Ask the Expert: How crypto can shape the future of the financial system
We sat down with our former Product Director for Bakkt® Crypto Connect, Jhanny Rumpf, to learn more about the ways crypto is influencing a centuries-old financial system.
Our current (and predominant) financial system has been around for over 300 years, and banks have always been at the center of it. At the time that banking institutions were created in the U.S. in the 18th century, they were considered a major history-breaking innovation.1 It took time for the public to understand that a third party could be trusted to store their hard-earned money as opposed to stashing funds under a mattress. Still today, a quarter of the world population lacks a bank account.2
Crypto, which is powered by the internet and blockchain technologies, is not unlike other history-breaking innovations that require time to be adapted into the mainstream. Widespread banking adoption of crypto and blockchain technologies will not be an overnight process. It will take time for people to understand that there are alternatives in the modern world for storing wealth. Unlike with banks in the 18th century, however, the spread of crypto today is made faster by technologies such as the internet and cellphone, which facilitate adoption across the world, at scale. While crypto has the potential to fill the gap in financial services for parts of the population banks have not been able to reach, several mature financial institutions are already folding crypto into their growth strategies as well.
Despite how omnipresent the banking system is, it’s important to understand that it’s constantly evolving. For example, a widespread lack of transparency led us to the financial crisis of 2007 –2008. Irresponsible lending brought on the collapse of the U.S. housing bubble and triggered a domino effect across the broader business sector. Out of these collapses came more regulation, which today, helps create stronger protection for all parties involved.
The use of blockchain technologies in crypto is inherently transparent, as all transactions are pseudo-anonymous and can be publicly audited. This transparency brings new, transformative opportunities to the financial sector. The immutability property that cryptocurrencies backed by blockchain technologies have in place means that the information is unalterable, and transactions recorded are irreversible – creating accountability for both institutions and consumers. Those characteristics represent a new era in the financial system that evolves beyond the history of traditional finance and builds more inroads to access and transparency for all.
While still young, the cryptocurrency industry has already started to play a crucial role in the world and its influence is growing at a rapid pace. Existing players within the financial system are starting to adapt to this innovation, realizing that doing so will be essential in the mid- and long-term. Adopting a crypto strategy could be key for their ability to generate the expected growth their organizations need to survive in today’s world. This shift is evidence of the transformation that our world is already experiencing and the inevitable evolution that will continue as society moves forward. Adapting cryptocurrency and its different use cases in the business world is a critical factor that will set organizations apart and give them a competitive advantage today and into the future.