The following is part three of our FinTech series, discussing the future of FinTech, and the recent explosive growth of blockchain’s disruptive potential.
By Jordan Odinsky (@jordanodinsky) and Sarah Lavin
For those who have been following the markets, cryptocurrencies have taken the center stage on popular media outlets such as CNBC, MSNBC, and Fox Business. Powered by blockchain technology, cryptocurrencies are not just a new branch in FinTech, it is a new investment asset class entirely. Simply put, blockchain is one of the most important technological innovations of our time. Seen by many as the next phase of the Internet evolution, blockchain will transform the way humans communicate, engage in commerce, and trust each other. In the last 12 months alone, the market cap has skyrocketed. It is being estimated at $100B+.
By definition, blockchain is a public distributed ledger of transactions held together in packages or “blocks” (hence the name). Precisely because the blockchain is decentralized, meaning that it isn’t owned or managed by one central authority, it has such a dramatically disruptive influence on the future of finance.
While the talk of the replacement of financial institutions seems very abstract, even apocalyptic, the blockchain actually has very practical implications and applications. The job of FinTech breakthroughs is to harness the endless possibilities into specific use.
Some of these are obvious. The huge issue of remittances, as discussed in part one of this series, is case in point. The current banking industry hasn’t managed to evolve enough to prevent the long, drawn out, process of a simple overseas wire transfer that can take days or weeks. The part that is most difficult for the large institutions is actually recording and processing the withdrawal and deposit.
The challenge of the slow-moving money transfer on the larger scale has prohibitive effects on economies, with cross-border payments slowing the growth of e-commerce and the like. Remarkably, cryptocurrencies have overthrown the assumption that it simply cannot be helped, by proving that when processed on the blockchain, the network validates and approves transactions in a fraction of the time, at a fraction of the cost.
Amongst other practical applications is the token economy. Many businesses are turning toward tokenizing their operations, offering a dedicated currency through which consumers can buy good or services.Essentially, a specific company can create their own currency, to be used exclusively for their commodities. Similar to the popular gift card, it holds value, but only for the company at hand. This could potentially ensure higher customer loyalty, and dedicate funds in advance to that particular purpose. With the annual gift card market being so lucrative ($147B market cap) the average consumer may well be ready to take the leap to a tokenized economy.
To take it one step further, blockchain would also enable smart contracts, or a series of automated actions that would be directly programmed into a monetary interaction. Similar to work flows, essentially once a criteria is met, pre-programmed actions would happen, giving financial changes a predictive quality. This could have enormous implications for business models, and market forecasting.
Given the rise in these possibilities, cryptocurrency and Blockchain are creating a tsunami for the future of finance. When it comes to what FinTech can do for the world economy, the future is here.