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The New Fintech Revolution

(Street Scene , New York City, NY, U.S.A. - The Rockefeller Foundation)


The New Financial Technology (FinTech) Revolution:

Challenges, Opportunities and Future Directions






1. Overview

- An Emerging Financial Services

We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs. No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new financial technology (FinTech) revolution. 

FinTech, the future of transactions and commerce, is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. FinTech companies integrate technologies (like AI, blockchain and data science) into traditional financial sectors to make them safer, faster and more efficient. FinTech is one of the fastest-growing tech sectors, with companies innovating in almost every area of finance; from payments and loans to credit scoring and stock trading.

FinTech is an area that is radically changing how we live as society and how we do business professionally. It is dramatically reshaping human economic life. It is opening access to markets, investment and credit.  FinTech is inventing new ways to solve age-old financial problems. It has reduced fees, disintermediated banks and brought financial services to emerging economies. The rise of FinTech has opened up a world of possibilities. Businesses can offer more services than ever and for a fraction of the price of what it would have cost before.


- Artificial Intelligence (AI) in Finance

Artificial intelligence (AI) is revolutionizing how consumers and companies alike access and manager their finances. AI in finance encompasses everything from chatbot assistants to fraud detection and task automation. Most banks are highly aware of the potential benefits presented by AI. The benefits of implementing AI in finance - for task automation, fraud detection, and delivering personalized recommendation - are monumental. The decision for financial institutions (FIs) to adopt AI will be accelerated by technological advancement, increased user acceptance, and shifting regulatory frameworks. 

Banks using AI can vastly improve the customer experience by offering 24/7 access to their accounts and financial advice services. Front- and middle-office AI applications have the ability to transform the finance industry by: Enabling frictionless, 24/7 customer interactions, Reducing the need for repetitive work, Lowering false positives and human error, and Saving money


- Moving Towards A Cashless Society

The decade ahead is one anticipated to be swept with technological disruption, as we are digitizing every aspect of our day-to-day lives. The way we pay for things makes no exception. E-commerce accounted for $3.5 trillion of worldwide sales in 2019, while smartphones are becoming ubiquitous even in the most underdeveloped countries. Banks are slowly closing down their brick-and-mortar branches in favor of going fully digital, and people in general are tired of waiting for days on end for international transactions to execute. All of these developments point towards one question: what is the point of cash anymore? While it can still have its uses, especially between banks, physical money costs a lot to store, transfer and produce. Most coins produced are less valuable than the material used to make them. 

As the COVID-19 pandemic accelerates our shift towards a cashless economy, it is important to ensure that the transition is seamless – and to be prepared for the new financial reality on the other end. The world is moving towards this exciting future - a cashless society,


- An Inclusive Economy

An inclusive economy is one in which there is expanded opportunity for more broadly shared prosperity especially for those facing the greatest barriers to advancing their well-being. Quite simply, there are more opportunities for more people. Based on a broad range of input from experts, academics, peers, and public opinion, the Rockefeller Foundation defines inclusive economies by five inter-related characteristics: participation, equity, growth, sustainability, and stability.

The unprecedented disruption by COVID-19 is accelerating the urgency for agility, adaptability and transformation. Industry structures and business models are being disrupted – and the digitalization of the economy is being rapidly accelerated. An estimated 70% of new value created in the economy over the next decade will be based on digitally enabled platform business models. However, 47% of the world’s population remain unconnected to the Internet.


2. Digitization, Digital Platforms, and Financial Inclusion

- The Rise of Digital Platforms

Advances in digital technology has expanded the awareness of the benefits of conducting financial transactions online or with mobile devices. At the same time, digital advances have provided access to financial services for billions of previously unserved and underserved consumers worldwide, especially in less developed economies. 

Based on current trends, digital platforms will become the preferred and dominant business model for banks and financial institutions in the future. Digital platforms offer consumers and small businesses the ability to connect to financial and other service providers through an online or mobile channel as an integrated part of their day-to-day activities. We are entering a new era for financial services, where banking will no longer be “somewhere you go, but something you do”. A pioneering shift will be made from a business-centric financial model to a consumer-centric one. 


- Future of Banking

As consumes are increasingly using Internet to purchase products and services, they need convenient, safe and familiar payment and banking services. Due to increase of mobile devices, this trend of digital self-services in banking, irrespective of time and place, can be expected to continue.

