Banks have been vulnerable to corruption according to history, an example may be the 2008 financial crisis involving Lehman Brothers. Not only do banks charge fees on each transaction, but also the transactions are kept confidential, i.e. the banks need be trusted blindly by the clients. Having tremendous access to peoples’ wealth, banks are centers of chaos during financial crisis in a society, which is why they have been prone to hacks and thefts as well. And due to the aforesaid, banks’ credibility at handling capital has been lessening.
Let alone being defrauded by banks, a quarter population of our society does not even own bank accounts or maintain any bank relations- they are under-banked. The World Bank’s global financial index estimates these to be over 2.5 billion people!
For most of these underbanked users, the most viable option is to turn to loan lenders with their extremely exploitative interest rates. Not only do such practices contribute to the cycle of poverty, but they also act as quicksand for the borrower; before they know it they’re so deep in debt that their principal payments become a mere fraction of the total amount.
The foundational trade-finance service, that banks offer to parties involved in international commerce, is the provision of letters of credit. Those are guarantees from one bank to another — covering the period of shipping the product — that the payment for the goods occurs as soon as they arrive at their destination. For the issuing bank, producing such a letter means assuming risks on behalf of an exporter, meaning there is the need to establish trust, which is something that needs not be worried about with blockchain.
Not only do such complexities of accounting slow the operations down dramatically, but they also become an insurmountable barrier of entry for smaller firms that lack the resources and capital for compliance. While small and medium-size enterprises (SMEs) may face reluctance and obstacles proving their creditworthiness to regular financial organizations, it is the default way to go and to file a port-issued document called a bill of lading. When not verified by banks, these transactions and transfers are hauled too.
It was only about time that the world came up with something more reliable; the time though is here now, along with the more reliable system, blockchains.
Blockchain is basically a well distributed, open-source and transparent database of transaction records. Hence, any individual can change the underlying code, and check the status of activities. It does not require legal intermediaries to authenticate or to even approve transactions, indeed being a peer to peer mode of transfer.
Here transactions can be carried out to an individuals’ economic needs in a silent yet transparent way, i.e without knowing who the other party is and independent from central authorities. These blockchains have a digital currency of associated with them, which is where bitcoin comes in due to its status as the largest, system-less blockchain functioning.
An immutable, unhackable distributed database of digital assets. This is a platform for truth and it’s a platform for trust. The implications are staggering, not just for the financial-services industry but also right across virtually every aspect of society.
If I’m going to send some money to somebody else, I have to go through an intermediary—a powerful bank, a credit-card company—or I need a government to authenticate who I am and who you are. What if we could do that peer to peer?
Says Don Tapscott, CEO of the Tapscott Group and co-author of the new the book, ‘Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World’
Because blockchain carries the potential to transform the lives of millions of marginalized users for the better, specifically through better access to capital, financial resources, and game-changing small business transactions, it is simpler than ever for users to take care of their banking and financial transactions.
Blockchain, as a platform, can be used globally. It is focusing on emerging markets, which is enabling migrant workers to send money back home through blockchain-powered transactions. Allowing individuals to digitize their money for paying anyone anywhere, and exchanging from currency to currency. Blockchain based companies carry no huge fees and no account lock-outs. No doubt, the bigger opportunity is with how users can borrow small amounts of money through micro-credit transactions, with no need to undertake formal processes that traditional banks require, or without the predatory interest rates offered by loan sharks.
We’re building a blockchain-based financial system that anyone in the world can use. One where people can do business in real money, peer to peer with no barriers.
Once everyone has the same access to payment and business services, everyone has a better chance to make money and a better life.
One may wonder how the above mentioned will aid in lowering poverty? Well this is where the establishment of businesses shall come in. When given full control of a person’s wealth to them, along with efficient currency exchange, new startups and businesses are bound to open up. These startups will not only open up employment opportunities, but also gather revenue from their exports: bringing money into their respective countries.
In addition to this, these setups shall circulate the incoming capital to themselves, and hence the population- independent of central authorities not to forget. Vouching for startups and entrepreneurship as a tool to fight poverty, Lane writes;
We believe that if you really want to increase wealth, in any country, the best way is to make it easy to do business. Capitalism, entrepreneurship and free flow of money have improved more lives than any development scheme or government policy. History is proof.
Not only shall these function under the owner’s full knowledge of capital expenditure, but also there will be a rather directive disposal of currencies, if it were to carry trade. The cryptocash, that will be formed, shall be easily recognizable and trusted by fellow businessmen, be they in any country.
Tapscott also view blockchain technology as a global revolution and states;
I’ve been at this 35 years, writing about the digital age. I’ve never seen a technology that I thought had greater potential for humanity.