Bitcoin Inception — How Blockchain Revolutionized the Financial Sector
The world of digital money became a possibility as a response to the financial crisis of 2008. In order for a transaction to take place, there needs to be trust between the two parties. When the traditional financial institutions began to betray that confidence we had in them, cryptocurrencies were created. Satoshi Nakamoto introduced us to the first, the Bitcoin, the digital coin built on a new technology called the blockchain. After this catalyst moment, the revolution eased up into evolution, and we saw the rise of the cryptocurrencies. This is their story and how they transformed the way we do transactions, the way we trust.
The World Before the Economic Crisis of 2008
During a period of financial growth, people feel secure. They spend more, are willing to invest in assets on the long term, issue credits to buy according to their needs, and are optimistic about the outcome. Their trust is intact.
People give their money willingly to financial institutions for safekeeping, and banks further use the funds to invest in various projects and offer loans to those that need them. That’s how the system works.
The years leading to the recession saw an inflated buying spree of houses, cars and other careless spending, as if we lived within a perfect economic system. But the ones people were looking up to for protection, failed to safeguard them. The moment when banks lose the money we entrusted them with, is the one where financial crisis happen.
“The stock market fell 90% during the Great Depression. But that took almost four years. The 2008 crash only took 18 months.” (source)
When a corporation decides to go public, it enters the stock market by offering a portion of its assets to buyers who want to gain from the projected earnings and profits. This selling is done in order to make additional revenue that will drive the business forward. Each company is assigned an index that is traded for and has a certain price and profit assigned to it. As it fluctuates due to market competition and corporate reputation and revenue, the main goal is to keep a stable value. A stock market crash happens when a stock index drops severely over one or two days of trading.
During the 2008 stock market crash, the Dow Jones index dropped a staggering 777.68 points, leading investors into a panic, especially when the Congress refused to approve the bank bailout bill. It was essentially a pay-off for the debt of banks, hedge funds, and pension funds. The Congress did not want to put extra pressure on the taxpayers to help the banking industry for not being able to sustain the loans they offered in the past for buying houses. This all lead to the phenomenal drop of Dow Jones, generating the recession.
Due to the fact that corporations get cash to grow their businesses through the buying of stocks by investors, a dramatic fall of the indexes discourages the buyers, thus leading to a major cash-flow issue. That’s why we’ve seen so many companies go bankrupt, and individuals lose their homes and financial security. As companies dissolved or were unable to pay their employees, this lead to a shortage of money, raising prices and lowering the quality of life.
“A drop in demand means less revenue. That means more layoffs. As the decline continues, the economy contracts, creating a recession. In the past, stock market crashes preceded the Great Depression, the 2001 recession, and the Great Recession of 2008.” (source)
The magnitude of the 2008 recession was generated by fear and loss of trust in the traditional financial institutions. They were no longer considered able to sustain the needs and support individuals and companies at large. Whenever trust is broken, we tend to look for it somewhere else. We tend to look for or create solutions that will ensure that crisis will not happen again.
One of the best ways to ensure your funds are not devalued or can regain value after such an event is to invest them into assets that do not lose their price as time goes by, a hedge. Such an item is gold. As its value is stable, investors can buy the amounts needed, rebalancing the money shortage in the system.
A hedge is an investment that protects your finances from a risky situation. Hedging is done to minimize or offset the chance that your assets will lose value. It also limits your loss to a known amount if the asset does lose value. (source)
But the best way to ensure the financial market is stable, and investors’ assets stay the same, is to have a diversified portfolio of hedge fund investments. It’s a way to protect your money, similar to house insurance. You are able to recover the value of your initial investment by being reimbursed for the value.
The Catalyst Moment of Bitcoin Being Created
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” — The Genesis block text after the first 50 bitcoins were mined.
The above quote is the text included in the first block of a blockchain ever created. As blockchain is basically written code, the line on which the quote was found is actually pseudocode. Not real, just describing the logic behind the code. Reading it backward, it states the quote mentioned above.
“Satoshi Nakamoto actually included an ‘encrypted’ version of the famous Times headline in the pseudocode for the coinbase transaction of Bitcoin’s genesis block. There is a variable, on line #1616, that contains a hexadecimal string. After converting it to alpha-numeric text, it reads:
Satoshi Nakamoto, the creator of the Bitcoin probably wanted to make clear through this timestamp that the blockchain was created after the date of January 3rd, 2009, as a response to The Times’ front-page title: “Chancellor on brink of second bailout for banks”. As the financial crisis was not yet over, a second capital infusion was thought to be needed.