We enter a new age of fully mobile real-time services environment (e-banking), which can provide virtual services focusing on people without any physical infrastructure. To meet the demands of modern customers and stay relevant banks must adapt to key behaviors of mobile internet users, which can be characterized as real-time, on-demand, all-online, DIY and social. In order for banks to offer a fully customer-centric service, they will need to respond to their consumers’ needs immediately.

As new technologies and consumer behaviour continue to evolve the way that we do business, financial institutions will need to evaluate their genuine points of differentiation and their economic sustainability over time. This may mean finding new ways to meet a broader set of customer needs, differentiating on customer experience, or seeking to be a best in class product manufacturer. Regardless of the strategic direction, participating as part of a mobile, digital ecosystem will be inevitable for today's financial service providers in order to create enduring customer value.


- Shaping the Future of Digital Economy and New Value Creation

In emerging markets, billions of people around the world without access to traditional financial services, FinTech could lead to a revolution in financial inclusion and membership in the new global digital economy. Individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. Financial inclusion is a key enabler to reducing poverty and boosting prosperity.

With lower distribution costs and simplified engagement, the movement from paper to digital is picking up speed and increasing consumer expectations. This provides traditional financial institutions the opportunity to transform legacy delivery options, while also challenging the business case for existing physical infrastructures. 

The digitization of financial services also will improve identity management through enhanced biometrics. This will impact on the access to banking services in underserved markets and improve traditional payments and global money movement.

The platform on digital economy and new value creation helps companies leverage technology to be agile in the face of disruption and to create the new digitally enabled business models for a new normal – post-COVID, purpose driven, sustainable and inclusive. 


3. FinTech and Disruptive Technology

- Synergy and Disruption: Trends Shaping Fintech

Financial technology (FinTech), an economic industry composed of companies that use technology to make financial services more efficient, is usually applied to the segment of the technology startup scene that is disrupting sectors such as retail banking, lending and financing, payments and transfers, wealth and asset management, markets and exchanges, insurance, blockchain transactions, etc.. It refers to new applications, processes, products or business models in the financial services industry. However, the FinTech term has started to be used for broader applications of technology in the space – to front-end consumer products, to new entrants competing with existing players, and even to new paradigms such as Bitcoin. The financial services industry is one of the last frontiers new technology has yet to fully conquer. FinTech companies are trying to disintermediate incumbent financial systems and challenge traditional corporations that are less reliant on software. 

Internet-based technology has made it cheap to collect information and to network. This has empowered the sharing economy and allows FinTech companies to seize intermediation business from banks. But both FinTech and "sharing economy" businesses manage information centrally – they serve as middle-men – exactly as traditional financial institutions do. The FinTech revolution is forcing the financial services industry and everything it touches to evolve quickly. 


- Digital Lending

Banks have historically handled most consumer and small business lending because they have the resources to assess a borrower's creditworthiness, and the regulatory approval to fund loans. However, this model has some key inefficiencies – interest rates are not individualized, the costs of underwriting loans are high, loan decisions can take months, and small businesses in particular have been shut out of the process. This has left room for the growth of online lending marketplaces – dubbed peer-to-peer (P2P) lenders – that leverage the Internet to give both borrowers and investors a better deal. 

Digital lending is characterized by a focus on making cheaper loans available through completely digital means. It also focuses on automating the entire processing of this low cost asset. Alternative lending is a collective term used to describe the broad range of loan options available to both consumers and business owners outside of a traditional bank loan. Alternative lending models such as Peer-to-Peer (P2P) lending and Business-to-Business (B2B) lending make cheap loans available to an audience that is either cash strapped or traditionally deemed credit-invisible. The FinTechs may have uncovered a new segment and created a new ecosystem but banks are still key for the entire lending cycle to thrive and grow.

- FinTech Automation

As automation technologies such as machine learning and robotics play an increasingly great role in everyday life, their potential effect on the workplace has, unsurprisingly, become a major focus of research and public concern. Automating processes can help enhance the work of human financial advisors or replace them altogether. Companies are using automation to create efficiency and accuracy in business processes. Automation is about replacing mostly repetitive tasks, with machines. It will continue to progress from simple rules-based systems to complex augmented and autonomous decision-making systems. 

