Fourteen years have passed since the inception of cryptocurrency was introduced to the world. Advancements are continuously being made within blockchain technology’s wide range of use cases, with or without mass adoption. Similar to a broken record, mainstream media outlets have clung to the narrative that crypto has perished and deemed the asset class a scam. However, the same entities that once had a strong distrust towards the technology are now running in flocks to pour funding into the next big Web3 project.
Recent developments in the global economy show that reckless government spending and money printing has devalued currencies, and even led Sri Lanka, the first country in the world to declare itself bankrupt. Americans are facing a whopping 9.1% inflation rate, after the Fed promised that inflation was only transitory. U.S Treasury bonds have hit an all-time low since the pandemic. The Euro, which has held a stronger purchasing power over the U.S dollar since 1999, officially tumbled in its parity against the dollar.
Analysts predict that the euro could fall to $.90 cents if Russia continues to withhold gas supplies to the EU
But how could blockchain solve, or at the very least ease, some of the financial stressors billions around the world are encountering? Here at Chain, our mission is to inspire future Web3 creators to build their own products and services comfortably at low costs. To achieve this mission, we focus on reducing the barrier of entry for anyone seeking knowledge about blockchain technology and Web3. Through education, community, and open discussion, we can inspire our readers to be a part of one of the biggest revolutions since the World Wide Web. It is not our goal to idolize one system over the other; rather, help expand our readers’ views on the solutions blockchain technology can offer to the world. We are going to dissect three everyday nuances within the centralized financial system that can be avoided by implementing blockchain technology into our everyday transactions.
I. Limited Access
Since the explosion of the internet, there has been an idea surrounding the theory of a “digital currency” or “digital collectables”. You could argue that payment apps such as Zelle and Cashapp utilize the internet for transferring funds for a small fee, and for a wait time of 1–3 business days until funds can be accessed. As convenient as this may sound, 1.7 billion people in the world remain unbanked and are unable to store their funds in a banking institution. This alone makes it incredibly hard for these individuals to obtain access to loans, battle poverty, and at the very least have the luxury of paying their bills with auto-pay.
Let’s say your cousin in Sri Lanka needs emergency monetary assistance. You say “Sure, I’ll wire some funds through Western Union”. Your cousin, who doesn’t have a bank account, or U.S dollars will have to wait up to a week while the appropriate third-parties verify this transaction and take their cut in the process. Your cousin lost 10% of the funds you sent her through international fees and foreign exchange rates.
On a domestic level, your friend in Tennessee just got their $1,000 paycheck and went to the local check cashing place to cash it. Your friend lives paycheck to paycheck and is saving up for the minimum balance needed to open a standard checking account. The check cashing service takes a standard 2% fee to convert his paycheck into cash. Every week, on top of state and federal taxes, your friend loses $20 in fees from his paycheck. That’s over $1,000 a year spent on processing fees alone.
In scenario one, your cousin could have gone to a local internet cafe and downloaded a mobile wallet, and through the power of blockchain technology, she could have securely accessed the funds you sent to her in minutes.
In scenario two, your friend could have texted his employer his public wallet address and received his paycheck in cryptocurrency after the payroll company calculated his tax deductions and take-home pay.
II. Centralized Control and Third-Party Intermediaries
The current financial structure in place has many layers of centralization. What does this mean? Regular consumers and businesses deal with a single, localized bank which has complete control over its rates and fees. Imagine you tried to switch over to a bank that had better fraud protection, and greater interest rates for your savings account. The process should be pretty straight forward, right? Well, your bank charges you a handsome fee for switching bank accounts under a certain clause that was hidden deep within the contract you signed.
Another disadvantage of banks is the fees that are incurred by transferring funds from one bank account to another. Bitcoin presents itself as a “cashless”, “peer-to-peer” system that removes the need for third party involvement (i.e., the bank). The blockchain makes it possible to send funds from one person to another instantly without the involvement of a bank. Blockchain technology greatly benefits billions of people around the world that can’t rely on third-party intermediaries due to corrupt governments, high crime rates, limited legal options to pursue claims, manual record keeping, and poor regulation of companies.
The blockchain is a decentralized database that removes the need for intermediaries, while guaranteeing integrity and transparency. Blockchains are maintained on a single shared ledger that is immutable once recorded on the chain. Privately managed institutions handle multiple ledgers that are not accessible to the general public. Centralized financial institutions are more prone to hacks and data loss since all information is stored in a central database. With blockchain, all the computers on the network have access to the same transactional data, reducing the risk of data loss. To manipulate the cryptographically stored data on the blockchain, one would have to hack over 50% of the computers on the network at the same time. Which is nearly impossible.
Within the traditional financial system, executing transactions on a personal to corporate level requires paper-heavy documentation that tends to be time-consuming and prone to human error. Blockchain streamlines this process by replacing layers of authentications with time-stamped and verified transactions. This technology offers enhanced speed and efficiency for processing transactions in real-time instant transfers. Since documentation is stored on the blockchain for everyone to see, this cuts the need for exchanging paperwork filled with complicated jargon. There is no use for multiple ledgers, so clearing transactions and settlements can be much faster.
Let’s revisit your friend from Tennessee. He just received a bonus and could open a checking account at his local bank. Hooray! He brings his $1,000 paycheck to the bank on a Friday, and to his surprise, the bank only cleared $250. He has to wait two business days before he can cash out the rest of his funds. Which means he only has $250 to spend for the next four days, since weekends are outside the bank’s regular operating hours.
From a macro standpoint, transferring value between companies and even countries is a slow and painful process. In times of national emergencies, how can we ensure funds reach the hands of the appropriate organizations in a timely fashion? Unfortunately, aid needs to be halted, and takes time to process if sent outside the bank’s business hours. With the power of blockchain, entities such as “Chain Gives” can send relief to nations that are facing political unrest instantly, and in real-time.
Ukraine received almost $100 million in crypto donations after it declared a state of emergency
The U.S established the Federal Reserve in 1913, and has been in no hurry to make any improvements to its outdated system. Since the birth of the Fed, the U.S dollar was removed from the gold standard, cost of living and higher education soared, while wages remained stagnant, and failed to incorporate faster and efficient technologies that could greatly improve the private financial sector. It’s hard to ignore that countries battling economic turmoil are slowly adopting Bitcoin and other cryptocurrencies as legal tender. Bitcoin gives normal people complete custody of their funds, and the power to store value in a meaningful manner. It allows people to transact with each other without getting third parties involved.
As with any new emerging technology, one of blockchain’s biggest hurdles will be the growing pains of adapting to this new system of finance. Given that so many industries and countries have implemented blockchain applications in a variety of ways, it’s only a matter of time before it’s accepted on a global scale.
DISCLAIMER: NOT FINANCIAL OR INVESTMENT ADVICE
The information provided in this article does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.
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