The Butterfly Effect that Bitcoin Set in Motion
The example given by Edward Norton Lorenz, American mathematician, meteorologist, and also a great contributor to the theory of chaos, is that the flapping of a butterfly’s wings can cause a hurricane on the other side of the continent.
“The butterfly effect” in its core definition means that vast and unforeseen consequences can occur when small changes are made to the initial state of a system.
At the Beginning of Crypto, There Was Chaos
The sudden emergence of Bitcoin more than a decade ago was seemingly unique but to many, it felt like another “click-to-win” attempt by the internet. The events triggered by its appearance had baffled markets, banks and corporations and some are still struggling to understand and go along with its impacts on the world. Bitcoin almost changed all the subsidiary mechanics that applied to exchange markets, commercial business, and even daily activities, just like a butterfly flap out of nowhere.
Its inevitable effects on the exchange market is the main reason that Bitcoin became extremely popular in such a short time. Bitcoin’s advantages are that it does not depend on a centralized organization, has a very low operation cost and offers unlimited transfer capabilities, while its value having high volatility and daily price fluctuations have attracted investors who are into speculative purposes. And inspired by these results as well as the developments in time, more and more people decided to hop on the blockchain bandwagon.
Especially after the boom of cryptocurrencies, in 2014–2015, another wave came that pushed the stock markets further aside and caused the initial creation of crypto’s very own ecosystem. This time, many companies and banks started to worry because the crypto world was expanding its uses in different areas of everyday life and this was not in their own control. Although some would consider the impact chaotic, it’s true that the non-linear dynamic of Bitcoin’s development has had long effects on the present.
From a Chaotic ‘Fringe Asset’ to a Beloved Coin
The understanding of Bitcoin’s drastic movements is based on the trust that the majority of people with transactional power in the network are honest. Each new block contains a version of the previous block that we can call compressed to a fixed number of bits by a function called a hash. By extracting the blockchain technology and including it in the exchange, backward changes to the blockchain were prevented, ensuring security integrity; if it is necessary to make changes to an approved transaction, the algorithmic problem that must be solved to complete the block containing that transaction must be solved again. In addition, because each block contains a reflection of the previous blocks, the same operation should be repeated for all blocks that come after the block that needs to be changed, that is, an alternative block chain should be generated.
The fact that the blockchain structure is constantly being worked on and grown by all Bitcoin users does not allow for this security risk, because the “longest” blockchain alternative is accepted and users continue to work on that. Acceptance of a change to the past can only be achieved by a faster generation of an alternative blockchain, which requires having the majority of the transactional power in the network. As a result of all these security measures, worldwide corporations and banking systems, as well as even governments (e.g. China, Russia, Italy), are also becoming rather more motivated to have Bitcoin and crypto integrated in their financial systems.
Today, the physical monetary system is starting to crumble and is about to collapse, while people are already speculating the possibility of a permanent shift into the crypto economy which would completely change our understanding of the economy.
After all, Bitcoin single-handedly managed to slip among “real-world” currencies. Ethereum is the promising follower in Bitcoin’s footsteps. When cryptocurrencies manage to have more than two coins in real markets, they will be sweeping over current financial systems just like the hurricane produced by the butterfly’s wings flapping.
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