Automation seeks to replace more managerial functions with Artificial Intelligence (AI). AI is about replacing human decision making with more sophisticated technologies. These are not repetitive tasks, but rather judgment-based work which requires a more complex set of algorithms and machine learning which can use a variety of inputs to recognize patterns, predict future outcomes and make decisions. For enterprises, AI is expected to continue serving functions such as business intelligence and predictive analytics. Merchant services such as payments and fraud detection are also relying on AI to seek out patterns in customer behavior in order to weed out bad transactions. AI may help banks in their anti-money laundering or employee misconduct detection efforts by replacing costly functions that are currently done manually by humans.

Financial firms are using AI to manage clients' money. The AI works by evaluating communications with clients by emails, texts and other notes. It then applies machine learning to evaluate other ideas that can be suggested to the client. Machine learning is a type of AI that provides computers with the ability to learn (or to grow and change) without being explicitly programmed when exposed to new data. Natural-language technology is one way that AI is being put to the test to handle human requests. Now the technology is advancing to more complex questions to replace human interaction. For wealth management clients, that means the possibility of getting a more immediate response via mobile apps, websites or voice for routine requests, such as to rebalance your portfolio or sell a stock.

- The RegTech Revolution

Regulatory technology, also known as "RegTech", a subclass of FinTech, is using technology, particularly information technology, in the context of regulatory monitoring, reporting and compliance benefiting the finance industry. Just as FinTech is being used to digitize customer-facing financial services, RegTech promises to digitize back-office regulatory compliance, simplify regulatory reporting and empower staff to better assess risk and monitor regulatory compliance. RegTech is another example of an industry that is being changed rapidly by software. 

In the wake of the financial crisis of 2008, financial regulators wanted to ensure the industry would not face the same problems again. New regulations were put in place to improve risk controls, maintain capital and create a more transparent financial sector. With financial regulation constantly changing, banks and financial institutions are under constant pressure to keep up to speed with the latest rules. Now, a new wave of technology is emerging to help these organisations make sure they understand the rules and can manage their risks. 

RegTech companies were born out of this combination of regulatory change and more efficient technology. There is a range of companies offering these kinds of services. Some offer solutions for financial institutions to help them comply, while others are aimed at helping policymakers monitor those they are regulating. RegTech companies work in collaboration with financial institutions and regulatory bodies, and utilize cloud computing, big data and data visualization techniques, and blockchain for sharing of information. RegTech is an exciting development that contains the following characteristics: Agility, Speed, Integration, and Analytics. Ultimately, RegTech will be use those characteristics and information to enable more efficient and effective regulation and compliance. 

Adoption of RegTech will provide operational efficiencies and cost benefits when applied to current compliance and risk management practices. It is anticipated that regulation will only continue to increase with more demand to oversee data, reporting, and operational processes. Fund managers and banks are looking at supporting and partnering with RegTech startups to address the growing regulatory and compliance demand as well as assist in spreading adoption of RegTech solutions for payments and governance. 

The application of RegTech is still in its infancy. Some ideas require the buy-in of regulators and the maturation of technology, while others are as simple as providing better information to compliance officers—and are available today.

- Embracing the FinTech Revolution

If you are in the banking sector, you should be keeping a close eye to the FinTech industry. Besides providing innovative new technology and ideas for the banking industry, these exciting FinTech startups also provide innovative solutions for the small business owner. If you are looking for low-cost solutions to your business accounting and finance needs, from invoicing to payroll to investing, the FinTech sector is an exciting space.

There are four broad categories of FinTech users: (1) B2B for banks and (2) their business clients; and (3) B2C for small businesses and (4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways. Connectivity, simplification and personalization are three fundamental trends about FinTech. Connectivity is about anyone or anything being able to interact, trade or exchange information anywhere and anytime. Technologies such as APIs and the Internet of Things are enablers. Simplification is about reducing complexity. There are many processes and technologies that can result in simplification, of which blockchain is only one. Personalization is about making services easier or more relevant for the user through technologies such as big data, machine learning. 

It is clear that the digital revolution in financial services is under way. Digital disruption has the potential to shrink the role and relevance of today’s banks, and simultaneously help them create better, faster, cheaper services that make them an even more essential part of everyday life for institutions and individuals. To make the impact positive, banks need to shake themselves out of institutional complacency and recognize that merely navigating waves of regulation and waiting for interest rates to rise won’t protect them from obsolescence. Embracing openness and collaboration, and making smart investments is a good place to start. The FinTech industry has orchestrated in just a few short years a sweeping change in customer preferences and expectations for the modern “bank” experience. The next decade will demonstrate the impact of this disruption as customers choose financial services based on the product experience, not on the breadth of offerings. 

