The Impacts of Cryptocurrencies on The Global Financial System

2.1 Evolution of Currency Forms: From Bartering to Gold-backed Currencies

Each currency form was introduced to address limits of the last. Barter lets two parties trade without an intermediary and meets immediate needs, but it depends on a double coincidence of wants and has no standardised unit of account (Taskinsoy 2023). Platforms such as Swap.com and BarterQuest widen the matching set; the missing standard remains (Youvan 2024).

From about 1200 to 800 BC, cowrie shells circulated in Africa and Asia. Durability, portability, and appearance made them one of the most widely used early media; bulk became a problem on large purchases (Fauvelle 2024). Ancient Greece struck silver tetradrachms with standardised weights in the 7th century BC. Hammurabi’s Code (18th century BC) treated silver as legal tender. The Lydians struck electrum in the 6th century BC (Bohigas 2024).

1. 01

   Barter

   Direct swap. No intermediary and no unit of account.

2. 02

   Cowrie shells

   A circulating standard; bulky on large trades.

3. 03

   Struck metal

   Tetradrachms, electrum, silver as legal tender.

4. 04

   Gold standard

   Coinage Act 1816. Bretton Woods: 1 ounce = USD 35. Nixon closed the gold window in 1971.

5. 05

   Fiat

   Value rests on a government guarantee. Inflation, fees, centralised control.

Britain’s Coinage Act of 1816 fixed a ratio of currency to gold; rigid exchange rates created inefficiency when markets moved (Cooper 1982). Bretton Woods (1944) set 1 gold ounce to 35 USD. Industry in OEEC countries rose by about 39% and exports doubled, partly through the Marshall Plan of about thirteen billion USD (Bordo 1993). When dollars in circulation outpaced gold reserves, together with Vietnam War finance and inflexible UK and German rates, President Nixon ended gold convertibility in 1971. Fiat money — unbacked by assets other than the government’s guarantee — became the dominant form.

2.2 Transaction Languages of Currencies

During the American Civil War, transactions moved by mail and cheque: vulnerable to theft, dependent on physical delivery, inefficient internationally (National Postal Museum 2025). SWIFT, established in 1973, connects more than 11,000 institutions across some 200 countries and has processed over 6.5 billion messages a year, while remaining intermediary-based, costly, and slow on cross-border payments (Farrell & Newman 2019).

ISO 20022 was scheduled to launch fully by November 2025: structured data, less fraud, more interoperability. Citigroup reported that the standard would cover about 87% of high-value payments (Citigroup 2025; ISO 2025). Visa and Mastercard move trillions a year and still face high fees and delayed settlement. PayPal and Apple Pay cut cash-handling risk; US mobile-payment users were estimated at over 100 million in 2021, yet business fees, cyber risk, and thin smartphone access remain (Raina 2014). A decentralised ledger was offered as an answer to those costs and delays.

3.1 Overview of Fiat Money and Central Banks’ Monetary Policy Tools

After Bretton Woods, fiat is the primary medium of exchange: legal tender issued and managed by a central bank — the Federal Reserve for the USD, the ECB for the euro (ECB 2024). The main tools are the interest rate, quantitative easing (QE), and quantitative tightening (QT).

3.1.1 Interest Rate

The bank rate (discount rate) is set by the central bank to regulate capital flows and as a reference for commercial lending (Bank of England 2025a; CFI 2025a). Raising rates lifts borrowing costs, drains liquidity, and may appreciate the currency; government bonds and deposits become more attractive (U.S. Bank 2025). Cutting rates does the reverse: liquidity rises, riskier assets — equities, housing, then cryptocurrencies — gain appeal, and the domestic currency may depreciate.

3.1.2 Quantitative Easing (QE) and Quantitative Tightening (QT)

QT slows reinvestment of maturing government bonds and reduces market liquidity (CFI 2025b). QE is the opposite: the central bank buys financial assets or government bonds, raises commercial-bank reserves, and encourages lending. It is used when policy rates cannot be cut further (Bank of England 2025b). Because fiat is not gold-backed, money can be created without a physical ceiling; the Federal Reserve targets inflation of about 2% (FED 2025a).

US M1 rose from about 4 trillion to 16 trillion USD in spring 2020. A large part of the May 2020 step is the Federal Reserve’s redefinition of M1 to include savings deposits; the rest sits with COVID-19 policy.

The three series do not prove a clean causal link. They are enough to say that liquidity operations moved with both the equity index and crypto market capitalisation (thesis, section 3.1.2).

Hyperinflation is rapid depreciation of a national fiat, with accelerating prices of goods and services; the usual threshold is a monthly inflation rate above 50% (Sheposh 2024). Germany’s classic episode followed the First World War (1923); Hungary’s followed the Second. This section examines only Zimbabwe and Venezuela.

