Insights from an Ex-Finance Industry Perspective.
In recent weeks, Bitcoin has catapulted to an unprecedented high in market value, drawing a spectrum of reactions. Enthusiasts in the crypto space are buoyed by optimism, while skeptics view it as the latest speculative frenzy: devoid of tangible value. Gilad Edelman, writing for The Atlantic, expressed skepticism: "This feels impossible. Fifteen years after its creation, the technology has yet to demonstrate a substantial practical use."
While I hold Mr. Edelman's viewpoint and the broader skepticism from many in and outside the finance industry in high regard, I believe they overlook Bitcoin's true significance and potential. Indeed, Bitcoin may not be a foundational technology like the internet, but its influence, particularly through blockchain, is unmistakable: a catalyst for reshaping global financial and trading industries, soup to nuts.
My perspective on this matter comes from a distinctive place. My career began in the financial services sector, working with major institutions such as Wells Fargo, BMO, and US Bank. Now, I lead a blockchain fintech company, The Medici Project, navigating between two worlds that often clash: traditional finance and its decentralized younger cousin.
Since incorporating blockchain into our operations, we've revolutionized our financial infrastructure. We've removed the need for traditional intermediaries like banks, significantly lowering costs, especially in fund accounting. This shift is streamlining KYC and accreditation processes, boosted our operational efficiency, and enabled us to tap into international markets without incurring extra costs. These developments highlight the blockchain's ability to drive practical, significant innovations within the finance sector, not just feed into excitement around a financial realization of internet meme culture.
Bitcoin Origins & Explanation
Bitcoin, launched in 2009, heralded the arrival of cryptocurrency, presenting a completely new way of handling the exchange of value, peer-to-peer. Introduced by the mysterious Satoshi Nakamoto—a pseudonym for the unidentified creator(s)—Bitcoin was conceived as a decentralized protocol for electronic transactions, operating without the oversight of any central authority.
At the heart of Bitcoin lies blockchain technology, which acts as a secure and transparent ledger for all transactions. This ledger is open to public scrutiny and verification, yet it remains immutable once a transaction is recorded. This approach starkly contrasts with conventional financial systems, where transaction records are centralized and subject to third-party verification (and error) to ensure accuracy and compliance. Consider a typical transaction: if Jack wants to transfer money to Jill, their banks must communicate extensively to verify Jack’s funds and ensure Jill's receipt. This already cumbersome and risky process becomes even more so when you include the increased complexity of foreign exchange. However, with blockchain, Jack can directly transfer Bitcoin (or another cryptocurrency) to Jill, with the transaction promptly recorded on the blockchain, eliminating the need for any intermediary, no matter where Jack or Jill live on the globe.
Essentially, Bitcoin and its crypto counterparts represent a digital store of value, similar to diamonds or another slightly-useless-but-valuable commodity, enabling people around the globe to transact directly over the internet without intermediaries. Unlike traditional gold reserves, or holding diamonds in a safe. Bitcoin's digital nature facilitates easy division and verification via blockchain technology. Moreover, its finite supply of 21 million coins offers a theoretical safeguard against the inflation often associated with fiat currencies.
The Wider Implications of Bitcoin & Blockchains.
When Satoshi Nakamoto unveiled Bitcoin over a decade ago, it was initially billed as a technological novelty—it took four years to break a $100 price point and eight to surpass $1,000. Over time, Bitcoin has evolved from a niche technology to consistent front-page news, now owned by millions worldwide. It processes hundreds of thousands of transactions daily and has even been adopted as national currency by El Salvador.
Yet, despite its evolution, traditional finance has been hesitant to embrace it. There are a few reasons for this. Firstly, the finance industry prizes stability, and companies often face penalties rather than rewards for the early adoption of new technologies, both internally from executives, and externally from their more-conservative investors & regulators. Secondly—and perhaps even more importantly—blockchain technology, by design, eliminates the need for many services provided by financial institutions, such as bank payment processing, thus posing a direct threat to their established business models. This is not to say that banks are "scared" of blockchain technology, but it is challenging for them to design solutions around a technology that renders much of what they offer obsolete. It is a mental & design shift they are simply not equipped to cope with.
However, the advent of a trustless, decentralized system extends far beyond payment and banking networks. Blockchain technology heralds transformative potential across a myriad of applications, from stock trading systems and secure voting mechanisms to proof of ownership for assets like real estate titles, digital identities, and even mundane tasks like the storage and sharing of documents. For example, Estonia has leveraged blockchain to safeguard health records, while giants like IBM and Maersk are exploring its use in global supply chain and logistics management. In the realm of environmental sustainability, blockchain facilitates the transparent tracking and trading of carbon credits. Moreover, innovative social media platforms are experimenting with blockchain to ensure content creators retain ownership of their content, enabling seamless portability across different platforms.
This expansive utility underscores blockchain's capacity to fundamentally alter not just financial systems but also numerous sectors, promising a future where transparency, security, and efficiency are paramount.
Looking to the Future.
Will everything change overnight? The simple answer is no. It's understandable why there's skepticism towards blockchain; it's a novel technology, significantly different from traditional systems, and often finds itself in the news for the wrong reasons. Bitcoin, as the first implementation of blockchain technology, faces scrutiny due to its slow transaction speeds and energy-intensive protocol. So, skeptics have valid concerns. However, dismissing blockchain as merely a novelty or a tool for the naive or radical is to be swayed by a media narrative that overlooks the technology's potential.
Blockchain, like any groundbreaking technology, is in its infancy, still exploring practical applications and dependent on societal shifts to achieve widespread adoption. Its impact, similar to the internet, automobiles, and railways, may not be immediately obvious. Yet, imagine a future where transitioning between social media platforms without losing data, or opening an account with a simple phone tap without lengthy KYC processes, becomes the norm. Or envision starting a business from your apartment, issuing safe, regulated token equity without expensive legal fees. These scenarios may seem distant, but like the evolution of past technologies, they're within reach.
Historically, early technologies have encountered rational skepticism brought about through often serious initial problems. On its initial test-run, the first steam train resulted in a spectator's death, and the first commercial jetliners—the DeHavilland Comet—experienced catastrophic failures mid-flight due to metal fatigue, costing hundreds of lives in the process. Despite these challenges, such issues did not define these technologies; rather, their eventual integration into daily life did. Similarly, the current limitations of blockchain technology and Bitcoin do not undermine their potential for significant impact. Any issues they currently face, or may encounter, are and will be solved, and they are likely to be far less deadly than those experienced by the steam train, or ill-fated Comet.
The future of Bitcoin is uncertain, with both potential and challenges. But I remain optimistic about its future, though I recognize & respect that not everyone shares this sentiment. Dismissing the transformative power of blockchain outright, however, is akin to rejecting the foundational technologies that have become essential to our modern lives. Had skepticism prevailed in the past, many of the innovations that now enhance our daily experiences would not exist, we would have no trains, no jetliners, no internet, and certainly no cellphones, let-alone smartphones. Therefore, before casting doubt on cryptocurrencies, NFTs, and blockchain projects currently shaping this space, consider looking five years into the future, rather than judging them solely by their present state, or worse, their past problems.
Disclaimer
This analysis is intended solely for educational purposes and should not be construed as investment advice. The views and opinions expressed herein are my own and do not reflect the views of The Medici Project or any associated entities. The Author may hold positions in Bitcoin and other cryptocurrencies which may bias their opinion. It is crucial for individuals to conduct comprehensive research and consider all variables before making any investment decisions. Remember, investing in cryptocurrencies carries risks, and it is important to approach such decisions with informed caution.