The signals for the impending disruption come from analysis by CB Insights, in a report titled “What is blockchain technology?” Here several fintech startups are offering blockchain solutions and the use of cryptocurrency initatives to challenge the dominance of the big banking players.
The use of blockchain and cryptocurrency appeals to many people, especially younger generations of millennials. One reason is because blockchains enable s a cryptographically secure way for people or businesses to send digital assets in a way that obviates the need for third parties (like established banks).
There are other advantages too, such as the use of smart contracts which can automate the former paper-heavy and invariably tedious processes associated with currency transactions. Smart contracts also add an additional layer of compliance, given that blockchain ledgers cannot be altered.
An area where the use of cryptocurrency is attractive is in the area of fundraising, which is an important process for any emerging company. Through the use of blockchain and immediate liquidity via initial coin offerings a new, cryptoeconomic model of funding is unfolding. The main trend here is an alternative means to access to capital outside of the lending processes provided through traditional financial services. Since cryptocurrencies such as Bitcoin and Ethereum are based on decentralized ledgers this further eliminates the need to engage a bank to verify business-to-business transactions.
Cryptocurrencies are being used in other ways too. For instance, a startup called TenX has designed a wallet linked to a debit card. This provides a straightforward means to spend cryptocurrency wherever a card could be used. Furthermore, TenX is constructing a distributed network to allow for the trade between various cryptocurrencies.
While the cryptocurrency challenges from startups is having a disruptive impact upon major banks, the big players are also responding. One tendency is to begin buying up the challenger startups and to incorporate the technology into the systems of the established banks. These trends are set out in the Digital Journal article “Where the top 10 US banks are investing in fintech.”