4. The Future of FinTech is Artificial Intelligence (AI) and Big Data Analytics

- AI's Role in Digital Transformation for Financial Services

Artificial Intelligence (AI) will have a significant impact on financial services, proving to be its most disruptive force. Financial firms, ranging from big Wall Street names like Morgan Stanley to robo-advisors and start-ups, are all taking a look at how tools such as algorithms, data mining and natural-language processing can help. The result of which is already evident with global banks closing branches and terminating thousands of financial services personnel. 

Historically, the FinTech industry has been among the earliest AI adopters. As of today, AI is becoming the main driver of digital transformation in traditional finance and the golden standard for FinTech services. AI and Data analytics go hand in hand, and nascent technologies like Machine Learning, Neural Networks, and Natural Language Processing, continue to improve data-crunching capabilities for financial industry players.

With the stiff competition in FinTech, ventures have to deliver a truly valuable products and services in order to stand out. The venture that provides the best user experience often wins. The developments in AI may provide that something extra especially if it could promise to eliminate the guess work and human error out of finance. Today, customers interact with banks and financial institutions across several different channels which has lead to an explosion in customer data being collected by these organizations. This data can be effectively leveraged using AI to gain insights on current and future customer behavior.

The FinTech business domains which are actively leveraging AI include: generating new revenue streams by launching new products and services, process re-engineering and automation, risk management, client acquisition. However, the leaders in AI adoption invest heavily in the digitization of customer service, making it a priority when it comes to implementing AI and analytics.


- The World’s Most Valuable Resource Is No Longer Oil, But Data

In a digital era, data is one of the most valuable resources for a company. Banks house a tremendous amount of customer data that has the potential to drive real value for customers, by allowing banks to better understand their needs. In addition, data is the life-blood of AI. "Access to data" plays a central role in the scope and impact of AI systems. Data, and the various rules and processes which both enable and regulate access to and use of that data, stand at the heart of disruptive FinTech businesses. Even the most advanced and intelligent algorithms and models are useless without efficient, secure and legal access to detailed, accurate and up-to-date data sets. 

Big data. machine learning allows software programs to analyze large sets of unstructured data. One way this could help bankers is by improving fraud detection. Traditional fraud monitoring systems rely on specific non-personal rules (like geography) to detect fraudulent transactions. Machine learning could be applied to analyze the transactions of each customer, flagging transactions that are out of their normal habits. This improved analytical capability has the potential to give banks insights that could allow them to develop better credit models and more accurately identify risks. The power of big data is, however, highly dependent on the quality of the data, which is not always easily accessible.

Today, customer data at banks is often unstructured - housed in systems that are inconsistent and may not talk to each other. A single customer may have multiple accounts with a bank that are all housed in different systems, with inconsistent identifiers. A number of banks, as well as core processors, are working to reconcile these systems. Some are working to build additional data warehouses that aggregate disparate customer data to create a unified view of customers. As these customers continue to interact with their banks digitally, a complete digital view of a customer can help a bank better understand and serve that customer. Banks are beginning to offer value-added services to customers that give them more information about those users. 

- Data-driven Cybersecurity Becoming Mainstream
One of the implications of the digitization of the financial industry is the increasing number of security threats. In a bid to protect customer’s data and financial integrity, finance industry players will be investing more in robust data-driven security systems based on Machine Learning.


5. Wireless 5G, Internet of Things (IoT), and Financial Services

- Internet of Things (IoT)

Internet of Things (IoT) is a network or ecosystem of Internet-enabled objects with the ability to share and exchange information among them in real time. It is nothing but machine-to-machine communication among machines connected to Internet. What brings IoT into limelight is the surge of smartphones, wearable tech devices, automobiles and smart homes with built-in sensors and the growing ability of financial institutions to anticipate customer needs by leveraging big data predictive analytics and artificial intelligence. While still in its infancy, IoT has a full head of steam and shows no sign of slowing any time soon. 

