Despite its relative infancy, blockchain technology is quickly proving its worth
Blockchain is one of the hottest topics in technology. It is responsible for Bitcoin’s success, and many companies have only recently begun figuring out how to unlock the power of blockchain’s ledger-like capabilities.
While finance and banking are obvious targets for blockchain’s disruptive potential, there are other industries that will benefit from widespread adoption. Gaming, transportation and logistics, and even agriculture are in blockchain’s sights. However, one of the most surprising developments so far is that regulators have largely left blockchain alone.
Bitcoin and cryptocurrencies
No one knows how much longer the fast-growing cryptocurrencies market has before governments and regulators set them in their sights. A cryptocurrency uses the blockchain’s peer-powered ledger algorithm to process and verify its network’s transactions, and rewards the participants who do the heavy lifting with coins. This proof-of-work system is so far infallible and has created many spinoff alternative currencies, or altcoins, that expand upon Bitcoin’s groundwork.
The slight differences in an altcoin’s algorithm, which are known to the well-initiated, help investors determine its future use to process payments versus its bigger brother Bitcoin. Many coins have established relative values in this way. However, the crypto rush that recently created hundreds of these cryptocurrencies made these differences negligible and now the underlying technology informs prices.
These new, easily tradeable assets have value by scarcity, faith, and largely by speculation. To date, the total cryptocurrency market capitalization is over $80 billion. A new wave of companies is using the popularity of blockchain and its appeal to investors to fund their own ventures. New businesses are popping up constantly in the fintech sector as well as in several other industries.
Blockchain and the rising crypto industry
With the increase in popularity in blockchain technology and cryptocurrencies, many fintech entrepreneurs are starting to find ways to expand the market. As a result, new companies have emerged that use blockchain and its related technologies as the base for new and intriguing financial services. Some have fully embraced cryptocurrencies, creating systems to manage, send, and store Bitcoin and other currencies digitally.
Cryptopay, for example, has created a digital process that simplifies the usage of coins for purchases, payments, and other transactions. These technologies make cryptocurrencies more accessible and increase their mainstream potential. CryptoPay represents the next evolution in this industry, by creating a marketplace and a bank to go along with it. The company is already well established and is considering an ICO.
George Basiladze, the CEO of Cryptopay believes that consumer adoption is around the corner. He tells us, “One of the main things holding back customer adoption is the lack of legacy financial services, which are available. This is precisely why Cryptopay has built a blockchain payment gateway to bridge that of legacy financial services with that of innovative technologies available via blockchain. Another key aspect holding back mass adoption is regulation. Without a clear regulatory framework, many investors and businesses are still nervous to be associated or involved with crypto -related activities. But as the ecosystem grows, so will the options to increase consumer adoption.”
Other innovators aim to open the investment market to cryptocurrency holders. By creating a platform where investors can fractionalize their illiquid assets into cryptocurrency stakes, LAToken is revolutionizing entire industries. Investors can see the value of something like a suburban home in a nice area, and can buy a share of it as LAT. Instead of outright purchases, they can invest in proportions that match their risk appetite. In this way, the LAT holder gains from rising residential property prices while the owner lives in their home, flush with cash.
LAT CEO and founder Valentin Preobrazhensky said, “LAT unlocks the value of assets by transforming the way money flows between asset owners, borrowers, banks and investors. With the LAT blockchain, assets records are traceable, transactions are registered, and ownership is verifiable. The net result is that previously illiquid assets are now tradable without the expensive and cumbersome securitization processes needed to protect investors. Access to capital for banks, borrowers and asset owners occurs at [a] dramatically lower cost.”
These companies, with a focus on the promise of blockchain, are taking advantage of the technology’s unique transactional capacity and innovative algorithms to expand the definition of financial services.
Lawmakers have largely ignored Bitcoin and are supportive of regulations that make it easier for new industry entrants to compete. Why? The 2008 financial crisis left a bad taste in consumers’ mouths and banks are just starting to recover.
This industry sentiment is starting to bear fruit in the EU where a series of laws meant to standardize financial record-keeping have recently been implemented. Laws such as the PSD2 (Payment Services Directive v2) protect consumers online by standardizing how all SEPA (Single Euro Payments Area) countries exchange money online. These rules are forcing old banks to open their books and get with the times. The trend was derided initially, but is now gaining traction even among centuries-old institutions.
On the horizon
Despite its relative infancy, blockchain technology is quickly proving its worth. As consumers, banks and regulators catch on to the benefits, the fintech industry grows exponentially. Fintech is already one of the largest targets for venture capital investment. Regardless of the novelty of blockchain, only ideas that improve upon old systems will become new leaders in finance.
The views expressed are of the author.
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