Is financial sector’s cheese going to be moved?
The financial sector is highly regulated and lucrative with high barrier to entry. It comprises some of the largest corporations handling our bank accounts, credit cards, and investment and retirement funds. All have high yields (for the corporates managing them) and commissions that frustrate us as customers.
Take these characteristics – highly regulated, lucrative and high barrier to entry – aren’t they how we described the telcos 10 to 15 years ago?
Technology and deregulation moved their cheese forcing them to actively look for revenue sources that are not under the streetlamp.
The internet is best at cutting out the middleman, will this happen in the financial sector as well?
Cryptocurrency to democratize financial transactions
Financial transactions such as credit card payments, wiring of money or stock trading all require a centralized system to validate and confirm the transaction.
Cryptocurrency such as Bitcoin changes this centralized method of financial transactions as it performs and records all transactions in a blockchain which is basically a distributed database with nodes that allows for direct transactions between person A to person B.
Bitcoin turns credit card companies and brokers void as transactions can bypass the middleman. A transaction at a store could become a direct transaction between the buyer and the seller going through the public blockchain deducting the transaction amount from the buyer’s wallet.
While this may seem science fiction NASDAQ has already started experimenting with the technology. First step NASDAQ is taking is to use a Bitcoin startup named Chain for private market (pre-IOP) company stock trading. This will significantly reduce current labor intensive overhead involved in such transactions.
“But their bureaucracies are so heavily invested in the expertise and importance of local regulations and standards that it’s extremely difficult for them to cut the Gordian knot and implement seamless global systems.”
“So they keep trying to re-inject points of control, and thus points of vulnerability, into blockchains, e.g. through ‘permissioning’; but this nullifies their main benefits, which come from removing points of vulnerability.”
The next step of this NASDAQ experiment will probably be to enable purchasing of publically traded stocks with cryptocurrency and specifically Bitcoin.
The process of decentralizing and democratizing the financial sector will take several years but looking at how VoIP started and where it is today can serve as a good example and tell us what to expect for.