 21 million coins. This new system allows users to have more control over their financial transactions and move away from centralized interference in privacy.

In the Bitcoin network, transactions are carried out personally by its members via pseudonymous Bitcoin addresses. Blockchain technology and the consensus mechanism ensure proper accounting for these transactions and prevent the "double spending problem." Only those who possess the private keys that correspond to bitcoin addresses have ownership and control over bitcoins, and their identities are not controlled.

One of the most significant aspects of Bitcoin technology is that the state cannot interfere in the process of issuance and transactions or limit the possession of funds of its users. This affords a unique opportunity to put an end to the state monopoly on funds and their circulation. While it may take time to overcome existing inertia and conservatism within the financial sector, this technology has the potential to initiate revolutionary change.

Examples throughout history illustrate how new inventions can disrupt and destroy traditional monopolies, including state ones. Just as the printing press ended the monastery's monopoly on disseminating information and the automobile broke the horse-drawn carriage's monopoly on land transportation, Bitcoin has the potential to challenge the state's control over the financial system.

The coming years will likely see states attempt to integrate Bitcoin into the existing monetary and financial system rather than prohibit it, such as by recognizing it as a reserve asset for storing value alongside gold. However, this merely postpones the inevitable shift towards a new financial paradigm, as fiat money has numerous disadvantages that Bitcoin lacks. And even if Bitcoin fails to change the existing financial paradigm, more advanced cryptocurrencies are sure to follow.


In commodity-money relations, the market determines an artifact's suitability, not the state. The stock exchange and capital concentration play significant roles in this process. Tesla's $100 million increase in a week exemplifies how the volume of exchangeable artifacts can grow without traditional emission. Similarly, Bitcoin has transitioned from a medium of exchange to a trade commodity, requiring trust in the anonymous individuals holding exchanges.


The commitment to mandatory use of money is the foundation of any monetary system, not its components. The state ensures citizens pay taxes and accepts only certain money as payment. Bitcoin is not money; it is a commodity without governmental obligation for mandatory payments. Gold bars or rare stamps are similarly not acceptable currencies for tax payment.

Discussions of a new monetary system are applicable only in a stateless world without taxes, where bartering for goods is the primary means of exchange.


A financial bubble exists as a system of positive feedback, wherein depositor income forms from investments of subsequent depositors. When new depositors are exhausted, the bubble collapses due to loss of connection and deflates.
Other factors may affect asset pricing alongside positive feedback. Real estate markets can experience periodic bubbles resulting in lower or older pricing post-deflation. The term "financial bubble" may refer to a specific phenomenon. However, its exact definition remains unclear.


The problem of cryptocurrencies is not only in the state. I understand why some states seek to limit this, "invent new rules" in order to control it. And on the one hand, such a policy can have a negative impact on both market participants and states that simply cannot ignore it. There are many problems with cryptocurrencies. However, the state does not always correctly choose priorities. And the government is not always wrong.
I am sure that the topic of cryptocurrency will be relevant for a very long time and it will be interesting where it will lead.