The effects of financial literacy on the perception

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Decentralized systems vs. Centralized systems

Nabilou (2019) categorizes cryptocurrencies into two broad categories: centralized and decentralized. Regulatory bodies responsible for regulating transaction processes, policies, and security requirements monitor centralized cryptocurrencies. The Central Bank of Sweden (Riksbanken) is a regulating body of the Swedish Krona and E-krona, a centralized cryptocurrency (Nabilou, 2019). Decentralized cryptocurrencies like Bitcoin operate based on cryptographic protocols amongst a distributed network of users without state regulatory issuing or controlling it (Chan et al., 2017). Nabilou (2019) identified two issues with centralized systems: the Hayekian knowledge problem and regulatory arbitrage. The Hayekian knowledge problem touches upon the belief of a central authority that they possess the competence, skills, and abilities to regulate a decentralized cryptocurrency system (Bergh, 2019). The Hayekian problem leads to blind spots, which can be unanticipated problems with unanticipated solutions; hence, there are no regulations to prevent the problems from occurring, leading to catastrophic events. The second problem Nabilou (2019) realized was regulatory arbitrage which is the process of transferring activities from a regulated financial market (centralized) to a deregulated financial market (decentralized) with the goal of profit maximization. The objective of profit maximization influences inefficiencies in the financial markets, making them volatile and opposes the ideals of a merely decentralized system.

Why do individuals use Bitcoin?

Several researchers have highlighted that it is essential to understand why individuals would prefer to use a decentralized cryptocurrency such as Bitcoin over a centralized cryptocurrency like the e-krona issued by the central bank of Sweden (El Baharawy et al., 2017; Gagarina et al., 2019; Hemantha, 2021). Several studies have been done to call attention to the factors that influence the behavioral intention of individuals to use decentralized cryptocurrencies. Bhilawadikar & Garg (2020) found the decision-making process affected by financial principles like safety, capital appreciation, and tax benefits. The study conducted by Shahzad et al. (2018) found trustworthiness and awareness to be the main factors that attracted users to Bitcoin; furthermore, the study found perceived ease of use and perceived usefulness to be factors that influenced the behavioral intentions of individuals. The study conducted by Ji-Xi et al. (2021) confirmed these factors as influencers to affect the adoption process of Bitcoin; however, it found the performance expectancy of Bitcoin to be the main driving factor for the adoption of Bitcoin and the Effort expectancy to be of secondary importance. Although different factors were highlighted in prior research, there were three common ones mentioned across all studies, Trust, Usefulness, and Safety (Alqaryouti et al.,2020b; Baur et al., 2015; Bhilawadikar, & Garg, 2020; El Baharawy et al., 2017; Ermakova et al., 2017; Gagarina et al., 2019; Hemantha, 2021; Ji-Xi et al., 2021; Khairuddin et al., 2016; Sas & Khairuddin, 2017; Shahzad et al., 2018).


Trust is a complex process that occurs mostly internally, influenced by perception, personal beliefs, social ties, and other factors (Knittel et al., 2019). The function of trust is to connect current circumstances with aspirations about the future; trust determines, therefore, how individuals imagine the future and what steps are taken to reach the aspired future (Knittel et al., 2019). Researchers have found several reasons why individuals move away from conventional banking systems, factors such as losing trust in governments and financial institutions (Sas & Khairuddin, 2017) and the loss of confidence in money due to inflation and loss of purchasing power (Baur et al., 2015), and the policies that governments impose on conventional money (Baur et al., 2015) are factors that push people towards cryptocurrencies. In his book The Alchemy of Finance (1994), George Soros argues that factors such as inflation affect the trust in the financial systems and fiat currencies. Trust is an essential component of the development of Bitcoin; according to Knittel et al. (2019), their research found that the “True Bitcoiner” ideology has been a vital contribution to the popularity of Bitcoin. The ideology is based on the belief that Bitcoin technology is indestructible and that the existing institutions of capital and power are corrupt. This ideology fuels a collective vision of a future in which Bitcoin will be the solution to the current problems (Knittel et al., 2019).


Usefulness is defined as the degree to which a system can be beneficial. Prior research has identified several functionalities that pull individuals towards Bitcoin. Hemantha (2021) found anonymity, low transaction costs, transaction speed, and the return of investment to be factors that have drawn individuals towards Bitcoin. Khairuddin et al. (2016) also found that factors such as lower transaction costs and the speed at which funds could be transferred as attractive features of Bitcoin. The attractiveness of anonymity was also confirmed by a study conducted by Ermakova et al. (2017), in which 80% of Bitcoin users found anonymity to be a good function. Anonymity is possible thanks to the public keys, a digital code used to identify senders and receivers of Bitcoin in the blockchain (Nakamoto, 2008). Alqaryouti et al. (2020b) also found the ability to transfer wealth globally without high banking fees and government control to be an attractive feature that pulled individuals towards Bitcoin. The proof-of-work system allows coins to be shared between two willing parties without the involvement of a third party; the elimination of a third party is a factor that contributes to the reduced transaction costs and increased transaction speed (Nakamoto, 2008).


