Cryptocurrency and Money Market Democratization
https://www.seeker.com/how-blockchain-will-eliminate-banks-and-democratize-money-2214709749.html
In the past few years, a multitude of cryptocurrencies like bitcoin and Lite coin have been born. These virtual currencies are based around a digital record of all transactions called a blockchain. This article discusses how blockchains have the potential to democratize money markets and take away money market power from large financial institutions.
Today, when you buy something from Amazon or pay for groceries with a credit card, the transaction is repeatedly verified by a bank or financial institution. Today, when money is transferred between banks, each bank must update its own records and verify with the other bank to ensure no errors have been made. This process is, according to the article, expensive, inefficient, and prone to human error.
Cryptocurrencies offer a more efficient, inexpensive, and reliable system. Cryptocurrencies operate under the condition that all users have access to a public digital record of every transaction that has taken place. This record is called a blockchain and is stored across a large network of computers that belong to many of the currency’s users. The system uses cryptography to allow all users to add to the ledger securely without the need for a central authority (like large banks, governments, etc).
We can examine this situation through the power balance of a network – similar to node bargaining power in network exchange theory. The classical money market has a select few nodes that facilitate all transactions. These few nodes have a large amount of pull in the market because all other users have to rely on the handful of strong central nodes. This network structure can result in “bottlenecks” and the strong nodes that slow transactions and make the networks less efficient. In contrast, the cryptocurrency’s money market mentioned in the article lacks a central node that facilitates all transactions. The individual users are free to edit the blockchain transaction record themselves and deal directly with another user. This is a more transparent and efficient structure.
It is also worth noting that lacking a strong centralized node in a currency’s money market can lend to it being rather unstable. Without a single entity facilitating all transactions in the market, the main source of a currency’s validity must come from somewhere else. For a democratized money market to be successful, it must have a large, dedicated membership. This can be hard to maintain in the long run and is a potential drawback to such ventures.
Just as technology is changing the way we live and work, it also affects the way we use and move our money. The real story of fintech is that we are democratizing the creation and the administration of markets.We see it in lending marketplaces and with ‘robo advisors’ who are allowing people to participate in markets in ways they could not before. While this financial freedom has its benefits, it also presents risks. It might be less expensive to set up a money market, but transactions are “permission-less.There’s certainly risks involved in trying to contain innovation—history has been unkind to those who have supported restraining innovation rather than harnessing it.