The Banking Executive Magazine - May 2022 Issue

tant element of today’s financial life, and they are more probably to have a future impact on financial markets. The first Bitcoin was mined in 2009, and the price of Bitcoin has climbed continuously since then, trading above USD 66,000 in October 2021 with a market capitalization reaching USD 1.24 trillion. Bitcoin’ success have attracted thousands of competi- tors in Cryptocurrencies and helped establish a decentralized ecosystem in finance. Also, the rise of Cryp- tocurrencies and stablecoin have at- tracted some central banks to issue their own digital currencies, while Blockchain technology has been proposed as a solution to a range of financial, economic and logistical problems. Perhaps, Bitcoin has been potentially referred as gold to a safe haven asset. Thus, Cryptocurrencies are subject to limitations and barriers that bear in mind what roles they should have in portfolio and how much they will ever be adopted as currencies. Bit- coin are very risky and therefore their prices are highly volatile. Also, Cryp- tocurrencies have raised environ- mental, social and governance (ESG) awareness and cooperation. Also, while the Bitcoin bubble isn’t large yet in size that would pose a poten- tial risk to the financial markets, could, Cryptocurrencies threaten economic stability, local currencies, commercial and central banks? In fact, there are enough threats to make greater regulation certain, and working on the development of cen- tral bank digital currencies (CBDCs) may be one of Cryptocurrencies legacies. THE RISE OF CRYPTOCURRENCIES The cryptocurrency, Bitcoin, first block mined in October 2008 was an idea in a technical white paper by an anonymous author using the name Satoshi Nakamoto. The propo- sition was to enable peer-to-peer on- line payments without the need for a trusted third party. The key properties of Blockchain technology are sum- marized: Trustless: Peer-to-peer transactions are enabled without a trusted third party by leveraging a decentralized network of nodes (i.e., computers running software) that store copies of a Blockchain file and agree on up- dates (i.e., add transactions) to the file through a consensus mechanism called mining. Permissionless: The software that powers Blockchain is open source, free for all to download. Censorship resistant: A decentralized network, along with Blockchain’s, makes it impossible for any individ- ual, government or organization to deny or access transactions. Incentive Driven: Miners run Blockchain software and verify trans- actions to earn the potential reward of newly issued “coins” or “tokens.” Perhaps most importantly, Blockchain technology solved the most fundamental problem of any decentralized digital currency, by utilizing a Blockchain ledger, any two parties can transfer value over the internet without the need for a trusted third party, since Blockchains provide open, transparent and per- manent records of who owns what. ISSUE 161 MAY 2022 the BANKING EXECUTIVE 35