3.2.1 Hyperinflation in Zimbabwe

Zimbabwe is in southern Africa. Inflation exceeded 100% a year from 2001 and reached about 1,000% a month by November 2008 (Hanke 2008). The government pointed to private-sector speculation and sanctions that led to money printing (McIndoe-Calder 2009). GDP per capita fell by nearly 40% between 2000 and 2007; agriculture −51%, industry −47%, natural resources −35%; 4.2 million people faced food shortages (Conkling 2010). A public ledger and Bitcoin’s 21 million cap are noted in the thesis as a technical path — not a miracle — once the fiat unit of account had collapsed (Lwanda 2019).

3.2.2 Hyperinflation in Venezuela

Venezuela is in South America. Monthly inflation exceeded 50% from 2017 to 2019 and peaked at about 9,585% in 2019 (Reuters 2020). Nationalisation, price controls, large subsidies, and tight fiscal measures under Chávez and Maduro worsened inflation (Wang 2022). The IMF recorded a contraction of about 30% in 2020 (IMF 2025). Remittances of about 120 million USD a month became a target of capital controls; Bitcoin and Ethereum are cited as less censored channels (Rendon 2018).

3.2.3 Money Injection without Having Hyperinflation

The United States expanded the money supply sharply without hyperinflation. The dollar’s purchasing power has declined since Bretton Woods, yet GDP continued to rise. QE buys bonds by creating settlement balances in institutions’ accounts (Bank of Canada 2025); open-market operations adjust reserve supply to hold the federal funds rate, including in 2008 and during COVID-19 (FED 2025d).

The Cantillon effect describes uneven price changes when the money supply changes (SWFI 2021). New money does not fall evenly: it enters large organisations and borrowers with good credit, then equities and housing. Household income rises more slowly than asset prices (Durden 2024).

In 2000 the average home price was about three times median household income; by 2022 it was nearly seven times. In some areas the gap was larger. Liquidity injection lifted property prices faster than incomes.

4.1 Definition of Cryptocurrencies

A cryptocurrency is a digital currency produced by a public network, not by a finance ministry. “Crypto” comes from kryptos (Greek: hidden); cryptography lets two strangers transact peer-to-peer without a bank in the middle (IBM 2025a; Coinbase 2025a). A blockchain is a ledger of every network transaction that cannot be falsified or deleted. On Bitcoin, nodes (miners) solve SHA-256; more miners make the network more secure; rewards are fees and the block subsidy (McKinsey 2024; Cameron & Winklevoss 2023). Decentralisation is a defining trait: no government, person, or firm controls a majority of the Bitcoin network — unlike fiat, whose purchasing power is guaranteed by the state (OECD 2025).

4.2 The Emergence of Cryptocurrencies: Precursors to Bitcoin

ECash (DigiCash, 1993) collapsed because it depended on the issuer (European Commission 2019; Mulcahy 2024). E-gold (1996) was shut in 2008 for money laundering and unlicensed money transmission (Department of Justice 2006; 2008). Nick Szabo’s Bitgold (1998) resembled decentralised proof-of-work but never reached a public market; Szabo later said Bitcoin’s design fixed a security flaw in Bitgold (Bitcoin Magazine 2018). Adam Back’s Hashcash (1990s) used proof-of-work against email spam — not a currency, but cited in the Bitcoin whitepaper (Back 2002). The lesson of those projects is that a centre can be switched off.

Bitcoin appeared on 31 October 2008 in Satoshi Nakamoto’s whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” (Nakamoto 2008). On 5 October 2009, New Liberty Standard set 1 USD to 1,309.03 BTC (Stevenson 2025). In May 2010, Laszlo Hanyecz traded 10,000 BTC for two pizzas, about 41 USD (Coinbase 2025b). Litecoin (2011), Ripple (2012), Ethereum (2015) and other “altcoins” followed. CoinMarketCap (2025a) recorded a total capitalisation of about 3.87 trillion USD, some 20 million coins, and 840 exchanges.

4.3 Specific Attributes and Technologies of Some Cryptocurrencies

• Bitcoin — Proof of Work

  31 October 2008

  Miners run SHA-256; faster hardware shortens the search and raises electricity use. In 2025 the network was projected at about 221.64 TWh — comparable to Denmark’s annual use (University of Cambridge 2025; Ritchie 2025). In theory, a quantum computer could break a wallet address in about 30 minutes (Barmes, Bosch & Haalstra). Supply is capped at 21 million.

• Ethereum — smart contracts and Proof of Stake

  ICO 2014 · mainnet July 2015

  Vitalik Buterin; the 2014 ICO raised more than 18 million USD. Validators lock ether as collateral rather than burning electricity. The EVM runs “if/when… then…” contracts. In July 2016 the DAO exploit drained about 50 million USD and ETH fell 30%; a hard fork split Ethereum and Ethereum Classic (Ungureanu, Bellesia & Cochis 2025). Market capitalisation was around 545 billion USD at the time of the thesis (CoinMarketCap 2025b).