“Alistair Darling has been forced to consider a second bailout for banks as the lending drought worsens,” the article’s lead read. “The Chancellor will decide within weeks whether to pump billions more into the economy as evidence mounts that the £37 billion part-nationalisation last year has failed to keep credit flowing. Options include cash injections, offering banks cheaper state guarantees to raise money privately or buying up ‘toxic assets,’ The Times has learnt.” (source)
Governments were actually operating changes and offering help using people’s money, and most of them started to ask why, and lose even more trust into what was already an institution that failed them one year earlier. The banks were no longer able to raise themselves up, and needed external help, putting pressure on the ones that felt encouraged to lend them their savings and gain loans to make their lives better.
“British government launches wide scale insurance plan to protect banks against further losses and boost lending.” (source)
People were beginning to look for alternatives. Centralized financial systems were not to be trusted. This was the socio-economic stage the Bitcoin made its first entrance. Satoshi Nakamoto was offering a safety net to life savings. He was offering trust. The Bitcoin Whitepaper was issued on October 31st, 2008, marking the birthdate of the cryptocurrency phenomenon that took the world by storm during the past 11 years. Coincidence or not, on Halloween, the biggest scare for the traditional financial markets was born.
Cryptocurrencies — Almost Part of Our Daily Lives
When banks run out of funds, Governments print more money, thus lowering the value of the coin, and raising prices, pulling down the quality of people’s lives. This thing does not happen with cryptocurrencies. There is a fixed amount of existing coins, and because of the coding used in their design, no further amount can be produced.
Plus, the code creating this design is available to all the parts involved, on a distributed ledger built using the blockchain technology. Each transaction is encoded into the second one, thus creating a time-stamped chain of operations that cannot be erased or modified.
“Bitcoin has eliminated the need for third-party intermediaries by allowing users to directly transact with one another.” (source)
Cryptocurrencies use a digital wallet to store the funds for each individual. Basically, you are in total control of your own money, without relying on third-party institutions to operate transactions or validate purchases in your name. It’s also cheaper, as there is no commission for the transactions taking place. It all happens between the parties that have agreed to trade with one another. That’s why most of the early adopters of cryptocurrencies were e-commerce businesses, that could make the most of directly receiving payments from their customers, without relying on banks to make it possible.
Such an example is actually SWAZM’s first blockchain project and client, the RED Platform (Restart Energy Democracy Platform) owned by RESTART ENERGY, an independent electricity and gas supply company in the European Union currently exceeding 20 million USD in annual revenue. It was among the first companies that accepted Bitcoin payments or their energy invoices.
“Restart Energy is the first energy supplier in Europe to accept energy invoice payments in Bitcoin (September 2017)” — (source)
SWAZM provides the fastest blockchain infrastructure, with 200,000 Tx/Sec, which allows up to 60 million energy meters to be read every 5 minutes on the blockchain. This capability is set to bring more transparency to the energy industry and help support the increase of renewable energy production, thus reducing CO2 emissions. We’re empowering decentralization.
Both companies, RESTART ENERGY and SWAZM want to improve the world. One through increasing green energy adoption and democratizing its consumption, the other through using blockchain technology for developing decentralized applications that can revolutionize the way we interact within our society. The future is collaborative and sustainable.
RESTART ENERGY “[…] holds first place among private energy suppliers, renewable energy and gas suppliers in the country, as an alternative to the suppliers of last resort which held control over the energy market. Recently Restart Energy also became an optional supplier of last resort by order of the Romanian Energy Regulatory Authority in the energy domain.
“We’ve always wanted to help people get rid of useless bureaucracy, of the old ways of energy consumption settling and help them pay a reduced price for energy. Which is why we’ve built a company that offers transparent access to green and cheap energy to all Romanians.”
(Armand Domuta, CEO of RESTART ENERGY) (source)
At SWAZM, we imagine a world where anyone can ideate, develop and scale life-changing decentralized projects (or Dapps — decentralized applications). A world for a new Internet, with decentralized applications built upon a blockchain infrastructure that allows powerful processing speeds, larger storage spaces and monetizes any unused compute power, creating a global marketplace via the SWAZM token.
“When we created SWAZM, we wanted to offer a turnkey-solution for scaling any decentralized project.”
(Vali Malinoiu, SWAZM Founder & CEO)
Blockchain does not automatically mean cryptocurrency or specifically Bitcoin. As a stand-alone technology, it doesn’t necessarily involve any notion of currency. At its core, it is a platform ready to sustain any app project aiming to have a shared database or operations system/workflow (it’s basically a distributed database). It originated as a layer that Satoshi built Bitcoin, but the tech can be used for many other situations. As cryptocurrencies can provide solutions to many more issues than e-commerce payments.
For such young and emerging technologies in both the software and financial industries, we’re alongside you, looking forward to what the future holds. Bitcoin was only the inception of the digital technology revolution. Onwards!
SWAZM is the next-generation decentralized storage and compute platform, designed to enable horizontal scaling of distributed applications. SWAZM facilitates effective decentralization by creating a new complete infrastructure solution with a reliable transfer network, storage capabilities, and compute containers. Tailored solutions aiming to improve your decentralized project.