IoT, a suite of technologies and applications that use embedded sensors in physical items to generate customer, operational, and other data that can be aggregated and analyzed for valuable insights, could have an enormous impact on the financial services industry, generating a range of future opportunities emerging from better data about clients and their physical assets. IoT may transform financial services. Many financial services institutions are using sensor data to improve operational performance, customer experience, and product pricing. Banks can use sensors and analytics to gather more information about customers and offer more personalized services. Insurers and commercial banks can also use sensors attached to assets to track shipments. For example, banks may be able to use internet-connected devices to make better loans and monitor collateral. Inventory or livestock for a small business can be monitored in real time. This would allow a bank to monitor a customer’s balance sheet on an ongoing basis, giving it the tools to make better decisions about lending or adjusting credit lines in real time.

(Chicago, Illinois - Alvin Wei-Cheng Wong)

6. Blockchain: Disrupting the FinTech

While FinTech disrupts banks, the blockchain disrupts FinTech. Blockchains are a very powerful technology, capable of performing complex operations. The distributed ledger technology that underpins blockchain systems is designed for near real-time transfer of data. It can deliver instant resolution to customers' transactions and interactions with their banks. Blockchain technology allows for the entire financial services industry to dramatically optimize business processes by sharing data in an efficient, secure, and transparent manner.

- Blockchain: a Comprehensive, Always Up-to-date Accounting Record 

Blockchain is a comprehensive, always up-to-date accounting record of who holds what or who transferred what to whom. It is emerging as a way to let people make and verify transactions on a network instantaneously without a central authority. A block is the “current” part of a blockchain which records some or all of the recent transactions, and once completed, goes into the blockchain as permanent database. Each time a block gets completed, a new block is generated. Blocks are linked to each other (like a chain) in proper linear, chronological order with every block containing a hash of the previous block. A blockchain carries no transaction cost.

To use conventional banking as an analogy, the blockchain is like a full history of banking transactions. Bitcoin transactions are entered chronologically in a blockchain just the way bank transactions are. Meanwhile, blocks, are like individual bank statements. The full copy of the blockchain has records of every bitcoin transaction ever executed. It can thus provide insight about facts like how much value belonged to a particular address at any point in the past. 

- Three Main Types of Blockchains

Three main types of blockchains exist: public (a platform where anyone on the platform would be able to read or write to the platform), private (it allows only the owner to have the rights on any changes that have to be done), and consortium (a mix of both the public and private, wherein the ability to read and write could be extended to a certain number of people/nodes). Ethereum is a public blockchain-based distributed computing platform. It provides a way to create online markets and programmable transactions known as smart contracts. Ethereum is the biggest innovation after bitcoin.

- Smart Contracts and Distributed Ledger

Smart contracts, a central component to next-generation blockchain platforms, are computer protocols intended to facilitate, verify, or enforce the negotiation or performance of a contract. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim with smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Smart contracts use autonomously executed software programs running on a distributed ledger to automate business processes. Blockchain is the database and smart contracts is the application layer that makes much of the benefits of blockchain technology a reality. Smart contracts cause a convergence of smart devices, analytics, artificial intelligence, cloud, and blockchain technologies.

Smart contracts have been used primarily in association with cryptocurrencies. The most prominent smart contract implementation is the Ethereum blockchain platform, which also calls them decentralized applications or dapps. In addition, Trade finance, post-trade services, and event-driven insurance are the leading use cases being piloted/experimented by financial services institutions.  Loyalty and rewards, smart power grids, and digital rights management are the top use cases being piloted in other sector.

- Emerging Applications For Blockchain

Blockchain shows great promise across a wide range of business applications. An increasing number of enterprises across all industry sectors are now exploring how they can use blockchain technology to remove friction from business processes and build systems of trust for value exchange. Blockchain databases, powered by enterprise-grade, scalable and secure core databases are core to unlocking the potential. 

By using the blockchain, individuals can exchange money or purchase insurance securely without a bank account. Financial institutions can settle securities in minutes instead of days. Blockchain technology lets strangers record simple, enforceable contracts without a lawyer. It makes it possible to sell real estate, event tickets, stocks, and almost any other kind of property or right without a broker. Blockchain also keeps tracks and makes sure all the payments are done properly. Businesses of all types (government, banking, insurance, finance, accounting, healthcare, legal, supply chain and logistics, manufacturing, retail, etc.) can more closely manage the flow of goods and related payments with greater speed and less risk. Unlike existing financial ledgers or databases used by banks and other institutions, the blockchain is updated and maintained not by a single company or government. Instead it is run by a network of users.

