Bitcoin changed the financial world in 2009 when it became the first cryptocurrency to allow for cheap and peer-to-peer transactions without middle-men and anywhere in the world! This could also be done at any time of the day and any day of the week. Unlike traditional banks, there are set hours and no doors to close.
With the introduction of Bitcoin, came the Bitcoin Blockchain. Blockchain Technology has developers working intensely, barely scratching the surface of the application list for Blockchain. Blockchain largely remains associated with the Bitcoin ecosystem even though it holds the promise of change for the better in other numerous areas yet discovered. The value of Blockchain technology has not been defined.
Let’s look at Cryptocurrencies and how they have disrupted the traditional banking system.
Traditional Money vs. CryptoCurrency
Starting with the main difference between traditional fiat money (dollars, pounds, euro, etc.) and Cryptocurrency (Bitcoin, Etherum, Litecoin, etc.) The main and most important difference is that Cryptocurrencies are decentralized and out of the central bank or government’s control. Resulting in a payment system that is immune to governmental interference.
Essentially, there are no other major differences. Both fiat AND cryptocurrency store value and can be used to purchase goods and services. Both are used to store and transfer value and are driven by supply, demand, work, scarcity, and other economic factors.
Comparing Fiat Money to Cryptocurrency:
Advantages of Decentralized Financial System
Cryptocurrencies have the ability to operate without a central point of failure. This means that a potential hacker has no “one” area where they could launch an attack. This makes blockchains very difficult and costly to interfere with since nodes (computers) from all over the world are part of and support the whole system.
Financial freedom is finally attainable for businesses and especially for regions where humanity is largely “un-bankable.” A truly all-encompassing payment system for everyone.
It should also be noted that Cryptocurrencies raise the financial awareness of consumers that they must retain their private keys in a safe place because no one will refund any transaction or recover a user’s account if those keys are lost. Private Keys give the owner full control over his assets.
Regulators: Are they stepping in to control Cryptos?
As previously noted, Cryptocurrencies operate outside of the Banking system and its regulations. The costs of sending money are much lower, there is no need for a middleman, and it is open for business any hour of the day or night. These are perhaps some of the main reasons people are flocking to Cryptos and preferring this payment system to the traditional banking system.
.“Regulators mount up!” (does anyone remember that movie line?) As if predicted, governments realize the turn to this Cryptosystem and are stepping in and exerting control where they can. Supposedly a defense against terrorist activity, the inter-governmental Financial Action Task Force’s (KYC) “Know your customer” and the European Union’s (AMLDs) “Anti-money Laundering” rules are set in place. This is to ensure that no individual user is unaccounted for.
.In other words, these regulations can be viewed as governmental surveillance which negates the censorship-resistance ideals on which Bitcoin was created, or it can be seen as an opportunity to revolutionize the payment industry by bridging the gap between tradional banking and the cryptocurrency ecosystem.
Time will surely tell the story. Will these regulations allow cryptocurrencies to become mainstream, or will they ensure traditional banks and governments retain their control status?
Will Banking and Cryptos Merge?
The future of both and how they will interact remains in question. Will they merge or simply be tolerant of each other? It is obvious that Cryptocurrencies have to adapt to new rules and regulations, however, banks will definitely have to learn to play the new game in town. Banks will have to abandon some of their traditional methods of doing business and adapt a more aqueous role. Perhaps utilizing blockchain technology will help to modernize their operations so they can relax the grip they have had on financial markets?
Fintech in Emerging Markets
Mobile phones alter consumer practice and change the way they access the internet. In developing countries where they have never attained the levels of Western country’s physical banking infrastructures, they are more open to new Fintech solutions. The countries with the highest Fintech usage are China (69%) and India (52%). In China, they are well above the average global adaption rates at (33%) and across emerging markets adaption at (46%).
One clear thing, Cryptocurrencies nor the Blockchain is going away. And as banks and governments are growing keenly aware, they need to change the traditional way of doing business or get left behind in a fog of “wish I had thought of that.”
OH, the Tarfuffery!!