Blockchain will be the future of finance. Here’s why.
It’s no secret that the blockchain bears immense potential for upending a variety of human systems. But the industry perhaps most apt for that upheaval is the world of finance.
For one thing, the ability to move money and make transactions without a central banking authority is extremely powerful. In fact, it’s one of the chief functions the blockchain was designed to facilitate.
But that’s not the only reason the blockchain will ultimately define the future of finance.
The blockchain allows for a level of transparency that a centralized banking authority can’t.
Back in February, CFTC Chairman J. Christopher Giancarlo stated that if the financial world had blockchain technology ten years ago, the financial crisis of 2008 could have been prevented.
One big reason for this is the fact that the blockchain — in its decentralized structure — allows for a level of transparency that precludes the sort of nefarious or risky activity that in 2008 proved rampant. If we’d had the blockchain in 2008, the potential repercussions of the transactions made by hedge fund managers and traders in our centralized system would have been more obvious to the public.
Decentralized ledgers, in this way, offer a safer and more efficient way of governing and monitoring financial transactions.
The blockchain is immutable, which ensures greater efficiency.
In addition to being transparent, however, the blockchain is also immutable — making the blockchain an even safer alternative to the current standard.
To be immutable is to be unhackable. An immutable decentralized ledger makes it impossible for a party in a blockchain community to fake financials. For this reason, financial institutions, startups, and government agencies will soon house their cap tables, government data, and financial statements on the blockchain.
To not switch that information over will prove irresponsible, because why would we not agree on a safer alternative — an alternative where all bits of crucial data are made automatically available and unalterable?
The blockchain allows institutions to move money fast and at a low cost.
Of course, the benefits don’t stop there. The blockchain also enhances the speed and efficiency with which financial institutions are able to process and complete transactions.
The process currently — whether you’re taking money out of your bank or completing transactions through PayPal — entails going through dozens of intermediaries. Your payment has to pass through fraud detection software, PayPal, or the bank. The process is expensive, and furthermore, it’s limited by local geographic constraints. The United States uses a fundamentally different financial system than China, whose system differs than that used in Latin America, and so on.
But what if each of these systems across borders and time zones operated on one decentralized ledger? Everything would be compatible, and transactions could be made with increased immediacy — no matter the amount of money changing hands or wallets.
The blockchain opens up the world of finance to more people.
The blockchain will impact institutions or companies initially, yes. But as the ecosystem matures, new use cases will materialize for the average consumer.
For example, if a version of PayPal were to be built for the blockchain, consumers making small transactions would pay a fraction of their current cost in fees, and money would be received in a fraction of the time.
From there, all sorts of innovation becomes possible. The blockchain will enable the use among small companies of smart contracts for commodities trading. The emergence of tokenized equity — wherein a token represents a dividend in a company or a yield in a real estate fund — will enable consumers to more easily become venture capitalists. In other words, the blockchain will give the middle class more ways to invest their money.
This is a particularly powerful possibility — the democratization of capital — because right now, only 8 percent of the population in the United States, for example, is accredited, meaning they’re allowed to invest in companies or assets. The blockchain could deconstruct that barrier to wealth, which would result in massive gains for the middle class.
The blockchain has already proved itself beneficial to finance.
For all this talk of potential, though, it’s also true that the blockchain has already proved its utility in the world of finance.
For example, the use of tokens for fundraising has already proven itself remarkably useful. To date, roughly seven billion dollars have already been raised through ICOs.
Additionally, the blockchain has proven efficient in terms of remittance. Bitcoin, for example, gives people the ability to send money across borders without the need of a centralized authority and at less cost.
In some parts of the world, this has proven nothing short of life changing. Take Venezuela, where hyperinflation has rendered the country’s currency too volatile to rely on. And even though Bitcoin itself is volatile, it provides Venezuelans a way to both leverage their assets and move their money outside of the country, which until now has been made next to impossible by their government.
The short-term future of blockchain is tokens — but the long-term future is far more exciting.
In the short-term, security tokens will prove to be the primary use-case for the blockchain — that much we know.
But in the long-term, we’re going to see blockchain companies utilizing decentralized ledger systems more widely. From there, that’s when we’re going to see a broader use among governments and financial services.
The reasons are simple and hard to ignore. Across industries, in fact — finance, pharma, biotech, and government — the blockchain promises a safer, more free, and more efficient way of storing data and completing transactions. In this way, the blockchain will better the world. It would be irresponsible for us to ignore that for too much longer.