• Chainlink — oracle

  LINK · ICO September 2017

  A bridge for off-chain/on-chain data: prices, APIs, weather. The ICO raised about 32 million USD; mainnet 2019. In November 2024, Swift, UBS Asset Management, and Chainlink completed a pilot for tokenised-fund payments (SWIFT 2024). DTCC (446 trillion USD settled in 2023) worked on BondTokens (Prosperi 2023). The US Department of Commerce posted GDP on-chain in August 2025 (DOC 2025). More than 2,400 projects had integrated the network (Chainlink 2025).

• USDC — stablecoin

  Circle · 1:1 USD

  Market capitalisation estimated at 30–35 billion USD in 2025. In 2023 Circle lost 3.3 billion of 40 billion USD in reserves at Silicon Valley Bank; USDC depegged to 0.88 and later recovered (Reuters 2023). Tokenised real-world assets have been discussed at up to 2 trillion USD by 2030 (DTCC 2025). Not risk-free: a dollar that can move outside banking hours, with reserve and counterparty risk.

Klaus Schwab (2016, 143) wrote that 10% of global GDP could be stored on blockchain. Four financial centres do not read the same statute.

4.4.1 United States of America

• United States

  Projected revenue ~$16.1B · penetration 46.39%

  The IRS treats cryptocurrency as an asset. More than 30,000 Bitcoin ATMs in 2025 (Coinatmradar 2025). Purpose Bitcoin ETF listed in Canada in February 2021; ProShares BITO (a futures ETF) listed in the US in October 2021 — it was not a Canadian ETF. IBIT was approved by the SEC in January 2024: $1 billion AUM in week one, about $80 billion in Table 4 (Yahoo Finance 2025a); VettaFi recorded nearly $86 billion. March 2025: Strategic Bitcoin Reserve. GENIUS Act: 100% liquid reserves, monthly disclosure. CLARITY, a CBDC ban bill, and market-structure bills remain on the table.

• Japan

  ~18 million users · tax 55% → 20%

  The Payment Services Act licenses exchanges and treats crypto as an asset. The stablecoin law requires 100% backing — about three years before GENIUS. FIEA opened the door to ETFs and tokenised assets. Web3, NFTs, and games: about $1.5 billion in venture capital. Penetration 14.7%; revenue about $2 billion (Statista 2025d).

• United Kingdom

  Adoption ~12% (April 2025)

  FSMA 2023, the draft Cryptoasset Order 2025, and the FCA sandbox. Since 2023, more than 900 scam websites and more than 50 apps have been taken down (FCA 2024). After Brexit the UK is outside MiCA — London writes its own rules and tracks the US (Milliken & Wilkes 2025).

• China

  ~194,000 BTC held

  Bans on mining, trading, ICOs, and USD-pegged stablecoins; users still enter over VPNs. BSN is cited at about $54.5 billion a year for blockchain by 2030 (SanctionScanner 2025). The PBOC is developing a digital yuan and has considered a yuan-backed stablecoin (Reuters 2025). Hong Kong: Stablecoin Bill and ETFs. Coins are banned; the ledger is not. The US holds about 213,000 BTC; China 194,000 — largely from confiscations (Kamsky 2025).

5.1 Roles of Corporations and Financial Institutions

BlackRock had $12.53 trillion in AUM by Q2 2025 (Statista 2025e). IBIT is described as the fastest-growing commodity or equity ETF by AUM. The thesis records cryptocurrency market capitalisation at about $4 trillion after these products (CoinMarketCap 2025c).

5.2 Challenges in Cryptocurrency Adoption

China once accounted for nearly 65% of global Bitcoin mining; the May 2021 mining ban forced relocation, and the bitcoin price fell about 30% to around $30,000 (The Guardian 2021). MiCA (Markets in Crypto-Assets) was signed on 31 May 2023 and took effect on 29 June 2023. CBDCs are excluded. Coinbase, Kraken, Crypto.com, Bitstamp, and Circle (EURC) entered the frame; Tether and Binance did not (Adejumo 2025). After Brexit the United Kingdom is not subject to MiCA.

5.2.1 CBDC as a Challenge for the Cryptocurrency Market

A CBDC is digital money issued by a central bank: retail for persons and firms, wholesale for institutions (ICMA 2025). The World Bank (2021) sets out three options: (A) digital cash on a distributed ledger, anonymous, 1:1 with notes, 24/7; (B) the same with interest via smart contracts; (C) an account at the central bank, not anonymous. Stable like a private stablecoin, but guaranteed by the state (Congress 2025; Waliczek 2023). China and India have the population to push adoption. Multi-CBDC cross-border arrangements (BIS 2021) may compete with the role USDT now holds.

