There is a tendency for the perception of cryptocurrency to narrow during times of heightened market volatility. Often, observers confuse the market value of Bitcoin with the utility of cryptocurrency and as soon as investment goes into a slight decline, conversations around the bubble-bursting begin to reappear.
This reductionist approach reveals a poor understanding of the real value, which comes from a broader range of cryptocurrencies. Despite the price of Bitcoin displaying significant volatility, there is a more important trend emerging. Finally, there is a mainstream realization around the wealth of potential that comes from digital assets and the benefits which arise from the distributed ledger technology. And not just as an alternative investment class, but as an entirely new infrastructure for transactions and more.
In order to truly understand just how revolutionary this will be, we just have to look at how global transactions are currently carried out. At the moment, heritage-based banks have a monopoly on this environment that allows them to clear funds for consumers, enabling banks to earn almost $1B in annual global revenues through transaction banking.
This figure is a combination of fees that banks are able to levy for holding deposits, providing trade and supply chain finance, and facilitating payments between counterparties and across the borders. This is currently the backbone of the entire global banking system – and the vital revenue source.
The need for a trusted intermediary, and the reassurance that deals will go through without any fraudulent interference, meant banks were poised to fill this position. However, it has been said that trust is the real flaw of the banking system. Inevitably counterparties must outsource their trust in each other to the bank as an intermediary, and with recent headlines, we can see that consumer confidence in banks is weakening.
So, whilst global banking systems currently occupy this space, cryptocurrency and blockchain technology can provide an alternative. Distributed ledgers allow for seamless transactions without the need for traditional intermediaries. In fact, recent research has shown that distributed ledger technology can reduce operating costs by 50-80% and deliver increased turnaround times. What’s more, ledger technology could also benefit cross-border payments by removing the need for currency hedging.
Of course, traditional banks have now woken up to the potential disruption that cryptocurrencies and blockchain can bring to their core business models. JP Morgan and Wells Fargo are among the traditional players in the financial industry that are already deploying blockchain to enable transactions between institutional clients. Having previously held a skeptical stance on cryptocurrency, it’s unsurprising that the benefits of the technology have meant that many banks are now seeking to emulate the assistance provided by blockchain.
Outside of the global movement of money, there are a plethora of industry use cases for blockchain. The technology revolutionizes transactions, dramatically impacting speed, cost, and transparency – all while anonymizing private data. These benefits could transform the realm of property transactions, supply chains, and healthcare an area crippled by legacy inefficiencies and ripe for disruption by blockchain technology.
Ultimately, we are just at the tip of the iceberg when it comes to truly understanding the vast opportunities that digital assets and blockchain will transform the global economy. Cryptocurrencies and distributive ledger technologies are set to compete with the value transfer monopolies, enhance frictionless transactions, and eradicate inefficiencies in the financial sector. Rather than focusing on the daily price of Bitcoin or Ethereum, it is this trend that will define the future of crypto.
