Fintech Zoom has decided to ask various experts how the market sees the future of cryptomoedas:
Crypto-coins and fintech have been growing strongly in niche businesses that traditional banks have not filled. So, how do you see the growth of this innovative sector? Do failures in systems (wallets or exchange markets) put this new sector at risk? How’s the future going to be?
This set of opinions is now published in a fantastic participation and the Fintech Zoom team thanks all experts.
These issues aren’t unique to crypto, banks suffer the same issues daily and such security issues will always exist whilst there is a potential for human error.
Running through the remit, the future of cryptocurrency can be traced back to similar times of multiple currencies, such as through the gold rush in America. Eventually one wins out and becomes the standard currency for all users.
Given the changes in perception towards how we transact (especially in the western world), the leap from cash to ‘cashless’ transactions has been an important leap in the zeitgeist towards societal acceptance of ‘non physical’ money, which cryptocurrency is by its very nature.
However, the average person will not feel comfortable transacting with an unfamiliar currency that can be worth different amounts at different points of the day (when compared with traditional fiat currencies), so this leap in perception may prove a leap too far for a currency like bitcoin to become a global standard currency.
But the technology and ensuing infrastructure opens up an opportunity for fiat currencies to become more efficient, easier to track (thus reducing money laundering) and eventually non-physical as a means of transaction.
As for cryptocurrencies, I would suggest that eventually the ones we know now will disappear as technology moves on, but this won’t be for decades yet.
Some may take on different roles, like bitcoin potentially becoming a digital commodity as opposed to a currency, but personally I see a long term future where the technology is used to make state backed currencies more efficient. As for a uniform currency to underpin world trade, something like a digital representation of the IMF’s SDR could become a currency and hold the interests of multiple nations on an international scale.
As for security risks in cryptocurrency, these tend to be overstated by mainstream media. Attacks on wallets are, for the most part, down to single point of failure (poor coding used in the wallet or exchange creation or a person giving away their crypto wallet key). These issues aren’t unique to crypto, banks suffer the same issues daily and such security issues will always exist whilst there is a potential for human error.
We are already seeing huge progression with countries such as Japan, who have effectively legalised cryptocurrency as a payment method. It’s faster, more secure and gives the user much more flexibility. There have of course been exchange hacks, such as the recent hack of Binance – who despite being hacked, refunded all losses and explained the whole situation to its users. Decentralised exchanges will soon make it impossible to be hacked and exchange security will only improve with the years to come.
The ability to move funds globally at such a cheap price is fascinating. Binance moved over $1bn of BTC for a tiny fee of $124. This is what the future of banking looks like, and it doesn’t involve hefty fees, long waiting times and middle-men.
In short the future of some forms of cryptocurrencies (CC) is bright.
The one that have a brightest future are those limited to a closed environment of payers, earners and consumers. An example might be a large company or group of companies with both opportunities for internal use and some limited external use.
As for Crypto uses in the big open world – they are very limited. It looks that about half of the ICOs are frauds from the beginning and the 48% fail. The top ten CC are over 80% of the value of all active CCs. The persistent hacks, and thefts are a very serious impediment to any wide adoption but larger players. Event the brave one who say the take CC – immediately convert the remittance into a sovereign currency – usually USD or Euros. The other obstacle is the volatility of the value of many CC against benchmarket sovereign currencies. Like it or not – an accepted currency requires stability of value not volatility. Speculators like volatility – not commerce. A death knell for CC is if the US views CC as a foreign bank account and requires used to file a Foreign Bank Account Report , more precisely is is known as the FinCEN Form 114, “Report of Foreign Bank and Financial Accounts.” It has been discussed by the US
Department of Treasury.
CCs are part of a business process. CCs solve payment issues tied to the business process of remittances and the cost of remittances. That is it. As limiting as they may sound it is also opening up enormous opportunities for those on the lower part of the economic spectrum. About 25% of the US population do not have credit cards. Many use payday loan services and the payday ACH services to pay bill. An accepted CC can disintermediate these very expenses services.
About 40% of the world is not banked – the same goes for them. A stable and accepted CC would be a sincere path to economic freedoms and opportunities to which they do not yet have access.
Right now at CCs are a grand economic experiment that needs to allowed to run its course. Regulations are required, but I believe there needs to be some push back back on the SEC requiring a ICOs to register. While I welcome adult oversight, the regulations are from 1933 and not appropriate to the CCs. CCs require different and very specific levels of disclosures related to use, risk, etc… not fully addressed by the SEC.
Much like the thousands of beer brewers that appeared after prohibition, in a few decades it was reduced to under 20 significant brewers. The same will happen with CCs. While bitcoin is the current gorilla, a new gorilla will take its place. Its’ name may not even be known to us today but the properties will be a stable value, ease of use, international in nature and by design, exchanges that are uniquely resistant to hacks and thefts and the ability to recover access to your wallet should you error and lose access.
