We Are Remaking The Entire Financial System
Why am I so optimistic about cryptocurrency?
It is really simple. We are embarking upon another major transition, one that strikes at the core of society. Periodically, we encounter these time frames where history notes the new path society finds itself upon.
Many feel that this is nothing. They are wrong. When one goes down the rabbit hole of what is truly taking place, it is easy to see how we are about to experience a major paradigm shift. It is all coming together.
The challenge is that few take the time to step back and look at what is truly occurring. Since most fail to understand the present system, it is impossible to see how it is being disrupted. Yet, make no mistake, this is happening on many different levels.
It all starts with the core: money.
4th Phase Of Money
Lost in all the "when moon" is the fact that money is entering its 4th phase. Throughout history there were periods when we saw a few key events that radically altered the plight of humanity.
With money, we can break it down into 3 phases.
- Single-entry invented by the ancient Mesopotamians.
- Double-entry created in the 15th century by Luca Pacioli
- Shared ledger double-entry - wholesale banking system
And now we are embarking upon the 4th phase: distributed ledger triple-entry.
If it seems strange to talk about money in this form, then we are touching upon some misguided notions about money. It is crucial to understand that money is a system, it always was. The reason for this is the concept of settlement. That is why it resembles accounting more than what people typical associate with money.
Economic transactions require settlement. In other words, the transaction has to be fully completed. Determining who owes what to whom is vital. Here is where we see the different phases throughout history.
The potential of cryptocurrency lies in the fact that blockchain is accelerating things while providing a more robust system.
Open Payment Systems
We saw a radical explosion in economic growth since the end of World War II. Here is where we ushered in the age of shared ledger technology. This massively altered the efficiency of the global monetary system.
One thing the Fed did get right is the fact that is created a powerful payment system. Of course, the drawback is that intermediaries are required. These entities are large, centralized institutions that participate in most payments. It is what blockchain seeks to replace.
To show the difference, in a 60 years period of time, we see these numbers through Fedwire:
- 1947: $17.9 billion in reserves; $316 billion in payments
- 2007: $9 billion in reserves; $610 trillion in payments
The reserves were halved but the payments went up 50 times. Here we see the improvement in our global communications system, another important component to money.
What we are embarking upon now with Decentralized Finance (DeFi) is establishing open payment systems. Instead of a small handful of centralized entities controlling the majority of the global transactions, these are now being done on decentralized blockchains. Therefore, block validators are protecting against the double-spend problem that was ever present with money.
As stated, economic activity is dependent upon settlements. Here is where a major step forward.
Monetary Settlement
Without going into too much detail, we will focus upon a couple of layers of the monetary hierarchy.
The first is cash. This has instant settlement and takes place between individuals or businesses. Make a payment in cash, no further transactions are required.
If we move to the second level, we find the commercial banking system. This is where, when one pays with a debit card, a settlement has to be made between the accounts. The problem is that even when this takes place, it is not complete. The banks have to settle their reserve requirements, necessitating another transaction.
It is why settlement can take days. They also require third parties, i.e. banks.
With cryptocurrency, things change completely. To start, we see how the need for banks in this process is completely eliminated. Since we are dealing with blockchain, that serves as the "accounting" system. Hence, if we think about it, banks are just glorified bookkeepers.
What is really powerful is how settlements change.
With Hive, as an example, we have a settlement time of about 45 seconds. While money moves between accounts in 3 seconds, it takes 15 times that before the block cannot be reversed. However, there is an idea to make money on Hive (HBD and HIVE) just like cash in regards to settlement.
A recent scenario was outline by @blocktrades which can to this conclusion:
In a normally well-connected Hive p2p network, this should result in most blocks becoming irreversible on a node within a second or less after they are produced.
This means in roughly the same time it takes someone to hand cash over to a person behind a counter, Hive would have a transaction settled and the block irreversible.
As far as I’m aware, the One-block Irreversibility protocol will put Hive at the forefront in terms of transaction confirmation time.
It would also make Hive one of the fastest monetary settlement systems on the planet. Putting it on par with cash is not imaginable with third parties involved.
Do Not Overlook The Plumbing
In future articles we will discuss DeFi and how that is altering the financial system. However, we need to not skip looking at the plumbing that is responsible for our monetary system.
It is here where the banks entrenched themselves. This is also where they are most vulnerable.
We know this is taking place since we already have JPMorgan is using blockchain for collateral settlement. The banks are aware of the power of this technology and how it fundamentally changes everything with our monetary system.
They are also aware that, under this scenario, they are also not required.
Here is how we are remaking the entire financial system.
It is also why I am so optimistic about the future of cryptocurrency. We are entering the 4th generation of money.
What are your thoughts? Let us know in the comment section below.
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