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Monday, 11 December 2017 06:03

Implications of Crypto-Currency on the Banking Sector Featured

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Crypto-currency has not only affected how humanity can make transactions but also how they do business. It’s on everyone’s lips at the moment, with the ‘overnight’ success of bitcoin in the money markets, so of course, we’re gonna talk about it.  We’ve already discussed cryptocurrency here, here, here and here but we’re going to dive deeper because we all need to understand the implications of the technology behind cryptocurrencies where suddenly, we can exchange value over the phone, without oversight from the government or the banking industry, in an instant.

The technology is poised to lift generations out of poverty by providing them with access to finance and trade. But, before we embrace another disruptive tool, let us look at some of the ways it would affect the banking life as we know it. This technology will force banks to innovate and decentralize, create new winners and losers, and ripples within the banking sector that would extend the micro-markets.

Owing to its ability to disrupt intermediaries and potential to decentralize money transfer and storage, crypto-currency will ensure that banks innovate. The banking sector will need to facilitate this emerging technology that is going to improve service delivery by these financial institutions. Moreover, with the increasing threat from hackers and high levels of insecurity, case in point the recent theft of KCB Thika Branch, the demand for security has never been higher. The banking sector will use the innovation to cushion themselves against future losses.

If data security and improved service delivery won’t be a good enough incentive for the banking sector to innovate, the emergence of a new market called the internet of value will be. Think about the internet of value as an ability to monetize everything regardless of jurisdiction, conventional market access, and location. Furthermore, crypto-currency allows for instant value transfer at very low charges in the absence of a third party, which leads us to our next point about emerging winners and losers.

The ripples that crypto-currency will start in banking will create new winners and losers.  Could this be why companies like Goldman Sachs have been quick to discredit the technology? By decentralizing banking services and coming up with micro markets that will be more deeply rooted than those seen by barter and market economy systems, the technology is likely to create a new divide.

Crypto-currency promises to render the central banks, the intermediaries in the current financial system, jobless. For instance, the payment system that Bitcoin uses facilitates decentralization by ensuring that compensations are direct and dependent on the distribution of credible ledger copies which are then verified by a surging network of the crypto-currency users. The security that such a system provides is less prone to nefarious manipulation as witnessed in the current banking system that depends on the trust of a financial institution to do the record keeping. This keeps pointing to a competition between decentralized and centralized banking systems, but we are yet to see if they will co-exist harmoniously or otherwise.

Overall, the implications of this technology have meant that serious discussions are necessary to encourage a safe and successful execution plan. The federal government needs to step in to oversee the future of the currency.



Read 240 times Last modified on Monday, 11 December 2017 06:27

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