Safety is related to trust, the inner sensation of feeling safe, and the objective external factors that determine the system’s security. Current electronic payment systems rely on faith in the ability of the third party to enable secure transactions. The safety of the individual’s wealth is not in the control of the individual but in the power of the third party. The cryptographic protocol for Bitcoin removes the need for trust by making the possibility of manipulation close to impossible. Features such as irreversibility make it impossible to alter a block once it has been added to the blockchain and provides security to the system (Nakamoto, 2008). However, safety is closely related to trust, as many Bitcoin users do not understand how the system works and trust the idea that the system is indestructible and secure (Knittel et al., 2019). Although there are benefits to Bitcoin and the blockchain technology which make it safe, there have been safety concerns related to Bitcoins and cryptocurrencies as individuals have had their private keys stolen (Hemantha, 2021). However, Bitcoin enables individuals to make transactions anonymously, which does not require personal information like conventional transactions do, increasing safety by preventing hacking. Furthermore, unlike centralized systems, decentralized systems do not have a single point of failure as they are maintained collectively, which provides increased security and safety for individuals (Antonopoulos, 2014).

The effects of financial literacy on the perception

Multiple studies confirm a relationship between the level of financial education and the financial decisions taken by individuals (Henager & Cude, 2016; Kim et al., 2018; Lusardi & Oggero, 2017; Lusardi, 2019). According to Lusardi (2019), financial literacy is more than the knowledge regarding financial concepts; it is also about the skills and confidence of individuals and their ability to apply their understanding to enable an effective decision-making process in an economic environment that is constantly evolving. Henager & Cude (2016) further divides financial knowledge into objective and subjective knowledge. Objective knowledge is referred to the individual’s ability to interpret and solve problems relating to basic economic concepts such as inflation, interest rate, and risk diversification and has been tested through standardized exam-alike multiple-choice questions (Kim et al.,2018). Subjective knowledge is referred to the individual’s belief regarding their ability to make financial decisions and has been analyzed through open-ended questions. Kim et al. (2018) provides the question “How would you assess your overall financial knowledge?” as an example of how the subjective knowledge of individuals has been analyzed. According to Kim et al. (2018), most millennials make decisions based on subjective knowledge, whereas older generations are more likely to base decisions on objective knowledge.
Furthermore, multiple sources found that millennials were more likely to possess more significant subjective knowledge than objective knowledge (Henager & Crude., 2016; Kim et al., 2018; Mottola, 2014). Kim et al. (2018) defines this scenario as overconfidence amongst millennials which were related to higher risk-taking, increased debt, and increased likelihood of default on loans. Further, Kim et al. (2018) claim that the proportion between objective and subjective knowledge used for financial decisions has been evening, with millennials being the cross-over generation where economic choices are mainly based on subjective knowledge. Generation X, Baby Boomers, and the Silent Generation mainly based their financial decisions on objective knowledge. Kim et al. (2018) found that objective financial knowledge was positively correlated with having an emergency fund, spending less than income, and having enough cash to meet unexpected obligations (short-term behavior). The study found subjective knowledge positively correlated with long-term behavior, e.g., planning for retirement, investments, and long-term financial goals. Different studies have yielded slightly different correlations on how objective and subjective relates to short/long term behavior; however, scholars agree that both objective and subjective knowledge has an impact on financial decision making (Henager & Cude, 2016; Kim et al., 2018; Lusardi & Oggero, 2017; Lusardi, 2019; Mottola, 2014).


Proposed Theoretical Framework

Multiple scholars found that financial knowledge influenced individuals’ decision-making (Henager & Cude, 2016; Kim et al., 2018; Lusardi & Oggero, 2017; Lusardi, 2019). Individuals who were financially educated were more likely to have an emergency fund, spend less than their income, and have enough capital to meet unexpected obligations. Furthermore, individuals who possessed less financial literacy were more likely to take more significant financial risks, have more debt and risk defaulting on loan payments (Kim et al., 2018). Scholars categorized knowledge into two broad categories, objective and subjective knowledge, and it was evident that both affected the individuals’ perceptions (Henager & Cude, 2016; Kim et al., 2018; Lusardi & Oggero, 2017; Lusardi, 2019). Knittel et al. (2019) described trust as a complex internal process influenced by perception, personal beliefs, and social ties. Scholars added the word “perceived” in front of words as usefulness and ease of use to describe how research participants viewed Bitcoin (Shahzad et al.,2018; Ji-Xi et al., 2021). The research done by Kim et al. (2018) displayed that subjective knowledge, which was the belief the individual had in their own ability to perform a task, was closely related to overconfidence and greater risk-taking. Subjective and objective knowledge affect an individual’s perception, which affects the decision-making process. I, therefore, propose the following model: This model suggests that objective and subjective knowledge are used as inputs for the perception, which determines our internal reaction to which alternatives we perceive as Trustworthy, Useful, and Safe. The perception of the options also dictates what actions are taken.


