The cryptocurrency ecosystem is thriving with each progressive year and significantly disrupting the traditional finance space. Cryptocurrency experts state that within five years, the user base of Bitcoin and transactions has seen an average growth rate of around 60% annually. In addition, this population of investors, including public and private ones, are committing to consistent investment in cryptocurrencies. Some of the favorite cryptocurrencies of investors today are Stellar, Ripple, and Ethereum.
Looking at the available statistics, it is evident that there is a continuous growth in space of stakeholders in cryptocurrencies and blockchain applications across the finance industry. Organizations are seeing the need for cryptocurrency training for their employees to keep up with this digitized form of transactions.
Currently, cryptocurrency is offering top-notch applications that are innovative and diverse. Moreover, they can be an excellent investment asset in the future financial ecosystem: decentralized finance.
Defi is a developing alternative financial ecosystem that works on a public blockchain enabling greater accessibility to people. It is bringing a lot of changes that, generally, current financial operations do not have. Let us see how cryptocurrencies, along with all this new finance system, can reshape the future of finance.
Table of contents
- How Cryptocurrencies can solve the current financial challenges and reshape their future
- Challenge: billions of people across the world are still unbanked
- Challenge: Slow transactions and higher expenses on intermediaries
- Challenge: The majority of people do not trust governments and Financial institutions for making huge transactions
How Cryptocurrencies Can Solve The Current Finance Challenges And Reshape Its Future
Here we will understand how cryptocurrencies are disrupting the traditional finance system. For this, we will look into what type of challenges the current conventional monetary arrangement faces and how currencies are bringing changes to them.
Challenge: Billions Of People Across The World Are Still Unbanked
In order to partake in the worldwide financial sector, store capital, or make an online payment, one must be able to access a bank account. Surprisingly, a significant number of the population, approximately 1.7 billion adults, are still in touch with banks. They have zero interaction with payment systems and accounts with a financial institution.
Cryptocurrencies working over a decentralized finance system allow anyone to connect with the platform. Individuals need to have a good internet connection and a smartphone to avail themselves of cryptocurrency transactions. Moreover, the underlying technology on which cryptocurrencies run, the blockchain, is a borderless platform. It implies that users don’t have to be in a specific geographical area to perform cryptocurrency transactions. Everyone can get access to it from their remote locations. It gives them the benefit of taking advantage of huge global funding that otherwise they wouldn’t have any chance to access. The cryptocurrency financial advisor says that this new system is bringing economic benefits to the unbanked population.
Challenge: Slow Transactions And Higher Expenses On Intermediaries
It is ideal that once people get access to Financial services, they should be able to send and receive money quickly. Also, these services should come in at a lower cost. However, in the current financial system, the processes are just the opposite of these expectations. As per data, the average fee of a remittance goes up to 7.01% for each transaction globally. Additionally, when people use banks for transactions, remittance rises to 10.53%. Apart from this, the most inconvenient factor is that a simple transaction sometimes takes several days to complete.
One of the benefits of the underlying technology of cryptocurrencies is that it completely eradicates the need for middlemen or any third parties. Blockchain connects two parties directly with one another with smart contracts. In the agreement, there are some predefined rules for or approval of a transaction. Hence a cryptocurrency transaction can take place only when it meets the rules and criteria.
This way, it removes the need for any negotiator or mediator between two parties. It significantly reduces intermediaries’ expenses, cutting costs for users who want to avail themselves of financial services. Aside from this, the time duration for transactions automatically reduces. Usually, the reason for delays in traditional financial services is the involvement of third parties, but cryptocurrencies remove that part of the transaction process.
Challenge: The Majority Of People Do Not Trust
Governments And Financial Institutions For Making Huge Transactions
Interestingly, the financial sector is not a trustworthy area among the general population across the world. As per a study, the global population has only a 57% degree of trust in current financial institutions. Moreover, people’s reliability over the government is even lower than this. As per the survey, only 40% of the population trusts the government in the United States. Also, only 47 % of the population thinks their governments to be dependable on a global spectrum.
Cryptocurrency transactions come with protocols like proof-of-work and proof-of-stake. Here, every transaction is traceable, and anyone can track any data they want regarding a transaction to its origin. It is possible because the system stores cryptocurrencies data over a public ledger accessible to every user in the network. Moreover, the involved parties in a transaction don’t trust each other as the system makes sure that the transaction is authentic.
As mentioned earlier, it uses predefined criteria set, and once the transaction fulfills the criteria, a transaction occurs. In case data within a transaction does not meet the criteria of the smart contract, the system rejects a transaction right away.
In cryptocurrency transactions, the KYC process involves a cryptographically secured framework. As it shares every digital entry over the network members, it significantly elements fake entries. This working system can be highly beneficial to investment banking, retail banking, digital payment networks, real estate marketplaces, and many other financial areas.
Challenge: Increase In Global Financial Inequality
Current Financial institutions operate over a centralized system. And financial markets are becoming only useful for those who have a consistent connection with them. Such a population involves people who have constant access to financial services and opportunities, have huge capital to invest, and are informed about offers and changes.
In fact, as per a recent survey on global wealth concentration, 1% have the ownership of around 47 % of all household wealth.
On the other hand, a significant number of the population have minimal to no financial wealth to start accumulating capital. The majority of people survive only on their paychecks and don’t maintain assets that can help them build wealth—for example, mutual funding, bonds, stocks, etc.
On the other hand, cryptocurrency trading provides an equal opportunity for everyone. Though there are popular cryptocurrencies like Bitcoin, and Ethereum which are pretty high in price, numerous cryptocurrencies are quite affordable. Also, so people can buy a few cryptocurrencies and stake them for long enough, still its price gets higher. After that, they can trade the currencies and get a good revenue out of them.
Apart from this, many cryptocurrency apps are on trend today, which require a minimum amount of initial investment for people to buy and hold currencies. It allows people to even trade with high-value cryptocurrencies like Bitcoin. Hence, cryptocurrency transactions are significantly reducing financial inequality. However, it would be more feasible to take advice from a crypto-financial advisor for investing in the crypto market.
Challenge: Manipulation Of Currency And Censorship Over Financial Services
Censorship and currency manipulation are the common factors of a centralized system. It implies that the government has the power to devalue and manipulate Fiat currencies at any time. This practice causes distress among citizens and economic markets.
Furthermore, centralized systems also offer governments and Financial institutions the power to put censorship on citizens financially. They can freeze accounts, remove funds from their bank accounts, deny access to transactions, and deny fund retrievals at the time the bank runs.
Cryptocurrency transactions are entirely free from any influences during bank runs or inflation. As we know that blockchain technology is the reason for cryptocurrency transactions, no central entity controls the platform operations. Instead, it works on a decentralized framework. The decentralization process allows cryptocurrency users to build consensus among the network members.
The only reason for rejecting a transaction will be that data it presents is faulty. Aside from this, every user of the network, whether a beginner or experienced, has permission to use all the financial services on the platform without any censorship.
Hence even at the time of inflation or any other unpleasant banking circumstances, cryptocurrency holders will face no difficulty. However, remember that cryptocurrencies are highly volatile in nature. So before you try your luck on cryptocurrency investments, it’s better to take cryptocurrency training.
Looking at the above advantages and the level of changes that cryptocurrencies can bring into the financial sector, it is apparent that they can potentially disrupt the traditional finance space. These are only a few examples of cryptocurrencies’ advantages over conventional banking; hopefully, we will experience more robust advancements in the coming time.
If you want to learn more about cryptocurrencies, take help from a promising cryptocurrency financial advisor.