Creativity and development strengthen the role of cryptocurrencies

T + T – normal size

Personal checks did not replace paper money, but added value by giving people the ability to set an expiration date for payments with greater security than carrying cash around. Perhaps most importantly, it also improves the interoperability of the financial system through route standards and account numbers. Perhaps cryptocurrencies will play a qualitative role in this context.

Future routers and account numbers will be embedded in digital wallets with almost universal access to well-regulated and always-available financial services.

Some observers call it the “Internet of Value”; Others refer to it as the third generation of the internet. Whatever the title is, and no matter how serious the fluctuations in the market are, this breakthrough innovation is here to stay.

Such creativity needs to be encouraged, developed and harnessed, including by traditional financial services firms and governments worldwide, so that they will not be locked into history when the third generation of Amazons emerges from the internet.

Would many taxi services in the absence of Uber develop their own taxi apps or start accepting credit cards when they did? In stable industries where competition is declining, it requires the emergence of new competitors and new technologies to drive change.

If managed properly, this change will not necessarily threaten the industry’s controllers, as they may adopt new technologies and business models to keep pace with what consumers expect from new entrants.

Banking and financial services face the forces. Just as companies like Uber and Lyft have created a new model for consumer transportation on demand, the emerging world of blockchain-based financial services has driven banking, mobile-based payment systems and software-driven capital markets.

While mobile and electronic banking have been around for a while, the rise of cryptocurrencies enables new levels of user control and the ability to access services with little more than a personal digital wallet.

Ultimately, consumers benefit as more choices become available. When monopolizing traditional taxis, they often ignored certain skins of rider seekers, or denied access to “poor areas considered dangerous”. If new competitors did not expand access to mobility and financial services, these practices would still be the norm.

Similarly, banking deserts have long existed in areas that did not have population density or high enough household income to be served by traditional banking branches.

For many people, ordinary activities such as exchanging a check would still be expensive if it were not for mobile deposit applications, and this shows how emerging technologies are merging over time with eventually established business models.

With the blurring of the lines where traditional banks end and financial services begin, many commentators have viewed this convergence as a zero-sum game, in which even central banks tend to fall from their thrones through new forms of digital money. However, things like the explosion of cryptocurrencies, blockchain-based transactions and fintech should be seen as an opportunity rather than a threat.

Currently, at least 105 central banks, representing 95% of global GDP, are reviewing the benefits and risks of creating digital currencies via central banks. But the truly important global cryptocurrency race is not about the values ​​that are transmitted; It is about the rails that will transmit these values ​​between the parties, especially across borders. Presenting a central bank digital currency without considering these railings would be like designing a bullet train without building tracks or station networks.

Even in the era of widespread smartphone connections, interbank (train) payments and transfers will still have to stop at regular stops to take into account counterparty risk, confirm transaction settlement, and so on.

In the absence of planning for these intermediary roles, central bank digital currencies will only precipitate the elimination of medium-sized banks (which will become completely redundant), while nothing is being done to bridge the growing global financial inclusion gap. This is where blockchain banking can make its mark.

In the current situation, banks are often controlled by vendors and are monopolized by a small number of “certified” technology service providers who run back, middle and front office operations.

So many banks have been handed over to the mercy of systemically important institutions hiding in the eye. It is the small and medium-sized banks’ dependence on these proprietary, analog and vulnerable technologies that they have lost against the larger banks, which makes their business models look more like underdeveloped taxis after the advent of in-app apps.

In contrast, JPMorgan Chase has a $ 12 billion digital transformation budget as well as a capable blockchain management team (Onyx) that has already processed Earth-to-satellite payments using smart contract technology – an achievement that underscores the importance of Basic Derivatives.

Once a major critic of cryptocurrency, JPMorgan realized how dangerous it is to avoid a potentially transformative new technology.

But many questions remain. Can the financially and technologically disadvantaged institutions keep up with these developments?

How do banks and banking services adapt to a future of immediate cross-border transfers, all facilitated by a reliable code? Will the emergence of an open source infrastructure for financial markets be a cumbersome source of confusion and de-mediation, or do these technologies simply level the playing field for all?

There is no doubt that cryptocurrencies and blockchains have an identity problem, especially since they are linked to highly technically specialized vocabulary and vague terms. But soon, the underlying technology will fall into the background.

This will enable the scaling up of bars that convey value around the world on a system-wide level. The change will be related to the ability to choose between payment systems and banking services, not to replace them.

* Chief Strategy Officer and Head of Global Policy at Circle, a member of the Foreign Relations Council, and a member of the Cryptocurrency Management Consortium of the World Economic Forum


Leave a Comment