Though we are seeing that the global economy has improved greatly in 2017 since the 2008 banking crisis, deeper cracks still exist.
Millenials are not buying houses, consumer confidence is down as no prosecution for wrongdoing has been undertaken, shadow banking is flourishing, pension plans are no longer funded, and there’s been very few upgrades for financial services. We’re still in the stone age when it comes to sending money abroad, and the adoption of cryptographic and secure financial technology is still in its infancy while hacking of our personal information is thriving. Collaboration between tech and banking has been increasing over the last few years even with the United States making it more difficult. 2018 presents an opportunity for technology development driven by innovative funding models like ICOs to fund this technology and the widespread adoption led by individuals driven by expanding consciousness of their options.
The history of financial systems was born from needs that arose around banking. Though we think of currency usage as the first time human beings traded value, it was the introduction of the need of a third party financial institution to transact that really created the whole financial systems where governments, individuals, and business could transact peacefully and legally. In fact, the Medici family who were the first bankers in European history who invented double ledger bookkeeping from England to Flanders, Italy to France and their power and influence “passed belief.” Their power was vast precisely because they were the only trusted third party to perform complex deals assessing the creditworthiness of business endeavors, individuals, and even governments. Their influence in financial banking system has not been surpassed since the 14th-century until 2008 when Satoshi Nakamoto published the Bitcoin Paper. Bitcoin invented the public ledger which got rid of the need for a third party to verify transactions ever again.
Technological Progress Points the Way
Thus, technology came after institutions instead of inspiring them and banking has always been an international endeavor rather than an isolated or simply countrywide one. International economics demands the constant crunching of transactions around the clock, the measurement of resources traded and used, and taxes collected to keep the system running. Why this matters is that for the first time in human history, technology might tip the scales away from incumbents that have had a stranglehold on financial systems since the 14th century while opening up markets and uses . Technology, like the internet, is in the hands of users rather in the hands of those that have created and orchestrated the legacy systems we are all forced with using.
It’s no secret that financial technology threatens incumbents. When Bitcoin, and the technology that backs it up known as blockchain, was proposed, it seemed out of the world that we would or could use this financial technology in our everyday lives. The negativity surrounding the technology drove the use of it underground rather than into the hands of the people who need it most. Even though the US Congress found that traditional US dollars are the actual favorite of criminals, cryptocurrencies were attacked relentlessly on the mainstream media. In the United States, financial technology based off of traditional legacy systems got cosmetic upgrades through companies like Venmo, Square Cash, and others, they were still linked with centralized systems that used the same old payments rails created by Paypal and legacy institutions.
On a technological level, we did not upgrade to the internet age, and regions like South American and Africa are still far behind providing everyday financial tools economies need to thrive. Even today, the modern financial system all over the world resembles the US postal service before the internet and the advent of email. So where does the path lie? The answer is in blockchain which represents the internet of money and cryptocurrencies are going to be the apps on our phones and the email that we use everyday.
Technologies that Represent the Future
It’s hard to believe but it is true that the last financial technology evolution on the level of accounting was with the Medici. Since most people do not understand the technology that backs their debit and credit cards, we’ll give you a brief synopsis. When you swipe your card, the Visa network records your transaction and assesses the credit worthiness of completing the transaction fully. Then, your financial institution is contacted in coming days to verify the transaction. Essentially, Visa crunches the transaction before it is capable of verifying it by using probability to measure if the transaction will be completed and accurately settled. Your financial institutions, businesses, and Visa then batch all their transactions and it takes days to settle transactions between these institutions. There are cracks and latency in this system that criminals take advantage which is why it costs so much to use the systems in fees. Blockchain makes this system completely usable within minutes rather than days and patches these cracks, even internationally. Blockchain represents the future and is a financial technology revolution.
The internet actually models the financial technological revolution we can anticipate. Peer to peer finance is modelled after peer to peer information exchange. First, we were able to trade files without a third party interfering with Bit Torrent. Bit torrent was also associated with criminals but eventually went on to be used for perfectly legal file sharing. The same technology then informed the cryptographic functions that came to be Bitcoin. It follows that cryptocurrencies, like Bit Torrent, will probably find widespread adoption. Financial institutions, like the postal service, will have no part in the use of these technologies. Since most people interact directly on the internet together, we’ll probably see the same thing with international banking but without banks. It’s hard to imagine but your mobile phone can already function like your own bank and can beam currencies to anyone in the world. They can cash into a local currency with their own country’s exchanges. These apps can join in on smart contracts which will compromise the internet of blockchains.
Takeaway: Gaps are Filled Through Usage
Payment systems are especially going to be international, knitting together banking through technology. Services like Ebay and Airbnb already connect together individuals from different countries though they still struggle with international payments between individuals. This will no longer be the case as technologies come online that fast track and streamline payment and billing systems through the blockchain. Credit cards, especially, will use the blockchain system to back their use and be combined with reputation services that companies like Airbnb develop through interactions on their platforms. Experts try to predict and argue cryptocurrency and blockchain usage and miss the bigger picture. Widespread adoption is powered by individuals interacting across borders and especially in developing countries. Payment systems that are already seeing growing pains are especially sensitive to the fact that international banking is emerging but without banks and instead through the internet of financial technologies.
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