If there is one element that all economic scientists agree on, it is the fact that money plays a decisive role in the development of a market, from ancient times to the present day. Times change. Forms of money evolve. Today, when technological and digital developments are dizzying, money is largely dematerialized and banknotes constitute only a small part of the money supply.

The introduction of cryptocurrencies, beginning with Bitcoin in 2009, has brought a seismic shift to the monetary landscape. Created by an individual or group using the pseudonym "Satoshi Nakamoto," Bitcoin, along with fintech and digital payment solutions, represents a revolutionary development that challenges traditional finance. Cryptocurrencies operate on decentralized networks, relying on innovative computer technologies and, notably, circumventing the need for central banks. This decentralization aspect has been heralded as a potentially democratic revolution in the financial sector.

Bitcoin paved the way for the emergence of various other cryptocurrencies, including Ethereum, USDT, Ripple, Litecoin, and more. These digital currencies have gained widespread usage globally, offering financial freedom and anonymity. The decentralized and borderless nature of cryptocurrencies presents notable differences compared to traditional banking systems, attracting users seeking alternative financial mechanisms.

CRYPTOGRAPHIC TECHNOLOGY AND MATERIALIZED MONEY

Cryptocurrencies operate based on the principles of blockchain technology and cryptography. When a user initiates a transaction, such as sending Bitcoin to another user, they create a transaction that is electronically signed using cryptographic keys for authenticity and integrity. This transaction is then converted into a block and added to the decentralized and tamper-resistant blockchain. The blockchain serves as a secure and distributed database that records all transactions, ensuring transparency and immutability.

In the process of validating a transaction, miners, or network custodians, compete to solve a mathematical problem known as "proof of work." The first miner to solve the problem shares the solution with others, and once the majority agrees, the transaction block is verified and added to the blockchain. The updated blockchain is then distributed across the network. Once a transaction is recorded on the blockchain, it becomes extremely difficult to alter.

While some countries are embracing cryptocurrencies, such as El Salvador adopting Bitcoin as legal tender in 2021, others remain cautious. The use of cryptocurrencies has both legitimate and illicit aspects. Cryptocurrencies provide a degree of anonymity, making it challenging to identify the true owners of funds. This feature has led to exploitation for illegal activities, including money laundering and transactions on darknet markets. Cryptocurrencies like Bitcoin, Monero, and USDT have been associated with these illicit activities.

Moreover, the volatile nature of cryptocurrencies has raised concerns, as their values can fluctuate significantly over short periods. Some countries have legalized the use of cryptocurrencies without making them legal tender, acknowledging their potential but also addressing associated risks.

The dark side of cryptocurrencies also includes fraudulent schemes, such as Ponzi schemes, where promises of high returns are used to lure victims, and funds from new participants are used to pay off earlier investors. One notable case is the "OneCoin" scam in 2017, where organizers ran away with the funds after attracting investors with false promises.

TRADITIONAL MONETARY SYSTEM CHALLENGED

Trust has long been a critical factor in the acceptance of money as a medium of exchange. Governments and financial institutions work continuously to maintain this trust, but economic crises can trigger currency crises, eroding confidence in a currency's ability to uphold its economic fundamentals. The current monetary system relies on decision-makers who set monetary policy, and extreme measures, such as printing money, may be employed to stabilize economies, sometimes with unintended consequences.

Cryptocurrency assets, particularly Bitcoin, have emerged as a fundamental challenge to this centralized monetary operation. They offer a form of digital trust that is decentralized, transparent, and often viewed as revolutionary. Trust is foundational to the existence of any currency, and cryptocurrencies present an alternative that questions traditional norms and institutions.

In developed economies, currencies issued by central banks, such as the Euro, Dollar, or Yuan, benefit from high levels of public confidence due to the credibility of the supporting institutions. However, in countries where trust in national currencies has weakened, as seen in the drastic decline of currencies like the Zimbabwean dollar or the Venezuelan bolivar, cryptocurrencies like Bitcoin offer a glimmer of hope for citizens seeking to escape inflation.

Bitcoin, in particular, introduces a revolutionary alternative by eliminating the requirement to use a specific currency in any given country. It challenges the notion of monetary sovereignty and the role of traditional institutions. Some countries are rethinking their monetary systems, and others are exploring the issuance of central bank digital currencies (CBDCs). China, for example, has taken the lead with the launch of its digital Yuan. These initiatives disrupt established norms and pose significant challenges to traditional monetary models. Governments and financial institutions can no longer ignore the changing landscape and must adapt to the evolving dynamics of the digital economy.

RECOGNITION OF BITCOIN BY THE US SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission (SEC) in the United States granted approval for a spot Bitcoin Exchange Traded Fund (ETF) on January 10, 2024. This decision marks a significant milestone for the cryptocurrency, which, in just 15 years of existence, has gained recognition as a distinct asset class by American financial institutions. The approved ETF is an index fund that allows investors to participate in the developments of Bitcoin without directly holding the digital currency. Investors buy shares of the fund, which are denominated in dollars, while the fund itself holds assets in cryptocurrencies, particularly physical Bitcoins.

A spot Bitcoin ETF is backed by the actual Bitcoins that support its value. As the value of the digital currencies in the ETF increases, the investment's value is expected to rise. This development simplifies access to cryptocurrencies for millions of American individuals and pension funds, eliminating the need for them to navigate digital wallets or cryptocurrency exchanges. The approval of the spot Bitcoin ETF is considered a pivotal moment for digital assets, indicating a shift towards broader adoption and legitimacy in the financial landscape. The anticipation of this approval has coincided with a notable increase in the price of Bitcoin, rising approximately 70% since October.

THE CHALLENGES OF THE NEW FINANCIAL ARCHITECTURE OF THE FUTURE

Bitcoin has the potential to disrupt the current financial infrastructure thanks to its decentralized system that eliminates traditional intermediaries. In theory, realigning operations between individuals and economic actors on the Bitcoin blockchain could reorganize the current financial infrastructure, as it bypasses governments and their intermediaries for regulating economic policy. The power to increase or decrease the money supply is no longer entrusted to a single authority or group of authorities but is in the hands of every individual in the network.

Is it time to embrace these challenges and explore the opportunities they offer for a more fair, transparent, and equitable financial management for all? Now that it is 80 years since the creation of the international monetary system, its institutions, the International Monetary Fund of the World Bank, will they include this revolution in their new financial architecture of the future?

(*Academician Prof. Dr. Anastas Angjeli is economy expert, former Minister and MP, President of the Mediterranean University of Albania)