In Crypto, Financial Empowerment Isn’t Just a Buzzword
By Yoav Dror, CEO of PumpaPay
Advancements within digital technology today continue to reshape the global landscape as we know it, ceding back ground to humanity whenever it is lost by crises, pandemics and wars. With the introduction of the internet in the 1980s, we collectively bore witness to technology that has dramatically transformed how we control the flow of our data. Although beneficial, these advancements left an unmet need in our market for a medium that facilitates exchange between peers. Blockchain is here to change that.
Cryptocurrency enthusiasts love the internet analogy, and while skeptics scoffed at the idea when the world’s first cryptocurrency was born in 2009, many in traditional finance, as well as other mainstream sectors, are coming around to the concept of crypto and blockchain. Various politicians, including U.S. President Donald Trump, and well-known investors have weighed the topic of crypto, largely in reference to Bitcoin. While Trump’s reference was negative, politicians such as Kentucky Sen. Rand Paul, a Republican, and Colorado Gov. Jared Polis, a Democrat, have shown their support for the digital coins.
When crypto and blockchain were born on the heels of the 2008 financial crisis, they promised to offer the market a more efficient and secure means by which value could be exchanged between parties, through decentralization. The concept was a breath of fresh air, it’s just most people hadn’t realized it yet. As individuals and firms, our autonomy in conducting business transactions has been subjected to the control of powerful intermediaries for far too long, and crypto came along to change that dynamic.
Taking back rightful ownership
Fundamentally, blockchain technology is a digital medium that enables the management, storage, and transferring of value without the oversight of a middleman that could benefit from the ecosystem.
Compared to traditional modes of value transfer, the peer-to-peer mode of exchange creates a system of empowerment, whereby control over transactions remains within the scope of reach of the parties directly involved.
As Don and Alex Tapscott elegantly explained in their 2018 book, Blockchain Revolution, this system, and its associated benefits, are wholly reliant on blockchain’s decentralized network that supports immutability, transparency, and a trust-less protocol of exchange. To fully understand how this empowers its users, we can take a deeper look into the industry that reigns over almost every facet of our day-to-day lives: financial services.
Blockchain technology and its potential for crisis prevention
The global financial industry plays a pivotal role in almost every area of our lives. Although this system controls the flow of trillions of dollars on a daily basis, its core infrastructures have not been updated since the age of industrialization. When operating in the context of our digitally advanced world, the system, in a word, is simply inefficient.
Often quoted in blockchain literature, a prime illustration of this inefficiency in action can be seen in the 2008 financial crisis.
Caused by mass misrepresentation of mortgage-related security risk, the root of this economic disaster rested in the authority and trust delegated to financial institutions by society. This, coupled with an outdated system that allows for double-entry, provided a suitable playground for extreme manipulation that negatively impacted all those both directly and indirectly involved.
Another example can be seen in the likes of the bankruptcy crisis that ran rampant in Cyprus in 2013. During this time, a levy of up to 10 percent was placed on all uninsured deposits at Laiki Bank, and up to 47.5 percent of all bank deposits above €100,000 were seized. This particular taxation was run as a bailout solution for the excessive investments and expansions undertaken by Cypriot banks. Following this decision, the weight and responsibility of the subsequent losses were moved away from those who created them toward the greater community.
The fundamental cause of each crisis rested on the great degree of manipulation the current centralized system for banking allows. Conclusively, this, combined with the benefits to be reaped and the shared interests of the governing parties, not only allowed for but ultimately incentivised manipulation at the expense of the greater community.
On the other hand, the underlying mechanisms of blockchain technology－such as those employed by Smart Contracts－empower the parties directly involved in exchanges by enacting a trust-less, peer-to-peer mode of transfer that is, according to the World Economic Forum, “self-executing, credible, irrevocable and transparent.” Blockchain technology addresses the issue of third-party manipulation and subsequent unjust gains by eradicating both the incentive and ability to do so. In the face of economic disasters, a protective bubble is created for crypto-holders to protect their assets from external threats.
Looking toward a blockchain-powered economy
Beyond the prevention of crises, blockchain technology systems represent untapped strategic potential for firms of all natures, from financial service companies to high-risk, online merchants offering gambling or adult services.
The key to harnessing this potential resides in technology like Smart Decentralized Contracts and their mechanism for altering payment processing. This is of significance to many firms as according to the Nilson Report, in the next five years alone, global fraud losses are expected to rise to $35.67 billion. For online merchants, in particular, one can only imagine the domino effect that a reduction of losses by reclaiming control through implementing smart contracts and cryptocurrency could have.
As we progress into the next stage of the Blockchain Revolution, it is evident that a blockchain-powered economy may represent a world of empowerment. In order to achieve this autonomy, however, we must strive to consistently educate and enlighten our users on the potential strategic value that mass crypto adoption holds for the entire global landscape as we know it.
Yoav Dror is the CEO of PumaPay, the cryptopayment company that enables users to spend crypto the same way they spend fiat, merging the advantages of traditional billing systems and blockchain technology.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.