- The Challenges To Blockchain Technology

But, the fame of blockchain has also given rise to several new challenges, including interoperability, flexibility, scaling, and management. There are now many blockchain-based currencies, each optimized for different purposes. And none of these currencies are compatible with others, making it hard for users to transfer money between them. Also, there is a growing tendency to use blockchain in other fields. These fields include IoT, the supply chain, stock exchange and other domains where secure data transactions are important. However, the original blockchain used in bitcoin was not designed to scale to all possible use cases, making it difficult to use it in these domains. Since blockchain is a decentralized system, once it goes wrong, there will be no one to sue and be responsible for, and there is the challenge of management. It will take some time for such problems to be worked out. The industry will have to work with governments to create standard rules and laws to govern transactions. Further, nodes holding copies of the blockchain receive constant updates. These nodes are distributed around the world. Because of this, blockchains have high latency. 

Blockchain needs to undergo changes if it is to meet the requirements of every possible industry. The Hyperledger Project, an effort overseen by the Linux Foundation, is a collaborative effort created to advance blockchain technology by identifying and addressing important features for a cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally.

(Toronto, Canada - Wei-Jiun Su)

7. Bitcoin and Cryptocurrency

- Worldwide Payments and Fast Peer-To-Peer (P2P) Transactions

Bitcoin is a digital asset and a payment system. It is an innovative payment network and a new kind of money. It is designed to enable users to send money over the Internet in a very simple and efficient way. Bitcoin made digital transactions possible without a trusted intermediary. The technology allowed this to happen at scale, globally, with cryptography doing what institutions like commercial banks, financial regulators, and central banks used to do: verify the legitimacy of transactions and safeguard the integrity of the underlying asset.

Like paper money and gold before it, bitcoin is a paperless, bank-less, state-less currency that allows people to exchange value, to pay directly for goods and services. It is a system which allows you to do anonymous currency transactions and no one will come to know about the payment or about all other info related to the payment, including who sent it, who received it, etc. Unlike its predecessors, bitcoin is digital and decentralized. The bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency. 


- Understanding Bitcoin

Bitcoin is a decentralized currency that uses peer-to-peer (P2P) technology, which enables all functions such as currency issuance, transaction processing and verification to be carried out collectively by the network. While this decentralization renders bitcoin free from government manipulation or interference, the flipside is that there is no central authority to ensure that things run smoothly or to back the value of a bitcoin. Bitcoins are created digitally through a “mining” process that requires powerful computers to solve complex algorithms and crunch numbers. They are currently (in 2019) created at the rate of 25 bitcoins every 10 minutes and will be capped at 21 million, a level that is expected to be reached in 2140.


- The Future Of Cryptocurrency

The success of bitcoin has led to the development of many alternative cryptocurrencies (or altcoins). Most of these altcoins offer their own take on the bitcoin protocol, and are interesting in their own right. Currently, there are hundreds of alcoins out in the wild being traded every single day. But, most altcoins don’t last very long. In addition, just like the unfounded fear of many governments in the world that bitcoin and other virtual currencies are a conduit for money laundering, smuggling, terrorism and tax evasion, they believe that the only means of curbing these harmful elements is through acceptance and regulation.

Cryptocurrency (Crypto) made the leap from being an academic concept to (virtual) reality with the creation of bitcoin in 2009. While bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April 2013 when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $2 billion at its peak, but a 50% plunge shortly thereafter sparked a raging debate about the future of cryptocurrencies in general and bitcoin in particular. So, will these alternative currencies eventually supplant conventional currencies and become as ubiquitous as dollars and euros someday? Or are cryptocurrencies a passing fad that will flame out before long? The answer lies with bitcoin.

Some economic analysts predict a big change in crypto is forthcoming as institutional money enters the market. Moreover, there is the possibility that crypto will be floated on the Nasdaq, which would further add credibility to blockchain and its uses as an alternative to conventional currencies.4 Some predict that all that crypto needs is a verified exchange traded fund (ETF). An ETF would definitely make it easier for people to invest in bitcoin, but there still needs to be the demand to want to invest in crypto, which might not automatically be generated with a fund.


