The era of Blockchain: Impacts of digital currencies on the financial systems

“Bitcoin: A Peer-to-Peer Electronic Cash System” argues that Internet-based commerce is at a disadvantaged due to reliance on trust model where parties back on a financial institution to serve as trusted third parties to process payments.  In trust-based model, it is not possible to have non-reversible transactions as financial institutions are eager to avoid disputes. This increases transaction costs and makes transaction in small amounts uneconomical.

However, if the payment system was based on cryptographic proof, instead of trust, such predicaments would not occur. Two willing parties would transact directly through a peer-to-peer version of electronic cash allowing online payments, as if they were doing it in person, without the need for a trusted third party. Nakamoto’s concept heralded a new era of digital currencies, with his Bitcoin rising to a market leader and trend setter.