From our Obsession
Future of Finance
New technology is upending everything in finance.
There are signs that blockchain fever is cooling off.
Not long ago, banks were crowding into consortiums to develop distributed-ledger systems, as optimism about (and fear of) the new technology bubbled up. But so far, albeit with some exceptions, few live commercial projects have sprung up. It also seems most executives aren’t planning to implement much of anything featuring blockchain anytime soon, according to a Gartner survey of CIOs.
The going may be slow for several reasons. Blockchain systems require specialized expertise that’s perhaps in short supply. There’s also a gap between what technologists envision for distributed ledgers—making processes faster and more secure—and what can actually be accomplished. Despite the hype, there’s a growing recognition that—gasp!—not everything needs to be blockchained.
But here’s an optimistic take: Maybe people are doing it wrong. Bitcoin, for example, is designed to be decentralized, so that it doesn’t rely on the structures traditional finance is built on, which includes things like banks, stock exchanges, and custodians. The most popular exchanges for trading crypto replicate these traditional structures, concentrating assets, leaving them vulnerable to hackers, and also making participants subject to decisions made a small number of people.
Replicating traditional financial platforms may not be as useful as aiming to create something totally new. One of the unique properties of a blockchain-based game like CryptoKitties, for example, is that the game’s collectibles are digital objects and don’t depend on their issuer for their existence.
Decentralized exchanges could be another example. This style of transacting means the funds remain distributed with each user, so that there’s no central storage that hackers can target. Aaron Voisine, co-founder of the BRD wallet for digital assets, thinks decentralized exchanges could be a viable alternative within two years.
These sorts of ideas may not replace the financial system as we know it, but they may give rise to something genuinely innovative that justifies some of the hype.
The future of finance on Quartz
In the future, you will monetize your personal data—in tiny amounts. Writing for Quartz, Starling CEO Anne Boden imagines a time when our data, and the money to be made from it, flows to us instead of tech companies. Digital micropayments will help make it happen.
It’s a man’s (crypto) world. By some measures, gender disparity is even worse in the crypto sector than in the tech industry. Women in crypto say the best way to reverse this trend is to highlight the amazing work of leaders like Athena Capital founder Meltem Demirors and General Electric’s Maja Vujinovic.
The bitcoin market isn’t moved by Wall Street. This month, several venerable institutions have said they are preparing to enter the market. However, bitcoin prices have declined, even though this could unlock demand from much bigger investors.
Warren Buffett says crypto “will come to bad endings.” He has a mixed record on technology calls—the Oracle of Omaha recognized that the dot-com boom was an unstable bubble, but failed to see the promise of Amazon and Google. Business partner Charlie Munger says he’s even more bearish on crypto than Buffett.
The future of finance elsewhere
A London cafe stopped using cash, to thwart robberies. Hipster cafe The Watch House was already 80% digital payments, writes Financial Times editor Patrick Jenkins, who notes that in other ways cash is surprisingly on the upswing (paywall). He also points out a worrying correlation between regions with greater use of electronic money and rising consumer debt.
PayPal can still beat Amazon Pay. PayPal already has a massive number of users and alliances with everyone from Visa and MasterCard to Alibaba and HSBC, according to Barron’s, citing research from Evercore ISI. Perhaps most importantly, PayPal doesn’t compete with retailers.
Wall Street’s boring back office keeps mainstream investors out of crypto. Traditional custodians aren’t ready for digital assets, and auditing and record-keeping services also lag behind. In the meantime, exchange operators like Intercontinental Exchange are plowing ahead on bitcoin derivatives.
Bitcoin futures didn’t cause bitcoin’s bear market. The debut of bitcoin derivatives made it easier to short the crypto asset, which correlates with price declines since then, according to research from the San Francisco Fed. But DRW founder Don Wilson argues that futures actually traded “at a huge PREMIUM to the spot market,” signaling the so-called smart money wasn’t betting on a price drop.
Goldman Sachs’ is pulling out the plastic. Mind you, Marcus loans were supposed to provide respite from high interest rates on credit cards. And while the Wall Street bank has touted its caution, Goldman may jump into cards very late in the credit cycle.
What to watch for next week
- Monday: CoinDesk’s Consensus blockchain conference starts, which will feature speakers including St. Louis Fed President James Bullard, officials from the CFTC and SEC, as well as Amber Baldet and the co-founder of CryptoKitties.
- Wednesday: The US House Financial Services Committee has a hearing on the SEC’s division of enforcement and another hearing on terrorism and illicit finance.