5.3.1 How the US Boosts the Economy through the GENIUS Act

The White House argued that the Act helps preserve the dollar as the global reserve currency. Citigroup forecast that stablecoins could reach $4 trillion by 2030 (Ghose et al. 2025). USDT and USDC held about 93% of the market (Berkowitz 2025). The two issuers sit on more than $200 billion of US-related assets.

5.3.2 How Russia Circumvented Sanctions by Using Cryptocurrencies

As of 12 March 2022, seven Russian banks, including the central bank, were disconnected from SWIFT (Zhou 2022). The A7 group (Ilan Shor) issued A7A5, a ruble-pegged stablecoin (Elliptic 2025). On ruble P2P books, buyers send rubles via SBP (the Bank of Russia’s Faster Payments System) and sellers release USDT into a spot wallet. SBP pays by phone number at low or no fees (Bank of Russia 2025). SBP is a domestic rail; cryptocurrency is the cross-border bridge.

1. 01

   Ruble account

   The buyer pays through SBP — the Bank of Russia’s system.

2. 02

   P2P on an exchange

   The seller confirms receipt. SWIFT is not required.

3. 03

   USDT in a spot wallet

   Dollars on-chain. The reverse path is symmetric.

5.3.3 Cryptocurrency as an Investment: Halving Cycles, Performance, and Volatility

• 99.05%

  Bitcoin CAGR, 13 years (Curvo 2025)

• −83%

  2017 drawdown (Conte 2021)

• $20B

  Liquidations, 10 Oct 2025 (Napolitano 2025)

On 10 October 2025, after a US–China tariff announcement, bitcoin fell 10–11% and altcoins 50–70%; about $20 billion of positions were closed (Napolitano 2025). ETFs reduce the risk of leaving coins on an exchange — they do not remove macro risk.

5.4 Crimes and Frauds in the Cryptocurrency Market

Silk Road (Ross Ulbricht, 2011) processed more than $1.2 billion, mostly drugs over Tor; the FBI arrested Ulbricht and seized 144,000 BTC (Greenberg 2013; Department of Justice 2014). Mt. Gox (2014): 100,000 BTC of exchange coins and 750,000 BTC of customer coins — at the time about 70% of bitcoin trading (BBC 2014). FTX (November 2022): customer funds through Alameda Research, about $8 billion of debt after bankruptcy (Nallapaneni 2025); Silvergate, Silicon Valley Bank, and Signature followed (Sigalos 2023).

Global laundering is estimated at $800 billion–$2 trillion a year; governments recover about 1% (Burnett 2025). Less than 1% of on-chain volume is attributed to laundering or terrorist finance — Hawala and banks remain the main paths (Chainalysis 2025b; UNODC 2023). Chainalysis, Glassnode, and CryptoQuant read the ledger. The thesis advises a cold wallet (Ledger, Trezor) over leaving coins on an exchange.

5.5 Taxation and tax evasion

Selling, converting to fiat, or paying with coin can be taxable. Rates range from about 10% to 50%, depending on capital gains, holding period, or income classification (Daly 2025). Centralised exchanges must report. Avoidance is hard once funds hit a bank, unless conversion is cash and transfer is peer-to-peer without an intermediary. Once the legal infrastructure is closed, the market is a revenue channel for the state rather than a dark hole.

This section considers how cryptocurrencies could enter the global financial system, using game theory as a reading frame. The three scenarios below match chapter 6 of the thesis.

• Optimistic scenario

  The cryptocurrency market and traditional finance collaborate as a hybrid capital market. Banks embed blockchain to raise speed and cut paper. Institutions sell coin-related products. Projects with real progress that follow the law are more likely to last.

• Neutral scenario

  Adoption spreads slowly because of CBDCs and regulation. CBDCs attract funds under a state guarantee. Strict stablecoin rules hinder private issuers. The global market fragments at the border.

• Pessimistic scenario

  Quantum computers compromise chain cryptography. Governments ban activity for risk, fraud, and control. Firms that issued debt to buy coins can default if prices fall. Whether the market expands or is restricted, application into the financial system is already happening — so risk management is a condition, not an appendix.

The thesis follows the evolution of currencies and transaction systems in order to read the impacts of cryptocurrencies on the global financial system. Money has moved from barter to fiat, with inflation, high transaction costs, and reliance on intermediaries. SWIFT and card networks addressed an earlier layer of those problems, yet remain slower and costlier than blockchain-based money.

Cryptocurrencies can address some inefficiencies in traditional finance — faster transactions, more transparency — and they introduce risks for individuals, firms, and governments. Individuals can diversify a portfolio if they can bear the drawdown. Firms such as SWIFT have already trialled the chain. Governments are writing the statute. Quantum computers and exchange fraud may slow adoption. Further technical and policy work will shape what follows.