A change is warranted, but the size and scope of the change is not cryptocurrency. For the financial industry, blockchain – the technology that underpins Bitcoin (BTC), Ether (ETH), indivisible tokens (NFTs), and other digital assets – has brought us to a crossroads.
What does the future of money look like?
We have been working on the cryptocurrency platform for 10 years to protect investors large and small alike while giving them the opportunity to invest in this exciting new frontier in the financial world. The experience we have here helps us see what’s on the road.
Innumerable outcomes are possible at this time in history, but one thing is certain: the efficiency and innovation of technology will have a greater impact on traditional financial sectors.
The mature digital asset industry is coming
Blockchain provides a faster, more efficient, and more secure structure for financial transactions compared to the contracts, transactions, and records that currently define economic, legal, and political systems. The Harvard Business Review put it succinctly with this parable: “[The old financial structures] It’s like being stuck in a Formula 1 car during rush hour. In the digital world, the way we regulate and maintain administrative control must change. “
From generation to generation, technology has updated the way we conduct financial transactions. Modern credit cards have been around since the late 1950s, the first niche internet sale was completed in 1994, PayPal was founded in 1998, went public and sold on eBay in 2002, and Satoshi Nakamoto started the blockchain revolution in 2008. Financial heavyweights are no longer on the sidelines. And 55 of the 100 largest banks in the world are exposed to this novel technology in some way.
The first international regulations were enacted in Japan in 2016 following hacks in crypto exchanges, including the 850,000 BTC theft from Mt. Gox. With the success of any financial market based on predictability, security, and overall market efficiency, regulators continue to examine the direction and viability of their involvement in cryptocurrencies.
Related: Will regulation adapt to cryptocurrencies or will cryptocurrencies follow regulation? Experts answer
Regulators and corporations want to ensure that investors in any market, digital or otherwise, enjoy certain safeguards to encourage participation. Think Federal Deposit Insurance Corporation (FDIC) for US banks or eBay’s money-back guarantee. Without regulation, market participants are exposed to long and short term risks.
The regulators also ensure that the market plays by the same rules. Dan Berkovitz, commissioner for the Commodity Futures Trading Commission (CFTC), said in June:
“An unregulated, unlicensed derivatives market must not compete with a fully regulated and licensed derivatives market.”
And most importantly, it’s not just regulators and governments that decide the future – it’s about us, investors, executives, and consumers at large – about the future use of digital assets.
Development language for useful digital assets
As the market matures, the crypto industry will also experience language evolution. Widespread regulation and adoption will change the way the media and the public perceive and talk about digital assets.
The cryptocurrency will retain its unique character as it matures – don’t expect the conversations of HODL, FUD, and “to the moon” to go away – but what matters is that a larger group of blockchain investors are comfortable in space .
It may seem like a small thing, but attention to the combination of the language of cryptocurrency and institutional funding has enabled us over the past 10 years to work with a wide variety of organizations, from neo banks, fintechs and brokers to banks, hedge funds and family offices.
The development of the language coincided with the fact that many large investors recognized the long-term value of the proven blockchain as they began to diversify their large holdings to keep cryptocurrencies at historical value – such as gold, bonds or central bank-backed fiat money.
In business, you are valued by the company you hold, so we would not have received this warm hug without adopting the language of financial services and broader regulators.
However, it’s not unreasonable to think of cryptocurrencies being valued as a commodity rather than a digital currency – Federal Reserve Chairman Jerome Powell told Congress in 2019 that bitcoin was a “speculative store of value” like gold. But Bitcoin isn’t the whole story, just the most talked about. The industry needs to stop focusing on one particular use case for the technology and talk more about money, investing, financial management, and smart payments.
Related: Blockchain technology can change the world and not just through cryptocurrencies
The industry is bigger than any token
Over the past 10 years we have found that customers are increasingly drawn to properties that are useful and capable of solving complex problems.
Different digital currencies have different use cases. For example:
- Tether (USDT) would do well for payment as it is pegged – pegged – to the US dollar, thus avoiding the volatility of Bitcoin.
- Brave’s Basic Attention Token (BAT) is setting a course for the future of online content by issuing payments in BAT to users of its browser to display ads. These users can then give money to anyone on the internet using the BAT in their digital wallet.
- And the Audius Governance Token (AUDIO) is a convincing argument that cryptocurrencies will play a bigger role in the future of the music industry and offer security, exclusive access to functions and community-owned governance for artists and fans.
Blockchain is about solving problems, not conquering the world, replacing fiat or banking, a common misconception among the public. Although BTC is the best-known digital asset due to its popularity and its first appearance, it is just one asset class among many.
So what will the future look like?
Congress opened the door to regulators earlier this year when the Senate passed a revised infrastructure law that gives new control to the crypto industry.
Investors, digital asset exchanges, smart technologists, government officials, regulators, and everyone in between will benefit from more mature, consumer-protected market exploitation and will value transparency, predictability, and honest communication. Likewise, the majority benefits from the clarity of which digital assets have real value and which exist as manipulation tools to make the rich richer.
We have been there from the start and have seen the ups and downs of trends. But we also find that at the end of the day there are always great ideas that help to solve the problems of our time that are still open.
Yes, there is change. In recent years, a mature digital asset industry has emerged, bringing with it the synergy of languages that are becoming increasingly sophisticated and attracting a wider audience to our table. In turn, the content and insights that this new audience brings to the table will put a lot of trust in the industries. That trust will lead to the adoption of blockchain technology to solve problems that no one has ever dreamed of could be solved with blockchain.
Julian Sawyer is CEO of Bitstamp and responsible for the company’s overall strategy and vision. Julian has 30 years of financial services and advisory experience, as well as hands-on experience building financial companies from the ground up.