The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World

Chapter 5 A Decentralized Financial System

Change is the law of life. And those who look only to the past or present are certain to miss the future.

—John F. Kennedy

The question that most people ask is why Bitcoin has become so popular. It rose from the ashes of the financial crisis of 2008 to become a legitimate player in the global financial system. But what's all the excitement about, and why have people embraced digital currencies in general? The euphoria stems from the realization that Bitcoin could be the vehicle that transforms the financial system from centralized to decentralized. Our modern system of money transfer may be ostensibly based on bits and bytes, but at its core is an outdated centralized network of middlemen.

Banking as we know it finds its roots in the agricultural loans made between grain merchants and traders who transported goods across Assyria and Babylonia around 2000 BCE. Records of transactions and loans were made at temples and palaces. In fact, one of the earliest known writings, The Code of Hammurabi, refers to laws governing a form of banking. The legacy of this financial system may be hard to decipher in today's modern financial world, but one key element remains. Then and now, the financial system revolves around a central point. In Babylonia it was the temples, while today it is the global central banks.

Banks that resemble our modern financial system developed during the Renaissance period in Italy. In 1397, Giovanni Medici established ...