This study must be designed and conducted to ensure that the research is high-quality and trustworthy. Hence, Guba (1981) developed four criteria, transferability, dependability, credibility, and confirmability were applied to the paper. The criterions developed by Guba (1981) were used as it is considered the best tool when analyzing trustworthiness in qualitative studies (Bryman & Bell, 2018).
Transferability relates to whether the empirical findings can be applied to a different situation (Collis & Hussey, 2014). Results from this research are based on individual narratives that illustrate the decision-making processes. Hence, they apply to papers that analyze consumer behavior, sales cycles, and other topics related to behavioral economics. The author has included detailed descriptions of the phenomenon, interviewees, and the interviews to ensure that the findings are transferable. Dependability refers to the stability of the data implying that the research should produce consistent results if repeated (Collis & Hussey, 2014). The author has provided an in-depth description of the methodology and method for the future researcher(s) to use as a guide. Credibility refers to the accuracy of the conducted research, which implies that data is described accurately (Collis & Hussey, 2014). The author recorded all interviews and took notes during the interview to avoid missing important details. Moreover, data was collected across time, sources, and individuals to triangulate the data and ensure credibility. Confirmability refers to the findings implying that findings are based on the interviewees’ perspective, not the authors’ perspective (Guba, 1981). The thesis was distributed back to the interviewees to ensure that the findings were based on the interviewees’ perspectives and not the authors.

Ethical Considerations

Ethical issues can arise when conducting research; hence author(s) ethical considerations must be made throughout the research process (Saunders, Lewis & Thornhill, 2007). The research topic touches upon a sensitive subject within social science; hence, several aspects of ethics were applied to ensure that interviewees were treated following ethical standards. The used ethical elements refer to the research topic, how the research was designed, how interviewees were accessed, how data was collected, stored, and processed, and the formulation of the findings in a responsible way (Saunders, Lewis & Thornhill, 2007).
The author approached the potential interviewees by email, informing them about the purpose of the study and how the perspective of the potential interviewee could contribute to the thesis. Furthermore, the potential interviewee was told about their rights, the expected duration of the interview, and the interview conditions, meaning that the interview would occur through Microsoft teams and be recorded to ensure credibility. Also, the interviewees were informed about how their data would be processed and stored. Only data needed for this study was collected; hence unnecessary information such as income level and political ideologies was not collected. The interviewees were provided the same information before the interview for clarity purposes. The interviews were designed to ensure that sensitive data and names were excluded; moreover, findings were presented using made-up names to ensure anonymity. A finalized draft has been sent to the interviewees to receive final approval before finishing the paper to ensure that the findings are presented responsibly and ethically. Finally, the interview questions are included in appendices to ensure transparency.

Table of contents :

1. Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose & Research question
2. Frame of reference
2.1 Literature Review
2.1.1 Method
2.1.2 Bitcoin
2.1.3 Blockchain
2.1.4 Decentralized systems vs. Centralized systems
2.2 Why do individuals use Bitcoin?
2.2.1 Trust
2.2.2 Usefulness
2.2.3 Safety
2.3 The effects of financial literacy on the perception
2.4 Proposed Theoretical Framework
3. Methodology and Method
3.1 Methodology
3.1.1 Research Philosophy
3.1.2 Research Approach
3.2 Method
3.2.1 Data collection
3.2.2 Data Analysis Method
3.2.3 Trustworthiness
3.3 Ethical Considerations
4. Empirical Findings
4.1 John
4.1.1 Interviewee Background
4.1.2 Narrative
4.2 Ben
4.2.1 Interviewee Background
4.2.2 Narrative
4.3 Will
4.3.1 Interviewee Background
4.3.2 Narrative
4.4 Luke
4.4.1 Interviewee Background
4.4.2 Narrative
4.5 Meet Carl
4.5.1 Interviewee Background
4.5.2 Narrative
5. Discussion
5.1 Decision-making and the Perception
5.1.1 Trust
5.1.2 Usefulness
5.1.3 Safety
6. Conclusion
6.1 Theoretical Contributions
6.2 Practical Contributions
6.3 Limitations
6.4 Future Research
7. References


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