- The Future of Cryptocurrencies
Some of the limitations that cryptocurrencies presently face – such as the fact that one’s digital fortune can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker – may be overcome in time through technological advances. What will be harder to surmount is the basic paradox that bedevils cryptocurrencies – the more popular they become, the more regulation and government scrutiny they are likely to attract, which erodes the fundamental premise for their existence. 

While the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers. However, their relative complexity compared to conventional currencies will likely deter most people, except for the technologically adept. 

A cryptocurrency that aspires to become part of the mainstream financial system may have to satisfy widely divergent criteria. It would need to be mathematically complex (to avoid fraud and hacker attacks) but easy for consumers to understand; decentralized but with adequate consumer safeguards and protection; and preserve user anonymity without being a conduit for tax evasion, money laundering and other nefarious activities. Since these are formidable criteria to satisfy, is it possible that the most popular cryptocurrency in a few years’ time could have attributes that fall in between heavily-regulated fiat currencies and today’s cryptocurrencies? While that possibility looks remote, there is little doubt that as the leading cryptocurrency at present, Bitcoin’s success (or lack thereof) in dealing with the challenges it faces may determine the fortunes of other cryptocurrencies in the years ahead.


- Bitcoin's Golden Future?

Bitcoin, Ethereum and other blockchain assets are a new way for investors to gain exposure to a high-growth industry. Bitcoin and blockchain technology is a disruptive force in financial services and will likely be the foundation of the next-generation Internet also called Web 3.0. The current market price for a bitcoin is always changing due to the supply and demand for it. It goes up and down. Bitcoins are traded at bitcoin exchanges. A historical bitcoin price chart can be found at: How can we buy some bitcoin? If you are an individual investor and want to buy bitcoin the easiest way is through a digital asset exchange like Coinbase. Coinbase is one of the largest U.S.-based bitcoin companies that facilitates not only buying bitcoin, but also the storage of bitcoin. Open an account with Coinbase, and once you link your bank account you can buy and sell bitcoin. In addition, Coinbase also offers a "vault" that can be used to store your bitcoin. Since bitcoin is a new financial system that can operate without traditional banks, you control your finances. However, this financial freedom means that you are responsible for the safekeeping of bitcoin.

What does the future hold for bitcoin? As outlined previously, it has many advantages and for this reason it will remain relevant as a currency. We see the biggest risk to bitcoin being its substitution and/or parallel use by other cryptocurrencies. One of bitcoin's primary uses is being a store of value and for this reason other cryptocurrencies can always step in and enjoy similar status if aggregate demand requires it. Is bitcoin simply a 21st century version of gold, only without the storage issues? Or is it just a short-lived popular fad that may soon evolve into something quite different? Only time will tell. The only certainty is that its price will remain very volatile in the future.

The emergence of bitcoin has sparked a debate about its future and that of other cryptocurrencies. Despite bitcoin’s recent issues, its success since its 2009 launch has inspired the creation of alternative cryptocurrencies such as Etherium, Litecoin, and Ripple. A cryptocurrency that aspires to become part of the mainstream financial system would have to satisfy very divergent criteria. While that possibility looks remote, there is little doubt that Bitcoin’s success or failure in dealing with the challenges it faces may determine the fortunes of other cryptocurrencies in the years ahead.

8. Crytoassets and the Tokenized Economy

- Cryptoassets

Cryptoassets, which comprise the likes of cryptocurrencies, security tokens, and utility coins, are now impossible to ignore. There are now more than 2,000 cryptoassets, which include newer types of assets, such as stablecoins, for a total market capitalization estimated at US$211 billion. The number of users on crypto exchange platforms is said to be greater than 30 million, and major financial services institutions, such as Fidelity, are launching crypto products and services. 

Together, these assets, coins and tokens have led to the emergence of the tokenized economy. Global financial services institutions are looking to actively retool and participate in this blockchain-based tokenized economy. While it is still early stages and it is hard to predict how the next 10 years will play out, the tokenized economy will likely be one of the more impactful innovations enabled by crypto.


- Tokenization

Tokenization is the process of digitally storing the property rights to a thing of value (asset) on a blockchain or distributed ledger, so that ownership can be transferred via the blockchain’s protocol.  

