Many people wonder how blockchain and virtual currency can enhance the global finance sector. Unknown to many, the two can create a new financial sector. Last week, Xen Baynham-Herd detailed how the two can revolutionize the financial sector in a blog post. In his work, Baynham-Herd demonstrates how the new financial technology can be used to create a better future.
The Credit Concept And Its Role
The credit concept has been an essential component of the financial sector for a long time. However, the entire concept works with trust. Those who issue credit must have faith that those who take will use it as agreed. When you get a loan from a bank, you can use it for buying any product or service.
Money is just an idea and the banks create it out of thin air. Human beings have tried to use various tools such as nuts as money. The money concept has been evolving since then and now involves the use of electronic databases. Furthermore, although the principle of money has not changed, its features have.
Accepting a given currency as a legal tender is based on trust. That is why, for instance, we are able to see the USD in the same way. The currency is used in a centralized system and any change in its value is determined by decisions made by the centralized body. The growth of the economy depends on the existence of trust between the involved parties. Lack of trust may lead to the collapse of the entire system.
The New Technologies Support Decentralization
Although the centralized system is the most dominant in the financial sector, it comes with its fair share of challenges. The emergence of modern technology has made it possible to create a decentralized system that does not rely on a centralized body for trust. The users will now have trust not because a centralized entity told them to but because it is decentralized.
The use of blockchain technology allows us to verify any information without relying on a centralized body. It has also facilitated the creation of Cryptocurrencies. Smart contracts technology enables two parties to enter into an agreement without the need to involve any third party.
The New Technologies To Support Free-Flow Of Money And Credit
Blockchain and smart contracts technologies will replace the traditional banking institutions when it comes to money matters. Whereas personal loans are given depending on credit scores and other features, the technologies will make the loans universally acceptable and personalized for each person. The loans will also be adjustable depending on the given needs and circumstances.
In the future, your money in the bank will be dynamic and not static as it is today. The new financial system will use algorithms to search for the best investment opportunity and ensure you earn an interest. The technologies will reduce the middlemen in the lending sector which will lead to a reduction in the cost of loans. The world’s poor will have access to micro-loans.
The future financial system will be democratized. The elimination of the central authorities will give the people more power over their finances. The new system will give us access to information and services and enable us to control our financial lives. Blockchain has been around for a decade and it is already causing a disruption, looking ahead, it appears a new financial reality is within reach.