It is true that the market is currently quite small, and that both legislative uncertainty and market volatility are scaring away bigger, more resourceful companies.
At the same time, there is still a lot of growth ahead, with a plethora of promising projects released recently or at an early stage of development, as well as significant investment from the Chinese government (e.g. Matrix Network, IOST), the Silicon Valley angel investors (e.g. EOS, Telegram Open Network), and many other groups around the world.
Whether cryptocurrency goes mainstream or not, the promise of a decentralized fail-proof system for running Dapps and blockchain-based distributed file storage is especially important for countries like Iran and Russia where it is likely to become a safer alternative for journalists and small businesses alike.
Much like the case with electric cars, there will be not that many people using these technologies until adoption reaches a turning point. The so-called third-generation cryptocurrencies are expected to be far more practical and convince more users to join.
As to security breaches and exit scams, they are just a side effect of the test phase that the market is going through. We believe they do not pose an existential threat to our business, and they encourage strong competition and user awareness.
When observing the growth path for different technologies I think it’s important to understand the ownership of the technology in question as either highly concentrated such as Microsoft Windows, or highly distributed as we see in the case of most blockchain based assets. Blockchain’s distributed ownership model will first show a slower growth path as it is dependent on organic growth and mass awareness of its users – a sort of technological evangelism. Then one day, cryptocurrencies will become so common that awareness of both the technology and its final purpose will be built into the fabric of our society, just the way mobile phones are now.
Blockchain is a technically complex subject, and many of its benefits are still highly theoretical or only show small marginal gains. This is not a bad thing, it’s simply a symptom of early-stage technology. We are likely still waiting to discover the most life-changing blockchain technologies, but the evidence is when we do, these tremendous innovations will benefit everyone on the planet.
Like many complex systems, cryptocurrencies will have some early problems and technical failures. How many rockets explode on the launch pad before the smartest among us arrive at some consistency? This is not an indication of the overall viability, simply the beginning of our effort to innovate and improve the networks and systems that support our flourishing. Bitcoin, for example, after navigating several technology iterations has proven to be a robust idea and well aligned with the technology available to us now. The next round of technology may improve on this platform or provide an even more reliable solution. Either way, I think investors in this space realize these risks are worth the reward of holding an asset class with global demand.
A growing number of big banks are turning to cryptocurrency for institutional investing.
In order for this emerging digital currency to prosper, the traditional players must be comfortable that the right infrastructure is in place. You can’t be running this new asset class on a bunch of jump drives — you need better security than that.
Cryptocurrencies enable payments without the need for any intermediary
Cryptocurrencies like Bitcoin or stable tokens provide an extremely easy and cost effective way for any two parties (people or business) to exchange value. This is very apparent in developing nations where many people cannot get a traditional bank account. Cryptocurrencies enable anyone to cost effectively pay others, cross border, without the need for any intermediary. The biggest limitation to adoption is the education as most people have heard of Bitcoin but have not personally used it. Individuals need to understand the role a wallet plays, whether it’s centralized or decentralized, and what the potential risks/rewards are of using a custodial solution.
Where is Crypto Going? How do you see the growth of this innovative sector?
I like to use the example of crypto’s growth in developing nations and troubled economies because it illustrates one of the best implications of decentralized currencies. In countries and regions where the banks are unstable, unreliable, and untrustworthy, cryptocurrency offers an olive branch of financial security to its users. I can see other nations and larger organizations noticing this trend and its benefits and advancing the applications of cryptocurrency even more. In short, I see this growth as extremely positive.
Do failures in systems (wallets or exchange markets) put this new sector at risk? How’s the future going to be?
I think breaches of security and other faults will strengthen these systems. As crypto’s applications broaden, we’re seeing more and more new companies and exchanges popping up to fill the void. Each being aware of the importance of cyber security, this creates competition between services and each will progressively become more secure. We also need to see more responsibility on the holder’s part, i.e. the usage of cold wallets rather than hot wallets.
Next big use of blockchain technology is in the payments industry
We believe that the next big use of blockchain technology is in the payments industry, and we expect to only see the adoption of cryptocurrency payments increase. The current credit card authorization and settlement system was designed in the 1970s, and it hasn’t been updated for today’s world. The technology is slow and dated, transactions are hard to track, fraud is rampant, and there are many steps and players involved when moving money internationally. International transactions take days, with multiple players each taking a fee. Dominated by banks that control and dictate fees, it only becomes more expensive to move money each year.
