You may have noticed a crackle in the air in recent months. A gradual, but still seismic, shift is taking place in the financial sector—aka the money biz.
That shift goes by the name disintermediation.
We know, seven syllables is a lot to swallow, but don’t worry, it’s kinda like a Judd Apatow movie—a lot more dramatic than it seems at first glance.
Finance 1.0: Banks Between You and Money
Let’s start with a basic question: What’s a bank?
A slightly less basic answer: since ancient times, the function of a bank is to serve as an intermediary between people and capital.
You put your money in the bank. The bank loans your money out to others at a higher interest rate than it pays you on your deposit. The banks make money, you make money, other people get loans, everybody wins.
Over time, that function extended to brokering trades. You know, when different organizations manage various stops an asset takes on its journey from one investor to another, from placing orders to mitigating risk.
All that takes time; up to two days for just one trade.
Version 2.0: Nothing Between You and Money
That’s the normal-person way to describe our topic—disintermediation, or when financial institutions are scrubbed from trading like the videos of last Thursday’s karaoke night from your phone.
That scrubbing is enabled by the topic you keep telling yourself you’ll bone up on but never quite find the motivation: cryptocurrency.
When people make trades on the blockchain, there are no intermediaries in sight—no brokers placing orders, no one rubber-stamping the trade in sight. Just buyers and sellers buying and selling as the Lord intended.
One Small Step for Trading, One Big Step for the Future of Finance
Well, it’s not that simple. When people make trades on the blockchain, they’re recorded on that very chain, filling a role typically managed by other peeps in traditional finance.
There’s more stuff going on there, but at a technical level, this means it’s a whole lot faster and cheaper to trade assets.
At a revolutionary level, it has the potential to fuel a broad democratization of the whole concept of value storage. Crypto markets now boast a combined value of $1.6 trillion, which is 1.6 trillion pieces of evidence that it’s no longer a tech nerd obsession, but a mainstay of modern finance.
But There’s a Larrrge Asterisk
*Eliminating intermediaries can turn risk way up. You may have a friend who lost half their dogecoin wealth on a certain Saturday night; that’s because crypto trading doesn’t stick to regular hours like the NYSE or the Nasdaq. Bitcoin, the largest crypto, is famously volatile, and most crypto exchanges don’t have “circuit breakers” that automatically stop trading when things get too fizzy.
Bottom line: Disintermediation means finance for the internet age. You (probably) already work, date, shop, and find entertainment online. What we’re talking about is the financial version of those sectors’ pivots but applied to Wall Street.
And anyone who’s been on a dating app lately will tell you the brave new world isn’t without its flaws—but it’s definitely a good thing to know about.
Crypto-curious? The water’s warm, and with Bakkt, you can swan-dive in, free of transaction fees and with as little as $10. Bakkt’s mission is to connect the digital economy, ensuring that everyday consumers can reap the benefits of digital assets like bitcoin, loyalty and rewards points, and even gift cards. Click here to learn about Bakkt’s spreads for bitcoin transactions.
from WordPress https://ift.tt/3yxdMP8
via IFTTT
No comments:
Post a Comment