Economy, Finance, Innovation and Technology
A rant by (not even close to an) economist/financial analyst
The buzzword of 2020, COVID-19. A moment of silence and respect for those who lost their lives fighting this disease. Now that we’ve addressed the dead, let’s talk about the living. What happens after this pandemic is all done, for real? Clearly, the pandemic is leaving its impact on all industries, unbiased. IT and services, food and dairy, supply chain and logistics, healthcare, finance, production, manufacturing, marketing, tourism and that’s just to name a few. The economy is at stake. Let’s talk numbers now. According to Forbes, about 20% of the global economies could fall into a severe economic recession. Projections are the 2nd quarter of 2020 will be the worst seen in generations(jeez, scary). The UN has predicted a whopping $2 trillion loss due to this health crisis. About 3.3 million Unemployment Insurance claims have been filed in the US. Regional manufacturing and tourism have also dwindled. Barclay’s estimates suggest that the 21-day lockdown in India could bring down the country’s growth from 4.5% to 2.5%. These are the inevitable signs of an economic recession (and if this gets worse, it could lead to an economic depression).
Now for those who are wondering what exactly a recession is, simply put, it’s a situation when the economy stops growing and starts shrinking. For instance, events that include declining oil prices, unstable stock markets, unemployment on the rise, if prolonged could potentially lead to a recession. Yep, these sound too familiar and present. And a severe recession could go on for a year or two. Whether or not the economy will go into recession completely depends on how soon we eradicate this virus. It’s most certainly not the impending doom, but if the worst happens. How do we recover?? There must be light at the end of the tunnel, right?
The most recent recession was The Great Recession that happened in the year 2008. Ironically, two economists at the International Monetary Fund compared this to an “epidemic in which an invisible virus infects many people and communities”(too creepy? too fitting?yeah same). The causes were different and that’s for another day. But what are the takeaways? The important lesson is that a globalized economy calls for a global solution. Specifically, inclusiveness and innovation. With all the existing knowledge and booming technology, could we possibly find a viable solution that is inclusive, provides safety and equal opportunities?
Rethinking Finance
The entire idea of rethinking finance revolves around decentralizing finance by using blockchain, cryptocurrencies, and/or smart contracts to provide financial services to clients. So how does the current system work and how is it flawed? Allow me to spill the tea. Without getting too much into the intricacies of the system, in simple words, it doesn’t give a dime about the low-skilled workers (basically, people in tier 2,3 and 4 of the consumer pyramid). It tends to reinforce the status quo, and stifle innovation (red flag, red flag). Meaning it is too centralized, with regard to both autonomous powers exercised by a particular group of people and centralized storage of information. Today’s global financial services industry is built on decades-old technology, often slow and unreliable. It also establishes a need for third-party dependency. And a huge concern, identity theft.So how do we deal with this?
A potential solution is blockchain.
If you’re thinking what a blockchain is,I got you covered. It is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions,but virtually anything of value. A more technical definition for the geeks-it is a time-stamped series of immutable data in a block ,bound by cryptographic principles that is managed by a cluster of computers not owned by a single entity. The three basic principles of blockchain are decentralization,transparency and immutability. Just what we require for a better system. Before you think of Bitcoin,stop right there. Bitcoin is NOT blockchain. It is a cryptocurrency,in fact, it is the big daddy of all cryptocurrencies. Blockchain is a technology that Bitcoin uses to do cool stuff.
So we have a basic idea of what blockchain is,now,what are the possibilities and perks? How does blockchain eliminate the inefficiencies of the current system? For starters,it is decentralized, that is, all data is not stored in one place. It is rather maintained by a peer-to-peer network. It provides each user a self-sovereign identity. That is, the user has complete control over their data Before you wonder, yes it’s safe because it is immutable (remember?). It is made so using cryptographic hash functions. It is a trustless peer-to-peer network,which means you don’t have to rely on a bank to process your transactions. It is open source. It can verify the identity and the capacity of any counter-party through a combination of blockchain transaction history, crowdsource reputation scores and other social and economic indicators. The ledger is always up to date. It includes scrappy entrepreneurs everywhere, anyone everywhere and anywhere with a smartphone and Internet connection could tap into the global financial market (yep, finally). It makes micro-transactions a reality. It cuts down transaction costs and time. A blockchain network like, say, Bitcoin, takes an average of 10 minutes to clear and settle transactions conducted during that period. Today, remittances take three to seven days to settle (tch tch). Manages risks efficiently (including shady managers with itchy hands). It provides value innovation (more on this later). Unlike the existing financial system, blockchain is backward compatible and nimble.
Innovation of value-an insight
Blockchain is an adaptable technology and hence, it doesn’t end with sending money over the network. Developers are finding a multitude of ways to define and trade value on a blockchain. Innovators are building alternative blockchains for purposes beyond simply making Bitcoin payments. Any asset or liability, physical or digital, could be a currency, corporate stock or bond, mortgage, a barrel of oil, a bar of gold, just about any asset, a car, a car payment, receivable, payable.
Fun fact:Even pets,lookup,Cryptokitties.Blockchain could be used to trade various crypto assets like cryptocurrencies, protocol tokens, utility tokens, security token, natural asset tokens,crypto-collectibles,crypto-fiat currencies. They may transform the securities industry, investment banking, accounting and auditing services, venture capital insurance, enterprise risk management, retail banking, and other pillars of this industry. The possibilities are huge and promising. And employability?? According to LinkedIn, Blockchain is an in-demand hard skill in the year 2020.
Thinking beyond financial services
After all the above, before you think this technology caters to only the financial services industry, let me tell you, it goes over and beyond that. Blockchain has a vast number of use cases.
- Secure sharing of medical data
- Music and books royalty tracking
- Cross-border payments
- Real-time IoT operating systems
- Personal identity security
- Anti-money laundering tracking system
- Supply chain and logistics monitoring
- Voting mechanism
- Advertising insights
- Original content creation
- Cryptocurrency exchange
- The real estate processing platform
- Protection of Intellectual data
- Know Your Customer(KYC)
- File Storage
- Prediction Market
- Crowdfunding
- Land title registration
- Cybersecurity
and the list is ever-growing.
Closing Notes
Blockchain is not the only solution to face this upcoming economic crisis. But it is almost certainly the most promising one and will still be able to weather the storm-what more could we ask for? Till the storm settles, distance yourself from fellow humans. Let’s save this world peeps!
Signing off,
Gayathri Seetharaman