In the last year or so, merchants from many different industries began offering cryptocurrency payments, and the technology has come a long way in a short amount of time. Not only are merchants now able to accept payments in crypto online, but also in retail settings through the use of QR codes. Cryptocurrency payments are a gamechanger because it allows the 1.7 billion people who do not have access to a bank account to finally shop online. With crypto payments, all you need is a smartphone and an email address. Additionally, mobile wallet usage will increase as smart phone purchases continue to rise. This will open the potential for a fully compatible crypto and credit card mobile wallet to be introduced. Imagine one wallet on your mobile device that stores your cryptocurrency and traditional currency. This would be a huge push into a cashless society.
Both fintechs and cryptocoins will face a plateaued growth
Fintech, much like cryptocurrency, is changing the way businesses transact and manage assets by using software. The financial services sector will struggle to keep up with the innovation speed of fintechs. Fintech companies are now competing directly with banks in the area of financial services by seamlessly integrating all services such as payments, lending, money transfer and investing, using algorithms and software that cater to the tech-oriented and sophisticated customers.
On the other hand, crypto-coins are providing a decentralized method of transacting by drawing from the power of blockchain technology. Crypto-coins are cutting out the intermediaries such as banks, to execute services in the shortest time possible. For example, loans are processed in less than 24 hours. This is unlike traditional banking where the process takes longs with limits such as ‘business days and hours’.
It is unlikely that both fintechs and cryptocoins will face a plateaued growth. This is because the continuous innovation keeps getting bolder and better eliminating inconveniences such as system failures of wallets. With better regulation and wider adoption for cryptocurrencies in the future, we are likely to see strong digital currencies that will withstand market volatility. So, the future is looking bright in every aspect.
Cryptocurrencies should be viewed as an asset and not a currency
My opinion has always been that cryptocurrencies should be viewed as an asset and not a currency. It’s simply not a viable means of exchange for businesses, which is why we at BlueSnap never felt the need to support acceptance for these currencies on our platform. Any payments solutions provider can easily add support for cryptocurrencies, like Bitcoin, so merchants using their platform can accept it, but the technology is evolving so rapidly that the pros no longer outweigh the cons. This is supported by the fact that the PSPs who jumped on the trend are now backing out and ending support for cryptocurrencies on their products because customer demand has plummeted.
Your bank is inefficient and is stuck in a legacy system
There’s a misconception that traditional banks pocket all of that extra fees while providing a service. In reality, when you want to do a simple bank transfer, the transaction has to go through a reconciliation process involving a global financial system, comprised of a wide network of traders, funds, asset managers, correspondent banks, custodians and more. Thus the fees gets by charged all these members.
The problem is not that your bank is expensive. The problem is that your bank is inefficient and is stuck in a legacy system. These inefficiencies create gaps which are perfectly filled by blockchain and fintech companies by being efficient where the banks were weak.
Although the banks are working towards adapting to the new landscape, the solutions provided by cryptocurrencies and fintechs is already available and have a huge adoption. Since, blockchain is projected to be a trillion dollar industry, it’s obvious that the potential of growth in this sector
is immense. Besides being a technological solution, cryptocurrencies also present themselves as a whole new asset class. So they will also be treated in the same manner by traditional financial institutions as other asset classes have been. Investment vehicles, mutual funds, bonds, would incorporate this new asset class in their portfolio.
Now ofcourse the birth of cryptocurrencies came with the idea of decentralisation and having absolute control over your own assets. This also means assuming risk to self while relying on a wallet or trusting an exchange while transacting. This risk can be mitigated to a custodian like a crypto-fund. Again, these risks are similar to the flash-crash in the stock-market or exchange halts which we are familiar with.
The kind of efficiency in terms of cost and speed that is available today via these innovative solutions, coupled with the level of transparency, the risk is comparatively less to relying on an opaque traditional system where the user has to “trust” the banks, government and any other intermediaries.
Thus, this innovative sector provides a trustless, transparent and efficient solution which has massive use-cases in sectors such as retail, finance, logistics, healthcare, information technology, energy and trade.
Crypto opens up new business models for fractional ownership and investment that traditional business models simply can’t compete with. Consider the possibility of fractional investment in a new apartment building similar to running a kickstarter campaign. Crypto projects such as Meridio allow investment in real estate for as little as $1 and a few clicks.
This is the kind of business innovation that banks and the traditional lending establishment haven’t been able to support and frankly wasn’t possible until the invention of distributed ledger technology.
While banks are clearly watching closely from the sidelines, they’re losing first mover advantage and by the time they get in, it might be too late. Just as with the dot com boom in the mid-90s, while there were spectacular failures, all of the eventual winners were disruptive digital first companies. Consider the visible of failure of pets.com, while the company failed, no one gets their pet food from the corner store, they get it from Amazon. Similarly the latest crypto experiment may not be around in 10 years, but it’s highly unlikely that the banking establishment will ever keep pace and it will be a better crypto-first solution built on blockchain that will eventually win.
Tokenized exchange system is a desire to improve transparency
Emerging financial technology is opening a world of innovation in the banking and finance industry, driven by a desire to open access to financial services to more people, at lower cost, and in a modern way.
