Digital Assets at the Verge of Upending Banking and Finance
By Prosper Mwedzi on The Capital
Living in the past decade has been like watching a sci-fi movie but the only difference has been that you could choose between being in the audience and watching from the sidelines or decide to join the cast and crew. It is undeniable that digital assets also known as cryptocurrencies have taken the world by the storm and disrupted almost every sector. The force has been so phenomenal to the extent of even ‘printing’ a whole new dictionary of defined terms and acronyms like moon, Lambo, whale, FOMO, FUD, HODL, etc. Despite not being so welcome, digital assets have violently imposed themselves on a financial world which had hit inertia since the invent of internet banking and plastic cards. We’ve had to quickly learn new and ‘unreal’ names like Ethereum, Litecoin, Bitcoin and many more. What a terrific decade it has been to be alive!
Flashback 4 years ago-If you were to tell anyone that you own bitcoin you would almost certainly get branded a criminal and most people would try to move you on to the next conversation at the earliest opportunity. In the financial world, any linking of funds to bitcoin and trading of digital assets would trigger closure of bank accounts and probably result in a dawn raid by authorities on suspicion of financial crimes and money laundering. It was a clear sign that the financial world did not want anything to do with digital assets.
Flash-forward- it is year 2020 and major banks are banking digital asset exchanges, digital asset issuers, retail digital asset investors and there are even digital asset banks with full banking licenses such as SEBA in Switzerland. The market is now flooded with plastic cards plugged to VISA and Mastercard network making spending crypto seamless and easy for consumers. Most tax authorities such as SARS in South Africa, HMRC in UK and IRS in the US now expect citizens to pay tax on digital asset activities and investments. The flippening has already happened-just not in the crypto sense. You can now get jailed for not paying tax on crypto and no longer for hodling. Buying digital assets online is now easier than buying alcohol or cigarettes in a convenience store. You no longer have to survive the tech equivalent of an ‘assault course’ to get your hands onto crypto- it’s like an upgrade from a 7-day courier service to instant delivery in the comfort of your home.
To complement this, there has been a paradigm shift of narrative in mainstream media. Reporting has now taken a different discourse-headlining the digital asset Bitcoin as the best performing investment in the past decade through turning an investment of $1 into $90,000 (CNN). According to Bloomberg, Bitcoin has delivered a gain of 9,000,000% in the past decade.
Screenshot from CNN and Bloomberg
The Hastening Pace of Adoption
It is often said that history repeats itself, however, in this new virtual world there is no need to believe this cliche, it is a foregone conclusion that any new asset class has a lot of room for growth in its initial years. Digital assets are still in infancy. The modern internet as we know it has only been in existence since 1990 when Sir Tim Berners-Lee invented the World Wide Web (WWW). If the growth experienced with the internet is anything to go by as a yardstick, the digital assets lifeline is about to get interesting. It may be comparable to the decade after 1983 when TCP/IP was first adopted and researchers started to assemble the “network of networks”. The global internet penetration rate stood at 48% in 2018 as cited by The World Bank.
World Internet Penetration rate statistics by International Telecommunication Union
Zooming into these statistics, it has taken the world about 30 years to get 48% adoption. Unverified statistics put adoption of digital assets at around 10% of the world population- the pace of adoption is likely to occur at a much faster pace than that of the internet due to digital assets utilizing infrastructure which is already in existence (internet). This was not the case for the internet. Smartphones only had major breakthrough outside enterprise use around 2012–2013. Establishing a new internet user base back then was like trying to sell a CD to someone who only had a cassette player. The smartphone has been a game-changer for internet adoption. This is different for digital assets as all current internet users are potential users of digital assets which makes them targets for onboarding. The ‘crypto-theology’ of censorship resistance and the deflationary properties of digital assets is resonating well with most citizens in this age of state surveillance and extravagance by the political elite.
The moving crypto battlefront
It would be safe to say that the fight for the survival of crypto has already been won in developed countries. Regulators have begun to develop an affinity towards digital assets with major stakeholders such as US SEC classifying bitcoin as a commodity which has enabled key players such as Intercontinental Exchanges to venture into digital assets through Bakkt. In the EU, the 5th Anti-Money Laundering Directive comes into force on 10 January 2020 -effectively treating digital assets in the same way as money for AML purposes, which in itself is a huge endorsement of digital assets. What is ironic though is the fact that the main beneficiaries of an explosion in the digital assets ecosystem are oblivious as to how big a stake they can have in this developing ecosystem. It is taking outsiders to see how transformative the technology can be with Jack Dorsey, CEO Twitter announcing plans to take bitcoin to Africa, a noble cause beset with challenges by reason of low internet penetration and crypto-illiteracy.
The Future Is Private Keys
No one is guaranteed the future but all one can do is get prepared for it-Stacking Sats is certainly one way to get this done. Almost anything you can do with legacy financial systems can now get done using digital assets. Decentralised Finance (DeFi) and other complementary solutions are no longer a fad. If you want to remit funds, you can use XRP and take the benefit of speed and low costs. If you want to make savings you can stack your coins on Binance or Coinbase and gain interest for not doing anything with your digital assets. For those who want to access lending and spend fiat instead of crypto- they can use collaterised borrowing platforms like Celcius. If you want to hold value without being exposed to the volatility of digital assets-you switch into stablecoins like USDT, BUSD, or USDC. Crypto does not discriminate-if you want to lose value in your assets for no reason at all, you can hold fiat as bad political and economic decisions will ensure that its value is eroded. The British Pound has lost over 50% of its value since the 1970s-the chart below is an illustration of this loss and the UK is not even that bad at policymaking.
Conclusion
The financial space has constantly been witnessing change, however, the new wave of change being ushered in by digital assets is brobdingnagian. It has the potential to annihilate and replace the whole financial ecosystem with a new decentralised ecosystem which could serve the world in a better way. The jury is almost out on digital assets and the new decade will be a defining period.
Views expressed in this article do not constitute financial, investment or legal advice and are personally held opinions.
