How Cryptocurrencies Can Disrupt The Financial Market
We may have all heard of Satoshi Nakamoto, whom it is not yet certain is either an anonymous group of bitcoin developers or an anonymous independent developer. The fact that we do not know who these developers are, does not dispute the fact that they have held an earth-shattering ground in the financial market; an open source cryptocurrency protocol known as Bitcoin. Now, this article is not in any way solely about Bitcoin, but the obvious success of Bitcoin is more than enough evidence showing how cryptocurrency has caused a vast disruption in the financial market.
The cryptocurrency is a digital currency which serves as a medium of exchange using solely cryptography to secure transactions, verify the transfer of funds, and to control the creation of additional units.
The technology behind the cryptocurrency is the blockchain technology which has a great deal skyrocketed both in use and in popularity. The blockchain technology is a decentralized technology which stores money, identity, ownership and records and is not prone to any form of hacking whatsoever.
Here lies the question, how can this cryptocurrency, which is backed up by the unique and up to date technologized blockchain, disrupt the financial market?
In a sentence, the answer can be stated thus; cryptocurrency can replace the conventional banking system, national monies, and even the Central Bank. All this, in the long run.
Breaking Down The Answer
It is no news to us how cryptocurrencies have generally begun to impact the financial market, whether directly or indirectly. Some digital currencies have impacted a particular sector of the economy, capitalizing on a certain market, say; the car sharing business, which in turn affects the direct economy generally. Public blockchain transactions are quicker, easier, cheaper and do not involve any third party of any kinds. This is a far cry from what we experience in banks today, which lasts up to several days just to smoothly complete a transaction, how then can this be compared to transactions with cryptocurrencies such as Litecoin and bitcoin which takes only between few seconds and few minutes and usually cost between One to two cents.
How Cryptocurrency Tends To Replace National Monies And The Central Bank In The Long Run
When all the people of a nation realize the importance of the rigor free transactions made with cryptocurrencies, who is to say that national monies would still be in existence? The great task which has been ongoing for several periods now is to enhance the mainstream adoption of cryptocurrencies. Once cryptocurrencies are used by almost everyone and anyone, can there still be said to exist hope for the use of national monies?. Beforehand, all transactions were enabled through the Central Bank, whether directly or indirectly, cryptocurrency has changed this scenario. The power now gradually shifts to the blockchain technology, especially since there is more security with the use of blockchain technology. Once cryptocurrencies are adopted on a large scale, which from clear indications might do so, national monies would be replaced by these cryptocurrencies, hence bringing about the politicization of money. If this is not disruption enough, I don’t know what is.
The displacement of national monies has one sure impact in the financial market, and that is the subsequent displacement of the Central Bank. When the society begins to embrace the use of cryptocurrencies, they close their eyes to physical monies and this affects the Central Bank who is in charge of the transactions made with physical cash. With the wholesome acceptance of cryptocurrencies by the masses, a time would emerge when national monies and subsequently Central Banks would be displaced. This is one of the great ways through which cryptocurrency can disrupt the financial market.
How Cryptocurrency Can Displace Conventional Banking Systems
A slight shift, no matter how small, in the conventional banking system, is directly proportional to a much more higher magnitude of disruption in the financial market. The blockchain technology, which is mostly the powerhouse of cryptocurrencies has succeeded in achieving a strengthened decentralized financial market, which is a sharp contrast from the centralized financial processes which we mostly have come to get used to. For most nations, the financial systems which generally are governed by financial institutions in and outside of those nations are set towards decreasing the leverage conventional banking systems have.
Fraud is one of the many mayhems encountered in banking systems, the mainstream adoption of cryptocurrency would to a large extent cancel every chance of such due to its utilization of shared ledgers which is open to everyone. The financial market is very fast in its growth and requires an even much faster process to catch up with it. The inefficient and time-consuming processes which our conventional banking systems operate with is definitely not fast enough to catch up with the financial market. Thanks to the blockchain technology, every transaction can be performed swiftly with no need for a third party or multiple parties, there is also no need for an external check, since the blockchain has made all transactions for a given asset connected, in that all the chains of that particular transaction can be viewed immediately. Cryptocurrencies would bring about a displacement of the conventional banking systems.
Cryptocurrency operates with a much more increased transparency than our conventional banking systems, the total visibility of the entire chain for a particular transaction is certain for its users, and instant check and verification of made extremely possible. For this reason, there is very less worry about fraud while utilizing cryptocurrencies, since every information needed for a particular asset/transaction is made visible.
The blockchain technology, which is the ground on which cryptocurrencies lie, can be used to sign digitally sensitive information, used in tokenization, authentication, escrow services, smart contracts, and lots more. The use of cryptocurrencies to perform transactions has this impact; the transactions are more efficient and secure without the need of third or multiple parties, reducing every extra process needed to be passed through with the use of conventional banking systems. Blockchain technology allows for immediate verification of the asset, to ascertain the authenticity of the transactions made.
A summary of how cryptocurrency can displace the conventional banking system goes thus; no middle man, very little transaction fees, tight security and privacy together with anonymity, and instant transactions. In view of all these, which from all evidence is quite clear that cryptocurrency transactions are better than physical bank transactions, it is clear to see why and how cryptocurrency can disrupt the financial market especially in the banking sector.
Worthy of note here is that, cryptocurrency is challenging the reserve currency of the global economy, which is the US dollar. The world’s economy relies mainly on the US dollars, and the emergence of cryptocurrencies has brought about an abrupt turn around in this case. Now that financial transactions are being decentralized, and the mainstream adoption of cryptocurrencies are on the rise, all fingers point towards the ” de-dollarizing ” of the world’s economy. Russia and Venezuela have even set up a platform for the creation of state-owned cryptocurrencies.
The financial market is quite broad and cryptocurrencies have emerged to make this certain broadness less broader in use than it actually is. The transaction processes are cut exceptionally short. This is not a matter of how cryptocurrency can disrupt the financial market, because, cryptocurrency is already disrupting the financial market to some degree. The question to be asked therefore is, to what extent and how far will this disruption go. The answer lies in the long term growth in price, market value and mainstream adoption of cryptocurrencies.