25 June 2020

Why Cryptocurrency and Blockchain Will Turn the Financial World Upside Down

There’s a good reason cryptocurrency investors act more like diehard fans than numbers-obsessed investors. Cryptocurrency and the blockchain technology that enables it hold so much more than the potential for wealth. They promise a new future, untethered by the constraints of existing financial markets and out of the control of centralized institutions. In short: cryptocurrencies put money and the concept of its value back in the hands of the people.

The club-like atmosphere surrounding cryptocoin investment stems from its grassroots creation. It’s not even the slightest coincidence that the first electronic currency was invented by David Chaum, the man who helped usher cryptography into the digital age.

Chaum was speaking on the power of decentralized, people-driven currency as far back as 1994. He introduced his eCash concept at the very first CERN conference, which was held in Geneva that year. Shortly after his presentation, he told a Wired journalist that the potential for digital cyberspace to violate citizens’ privacy was “antithetical to the basic principle underlying the mechanisms of democracy.”

eCash may no longer be around, but Chaum’s passion for fighting against not just finance dogma but the idea that states should dictate value lives on. Now, millions of people are investing in an exciting new form of currency that’s worth over $200 billion as of the writing of this post. Their fervor for cryptocurrency extends far beyond the idea that they will make money. They feel excited to be a part of something that feels rebellious, empowering, and with limitless potential.

Even outside the investor circles, cryptocurrency has politicians, academics, and pundits buzzing over the possibilities. There’s a very real chance that blockchain and cryptos can completely rewrite the book on currency and technology as we know it, and here are five reasons why.

People-Driven Transactions

Many financial institutions feel extremely threatened by cryptocurrencies, and with good reason. Simply put: blockchain technology makes many of their currently valuable systems and services obsolete.

With peer-to-peer transactions, individuals can bypass entire institutions built around enabling financial exchanges. On an immediate level, this cuts out the middleman that can introduce extra costs and complexity to such transactions.

Looking deeper, peer-to-peer exchanges mean that people can have far greater autonomy and transparency regarding their own finances. They don’t have to trust that a bank will allocate their funds as expected, and they don’t have to be frustrated by balances that only adjust properly after a delay. All of these features essentially take power away from huge corporations and facilitate simpler, safer, and more direct agreements between individuals.

Bypass entire institutions

With People-Driven Transactions

Permanent, Auditable, and Anonymous Records

Cryptocurrency exchanges are facilitated by blockchain verifications, but the blockchain also serves as a permanent and anonymized record of a transaction. For this reason, BitPay founder Tony Gallippi refers to the blockchain as a type of “large property rights database,” where two-party contracts can be maintained in the form of encrypted transaction logs. Someday, a blockchain file could replace your vehicle title or verify the agreed-upon fees for your mortgage.

Blockchain records can also facilitate specialized transfers that go beyond money exchanges. People can transfer property with pre-arranged third-party approvals, documentation of established facts, or scheduled completion dates. All of this can be conducted without the need of centralized banks and other institutions, reducing costs and saving time for billions of potential exchanges and agreements.

Confidentiality and Privacy

One of the most appealing things about cryptocurrency is that it can protect privacy. As mentioned above, the founder of the first electronic currency envisioned cryptography as a way to prevent uninterrupted and limitless digital surveillance of people.

Consider that your bank account and credit card statements are more than just records of your current balances. They serve as documents of your spending habits, your transactional history, and which people or businesses you have given financial support to. Your credit report already serves as a barometer of your perceived trustworthiness; people will request to see it before considering hiring you or letting you rent their property — two things that have nothing to do with your credit.

On top of all this, placing your sensitive information in the hands of others has become quite the gamble in our age of hackers and breaches. When credit reporting agency Equifax exposed 147.9 million people’s information — roughly half the United States population — consumers had little to no recourse for the damages caused. Many people were not even aware that Equifax had their sensitive information in the first place; the agency collects data from the transactions without their consent.

No Transaction Fees, and No Risk of Chargebacks

Cryptocurrency exchanges are permanent and free. You avoid having to pay service fees, transfer fees, maintenance fees, and a slew of other charges that allow financial institutions to profit off of your money.

You also avoid the risk that a financial institution could reverse a transaction because of their policy. Malicious activity leads to millions of dollars worth of fraudulent chargebacks every year, and credit card companies would often rather err on the side of the complainer than investigate the veracity of their claims.

Autonomous, Person-Centered Control of Finances

The most central tenet of the philosophy surrounding cryptocurrency enthusiasm is that people are in control of their own money for the first time in over a century. Allowing corporations to assume control of money places that wealth at risk. You can be locked out of access from your account with next to no prior notice.

You can also fall victim to banking errors that manipulate your balance or prevent you from accessing your funds. For instance, when Scottish bank TSB attempted to update their transactional system, chaos resulted. People were locked out of their accounts, and those who were able to access accounts reported erroneous balances. Dozens of people reported being able to view financial details of other accounts. The fiasco took millions to fix, and people were still reporting errors months later.

Cryptocurrency and Blockchain as a Bold New Future

The internet gave rise to a new future where information could be accessed by anyone at any time. Blockchain has empowered a similar revolution, where no one is dependent on centralized banks and governments for their financial activities to be carried out.

The potential for returns on investment are certainly an enticing aspect of the nascent industry, but the potential to give people power and prevent the abuse of power by others is far more attractive.

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