Today, many start-ups are now building entire businesses on blockchain technology. But instead of turning to public stock markets or venture capital to fund their company, businesses are turning to cryptocurrencies. In the past few years, the so-called Initial Coin Offering (ICO) has been on the rise. It’s a new method of funding for start-ups in which new digital tokens or coins are issued. While much has been said about cryptocurrencies like bitcoin in the past, these are just one type of cryptoassets and many others have emerged including stablecoins, security tokens, and utility tokens. 

In particular, it notes the potential of tokenizing traditional and emerging assets. These digital tokenized representations of assets, which are issued, traded and managed on a blockchain platform, can reduce friction and overhead costs associated with the issuance, transfer, and management of traditional assets such as securities, commodities, and real estate assets. Tokenization could also help increase liquidity, codify rules and regulations, and increase transparency throughout the asset lifecycle. .


- Initial Coin Offerings (ICO)

An Initial Coin Offering (ICO) is essentially a fundraising tool. Firstly, a start-up can create a new cryptocurrency or digital token via a number of different platforms. One of those platforms is Ethereum which has a toolkit that lets a company create a digital coin. Then the company will eventually do a public ICO where retail investors can buy the newly-minted digital tokens. They will pay for the coins with other cryptocurrencies like bitcoin or ether (the native currency of the Ethereum network). 

Unlike other fundraising methods such as an initial public offering (IPO) or even venture capital, the investor doesn’t get an equity stake in the company. If you buy shares in a public firm for example, you own a small slice of it. Instead, the promise of an ICO is that the coin can be used on a product that is eventually created. But there is also hope that the digital token will appreciate in value itself — and can then be traded for a profit.


9. National Digital Currencies: The Future of Money?

- National Digital Currency

China piloted a national digital currency in April 2020. The European Central Bank has convened a working group of major economies to coordinate digital currency research and development. The U.S. Federal Reserve said it was in the early stages of researching the digital dollar. Spurred by the potential to modernize domestic payments systems, or take a leading role in updating the global payments infrastructure that supports cross-border trade and remittances, nations around the globe are exploring the merits and risks of issuing a digital currency. While many are in the early stages of research, central banks representing one-fifth of the world's population say they are likely to issue a digital currency very soon.

A Central Bank Digital Currency (CBDC), or national digital currency, is simply the digital form of a country’s fiat currency. Instead of printing paper bills and minting coins, the central bank issues electronic tokens, whose value is backed by the full faith and credit of the government.


- Digital Currencies vs. Bitcoin

Digital currencies can be issued by private institutions. These may be centralized, i.e., issued and regulated by a single authority (but not the government), for example Facebook’s Libra. Or, they can be decentralized, like bitcoin. Today (in 2020), about 3,000 privately issued digital currencies have a total market value of over $250 billion. Of these, bitcoin ($170 billion market cap), ethereum ($20 billion), and Ripple ($13 billion) are the three largest. 

Decentralized digital currencies like bitcoin are often referred to as cryptocurrencies because of the underlying technology. They generally use distributed ledgers, which means that in the absence of a central authority, many devices maintain independent records of transaction activity and use consensus models to decide which copy is correct. Cryptocurrencies also employ a number of algorithms and cryptographic techniques to ensure that they are secure.


- Why might a country want a national digital currency?

Central banks are still in the early stages of exploring the use cases for national digital currencies. According to the IMF, a key reason that advanced economies may be considering them is to counter the growth of private forms of digital money. Essentially, as users demand the convenience and low-cost of digital payments, governments may be asking the question, ‘if not us, then who?’ As these economies become increasingly cashless, apps like Venmo, WeChat, and M-Pesa are facilitating greater payments volumes, raising concerns about consumer protection, data privacy, and operational risks.

Recent proposals like Facebook’s Libra currency may further encourage policymakers to explore a solution before users adopt an alternative over which the government has limited control. China’s recent digital currency pilot has introduced an element of great power competition too, since an early lead in technology development could allow China to dictate how the global payments infrastructure, which facilitates cross-border trade and remittances, evolves.

Meanwhile economists have argued that central bank digital currencies can improve market functioning. The BIS has stated that it can improve liquidity by allowing faster transaction speeds, while the Bank of England noted that it can boost GDP by up to 3% by lowering transaction costs. In many emerging economies, national digital currencies are primarily being considered as a means to increase financial inclusion, by allowing governments to include unbanked populations in the digital economy.



<updated by hhw: 5/29/21>



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