Fiat currencies and Banking technology slowly leading to centralization: Is Bitcoin the savior?

Fiat currencies and Banking technology slowly leading to centralization: Is Bitcoin the savior?

  • September 29, 2016
  • /
  • Deepak Bharadwaz

Paper currency is a recent man-made or rather bank made concept to facilitate exchange of goods and services. Historically mankind has opted for outright bartering, gold, coins, beads, feathers and finally paper currency for goods and services. Currently, new means of exchange based on technological solutions are slowly replacing fiat currencies. While this might seem positive on the outset, it may lead to a centralized future with central banks in authority. Let’s dive deep into this to see how this is a misleading notion:

How cash is devalued:

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When the economy is facing inflation, Government brings in more money into circulation. This leads to devaluation of the currency but control over the levels of inflation. This process of bringing more money into circulation is ‘Quantitative easing’.  The opposite process where the central banks offer high interest rates for storing money is ‘Quantitative Tightening’. This tactic increases the value and purchasing power of money for a healthy economy. Alternating these tactics, the central banks try to keep a check on inflation levels.

However most of the times, imbalances of these strategies end up hampering the value of the currency and economy. During high levels of inflation, when the state has generated the maximum amount of money, it might not be adequate. While the currency is anyways devalued, the central banks cannot offer interest for money stored with them and hence interest rates go negative. That means public has to pay for keeping their money with the bank which is highly undesirable. This is the current state of affairs with most of the European Union central banks.

Technology is a solution?


At this point, it might appeal that a technological solution to replace paper currency might be an apt solution. But the paper currency we use for various transactions is a drop in the ocean compared to other channels. Over 90% of all economic transfers done are  digital and not in common “cash” currency. Generally wire transfer, debit cards, credit cards, Paypal are used for vast majority of your bill payment and daily purchases.

The problem owing to technology and various mediums of transfers, we are paving way for centralization. By totally relying on technology we are bidding good bye to our privacy. Our card issuing banks have complete access to our personal deals, purchase patterns, history of personal finance. These details can be made available for third parties for marketing and promotions. Banks/the government get complete control over privacy, accounts and access. Everything becomes centralized onto banking/government servers. Tie this together with government monitoring of emails, phone calls, social media and it becomes a web of centralized control. This is undesirable and this motions us for a decentralized solution.

How Bitcoin Fits:


While we are looking at technological solutions to overcome the nightmares of banking strategies, it has to be decentralized. Right from its inception that has been the selling point for Bitcoin. A digital currency that can be transferred over a decentralized network without the presence of a third party. Hence considering how the central banks are slowly edging towards a centralized future for banking, Bitcoin might be our solution to achieve total financial freedom and anonymity.