FSA COMMITTEE
FINTECH FRIDAYS
3rd September 2021
The Future of Cryptocurrency Part 2
The crypto bull run continues as Bitcoin revisited the US$ 50,000 mark yesterday. A ranking of the world’s largest assets by 8marketcap.com has Bitcoin sitting at the 9th spot with US$ 930 billion market cap, whilst Ethereum takes the 19th spot with US$ 445 billion. The assets taking the top 3 spots today are Gold (US$ 11.5 trillion), Apple (US$ 2.5 trillion) and Microsoft (US$ 2.2 trillion).
As a continuation of last week’s Fintech Fridays, we try to dissect the opinions about the future of crypto, considering both the optimistic and pessimistic viewpoints, and leave the reader to decide where they stand. In this second article, we will take a look at some problems that are being solved with cryptocurrency today.
1. Access to payment services for the unbanked
According to the world bank, as of 2017, over 1.7 billion adults remain unbanked - without an account with a financial institution or a mobile money provider. In this day and age, one should think this should be a thing of the past but no, it is not. Being unbanked is discriminatory. Everything has to be done in cash and even that’s difficult to manage in remote places. This is one of the reasons why in countries like Kenya, people have been using M-Pesa - a phone payment system, since cash is not widely available.
M-Pesa is better than nothing but it can’t be compared to having a crypto wallet. With this, you can save, transfer, pay, send, borrow and lend money in a fast, secure and inexpensive way. This is a great opportunity for many developing countries that finally have a chance to function normally with financial services we take for granted. With crypto, you become your own bank and gain access to all the opportunities provided by banking minus the gatekeepers. A $50 phone is all that is needed to enter the financial opportunities provided by the crypto ecosystem. This is already changing the lives of many people in places like Nigeria, Venezuela, El Salvador, or India.
Countries with the highest inflation rate
2. Protection against Inflation
Anyone living in one of the countries listed above will have a hard time trying to save money for a rainy day. It’s like trying to hold water in a leaky bucket. If you are an entrepreneur in Argentina, Zimbabwe, or Venezuela, it doesn’t matter how well you do or how hard you work, the entire value of your local currency falls almost every day. These countries have traditionally resorted to investing in proper stores of value in order to retain some purchasing power. The dollar and other assets such as gold have been used as a safe haven to escape from devaluation and inflation.
But now there is something much better. Why depend on a third country with questionable economic policies, endless money printing, and interruptible supply when you have cryptocurrency assets. Bitcoin is deflationary, censorship-resistant, safe to store and send. It doesn’t inflate 3000% like the Venezuelan Bolivar or 1.4% like the US dollar in 2020. Gold is also a good store of value but Bitcoin is much easier to buy, carry, send or transact. All these countries are embracing the Bitcoin revolution with open arms and who can blame them. It is the panacea they’ve been waiting for.
3. Confidential transactions
Another redeeming factor about using cryptocurrency is the confidentiality benefit for users during the process of making transactions. Under the traditional banking system, any cash or credit transactions may be subject to being recorded as a reference document for the bank involved. In other words, an individual’s transaction history with other parties is constantly updated and reflected on their bank account balances to ensure sufficient funds for future transactions. For one who values financial privacy and identity protection given the complexity of manipulative technology and free flow of information, this form of banking is anything but ideal.
This is where cryptocurrency backed by blockchain comes in as an interesting digital counterpart to cash and credit cards. The transaction one makes with cryptocurrency is a unique exchange between themselves and the other party. They can freely negotiate terms and agreements and have the discretion to select what information they wish to provide to the recipient. In effect, this safeguards against identity theft or threat of account by the exposure of sensitive information.
References
https://globalfindex.worldbank.org/
https://blog.finjan.com/advantages-of-cryptocurrency/
https://medium.com/geekculture/9-problems-solved-by-crypto-b885a9016ec5
The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.
Recent developments in the Crypto industry
In tandem with the aforementioned upsides of cryptocurrency, it does not come as a surprise that in the past six months there have been significant developments in this industry. Namely, reputable and traditional financial institutions adopted cryptocurrencies as a digital asset to streamline transactions with merchants and clients.
For example, in early April 2021, Goldman Sachs made an announcement about adopting Bitcoin as an available virtual currency to its clients who set their intention on investing in cryptocurrency within its private wealth management division. Other investment banks such as Morgan Stanley and JPMorgan followed suit by offering Bitcoin funds to investors with an “aggressive risk tolerance” and establishing an intermediary channel through which over-the-counter desks and traders may interact for increased market liquidity, respectively.
During this same period, Paypal bridged the gap between US consumers with international merchants by allowing customers to make purchases online via cryptocurrency holdings and digital wallets.
Even though there are concerns about the future of cryptocurrency in the area of Fintech, many of which stem from issues about regulation, control and adoption. It is foreseeable that with the breakthrough features that cryptocurrency offers for the financial industry and its increasing popularity among firms and institutes, we should expect this virtual currency to play an important role in an increasingly digitized world.