At the core of many offerings like Ven, Hub Culture’s digital currency, or Ultra, the tokenized exchange system, is a desire to improve transparency while putting decisions and power into the hands of the end user.
New technologies like blockchains or mobile applications open opportunities to put power into the hands of users. Other services like peer-to-peer lending, or tokenization, offer new ways for consumers to bypass monolithic banks as they empower other users.
The new sector is certain to see growing pains, and in the case of some new technologies, everyone is learning the hard way how to build resilience. With each failure come learning, which catapults the sector forward faster, providing incentives and pathways for improvement.
Today many crypto exchanges and digital asset businesses offer faster, more complete and resilient data services, identity verification and asset storage solutions than the traditional sector – so as trust and usage grows, their ability to grow faster than old rivals seems assured.
The future of fintech and crypto is one of diverging paths: increasing oversight and regulation will dovetail with accelerating technological innovation. Now that young companies are finding financial success with crypto, their ability to ‘solve for regulation’ means that regulation itself becomes a vector for disruption, offering huge benefits and efficiencies to the market they serve.
From digital identity like HubID to Ultra asset tokenization, the ability to transact at lower cost across large universe sets of customers points toward big opportunities for customers, businesses and even the older banks.
None of the cryptocurrencies (such as Bitcoin, Ethereum or Ripple) is currently used as an everyday currency. BTC is treated as a store of value,” while ETH is a utility token to pay for Etheruem network services. (Incidentally, the Ethereum network, as it has gained popularity, has become both too slow [transactions per second] and prohibitively expensive [gas fees].) Volatility in the crypto market also has affected its mainstream adoption as a practical method of payment for goods and services.
On the bright side, supply chain and financial services already have seen significant adoption of (or at least investment in) blockchain technology, in part due to an ever-growing need for enhanced security as well as the availability of mobile and online banking in global economies.
What’s on the horizon
Despite certain political and institutional resistance to decentralization, blockchain is poised to transform entire industries and economies. In fact, fast-growing countries with developing economies (such as in Africa) are ripe to adopt transformative technology, including cryptocurrency and digital payments. Why? Because developing countries largely lack sophisticated financial markets or infrastructure, making easy access to capital unavailable to businesses and consumers who, in turn, rely mainly on a cash-based (or even barter-based) system for everyday commercial and peer-to-peer transactions.
In countries where cash is still king, blockchain promises to simplify B2B and C2C payment networks — from better micro payments, to lower transaction fees, to easier cross-border remittances, and more. Moreover, fiat currency-tethered stable coins may help cryptocurrency go mainstream, enabling cross-border transactions — village to village, region to region, country to country — to occur with little to no interference; in more transparent, efficient and cost-effective ways.
In these ways, cryptocurrency has the potential to transform retail economies and payment infrastructure throughout the developing world, which even could spell the end of currency exchanges, manipulation, etc. Not if but when is the key.
Security has to be built, implemented, and designed with the end-user in mind
As with any (relatively) new technology, there will always be some significant hurdles towards mass adoption. Advances in technology typically reach a certain turning point based on a number of important factors. A crucial one is the effect of critical mass – meaning that the more people use, leverage and interact with a certain technology, the more valuable that technology becomes and the faster it can gain widespread adoption.
A secondary factor (albeit, as important), is that of security. Security has to be built, implemented, and designed with the end-user in mind. How safe is it to use the technology? Let’s assume the hypothetical scenario where we would be directly witnessing the advent of smartphones. And in this particular scenario everyone would be able to listen in on other people’s conversations. That would be a breach in trust. A breach in security. Nobody would want that – it would act to the detriment of, well,
It is quite similar for cryptocurrencies and the blockchain technology underneath it. The tech has an astounding potential to change society as we know it for the better. And it looks as if we are getting closer and closer every day to reaching that critical mass effect. Think of crypto ETFs getting approved, institutions starting to invest in the space, moms and dads understanding and using the technology.
Yet, as much as we work towards it, today it simply is not sufficiently safe to invest in cryptocurrencies. Only weeks ago, Binance, one of the major exchanges, was hacked. Shortly before that, the owner of a crypto exchange in Canada (Quadriga) died, resulting in investors who kept their crypto positions at that exchange, to lose over $200M in aggregate.
As long as we keep witnessing and feeling our way through security breaches of this magnitude and prevalence, the more mass adoption will be slow and arduous. Luckily, companies are starting to be increasingly vigilant about the security aspect, and more secure solutions are entering the market as we speak.
To conclude, have a look at the Security Token (STO) space, which is forecasted by McKinsey and BCG Research to grow from between $2-$3 billion in 2019 to $27 trillion by 2027. This data is noteworthy and effectively confirms the need for security solutions to be massively available, now more than ever.