Currently, blockchain is really driving developments in personal finance across the spectrum. Here are four parts of consumer finance that blockchain may impact through technological advancements.
One: For Deposit Accounts Gold Used to be Standard, May Be Replaced By Cryptocurrencies
Recently, the state of Texas set up a Gold Depository. The depository charges a small fee to store gold for government agencies, corporations, and individuals. The depository is also a platform for Texas entities and individuals to set up savings or checking accounts to make payments based on their own precious metal reserve. All payment actions and monitoring will occur online. This means that the depository acts like a bank but does not do any lending. Trust in traditional banking, buoyed by fractional reserve banking, has been growing thin in the years following the 2008 banking crisis and consumers are asking for more options to store their wealth in hard assets like gold or new asset classes like cryptocurrency but still be able to use them just like money. This was historically how banks were set up and that’s what this new hybrid entity known as the Texas Gold Depository is for. Cryptocurrency and the institutions that are set up to use them also serve this same need and is one of the reasons why adoption has been so strong worldwide.
Fractional reserve banking, however, allows institutions to hold about a third in reserve of the money while lending out three times that amount. For their depositing customers, however, this creates a risk if the entire banking system is disrupted by a crisis which drives adoption for these new options. Additionally, the technology that these banks employ to settle their accounts is out of date and disconnected from other banking institutions. Interbank technology, known as SWIFT for messaging or in the US for depository institutions as ACH for settlement of credit and debit transactions, is very slow. Combined together, these two create the traditional technology finance structure. Networks like Visa and payment companies like Paypal make up a third technological layer that interact between fractional reserve banks and SWIFT/ACH. Blockchain comes to replace SWIFT and ACH and to be employed by payment and cooperative companies to form a worldwide financial web. For personal finance, the implications are very sweeping and we will see rapid developments.
Customers will see such hybrid entities like a gold and cryptocurrency reserve banks and cryptocurrency exchanges evolve technology tools from payments to investing that are completely new in structure. Deposit accounts will be inherently changed by this development.
Two: Rapid Global Economic Changes in Technology
Traditional financial institutions are not up to speed with consumer financial technology. While the traditional banking structure is going through a technological evolution due to blockchain, payment companies have seen huge success in taking payments online and long ago embraced the Internet. In this way, payment companies became the technological financial technology layer. Now, payment companies are also driving change by integrating the cryptocurrency option on their platforms. Payment companies like Stripe or Square, for example, are using blockchain and cryptocurrencies as an option for customers to send payments. These companies are also looking to blockchain based software to integrate better into traditional finance structure. This development is very important for personal finance as new tools are going to become available for end users very quickly. Imagine that you can use blockchain to file and pay your taxes with the government, while using blockchain to send and receive payments, and also use cryptocurrencies to preserve for your wealth. Eventually banking institutions will adopt these technologies and adapt them to internal needs, as well.
For personal finance, customers will be touched with blockchain for all their needs and never really know that it forms the backbone of everything they are using. Global economics will be affected by this change, especially where remittances are concerned.
Three: Payments & Investments Drive Adoption and Tech Development
These new developments were driven by consumer and merchant needs to perform complex agreements and payments online. Most technological development with blockchain will be driven by consumer and business needs. Traditional finance will not drive development. This means that technologically speaking, consumers have a huge sway in how they can use this technology to improve on pain points like remittances, international banking, and payments. By using these new technologies and software, we have an unprecedented opportunity to drive development of technology for our personal needs. This brings us unprecedented power to drive technological development for the first time. By proving your real world use cases for financial technology development, investors are noticing and providing resources for software developers. So if you have a community of individuals or business with a sore spot, chances are high that you can propose a solution or find developers to propose a solution and it will be funded. Tools are rapidly evolving like this right now.
We saw this kind of rapid development concerning consumer financial technologies like cryptocurrency exchanges. Next, we will see the rapid evolution of software companies serving personal finance needs using blockchain to do so. Mobile financial tools for payments and investing will be the first most heavily developed and widely tested. Think of online portfolio management, for example, alongside even faster payments to anyone in the world.
Four: Updating and Combining Traditional Financing and Consumer Technology
Blockchain technology will finally develop and combine both the traditional financial institutions with new consumer technologies already in use by payment companies into one resilient whole web. This is what we call the Internet of finance that is finally emerging to underpin the already well used Internet structure in place. Software, based on blockchain, will knit these together. Thus, the entire spectrum of consumer finance will be impacted by this change over. Technologies to note that affect consumer finance are new tax tools for individuals and businesses and legal services we use like international escrow, for example.
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