Most of the public focus of cryptocurrency is on price trends, regulation, and businesses that have launched to provide related financial products.
But there are many other aspects of cryptocurrency that are changing the way traditional finance is done.
As the world has become more connected, the inadequacies of our banking systems have become more apparent. Since the early 2000s, a crop of innovative fintech companies has popped up promising to solve the major friction points of the modern world. While companies like Revolut and TransferWise have already helped smooth out many problems, cryptocurrency is taking things to the next level.
Let’s Take a Look at 3 Key Examples in Order To Understand How
Crypto-Lending Is Increasing the Availability of Credit
While things are improving, over 1.7 billion adults still lack access to banking. This problem disproportionately impacts low-income populations who could leverage credit to dig themselves out. This is where crypto lending platforms can come in. Rather than relying on extensive credit checks, Defi lending platforms typically provide easier access to credit than any other solution.
The way this works is simple. Lenders are encouraged to lock their cryptocurrency into a platform and act as liquidity providers to borrowers. In exchange, lenders receive an interest payment which is typically higher than those offered by traditional banks. This encourages liquidity and helps to avoid a flash crash or black swan event.
Crypto lending solutions have become increasingly popular over the course of 2020. One of the largest, MakerDAO, currently has over $1.8 billion in locked value. There are problems with crypto lending, however. In fact, MakerDAO itself recently landed in hot water due to its decision not to compensate victims of a flash crash in March.
Despite this, the crypto lending ecosystem appears to be relatively robust and will likely continue to be an important part of the cryptocurrency market in general.
Ripple Is Easing Cross-Border Transaction Troubles
High fees, long delays, and problems with intermediary banks: they all add up to one massive pain. In Europe, a number of fintech startups have begun that make it easier to send and receive money, but many challenges still need to be overcome. This is where crypto giant Ripple comes in.
Unlike many other crypto projects, Ripple is better known for its payment protocol, rather than its currency (XRP). The project operates on an open-source peer-to-peer decentralized platform that enables seamless transfer of money regardless of the form, whether fiat or crypto. It does this through RippleNet, a network of institutional payment-providers such as banks and money services businesses that use Ripple’s technology.
Rather than relying upon a traditional middleman to record and transfer funds Ripple leverages the “Gateway” to serve as the link between two parties who want to make a transaction. Any company can apply to be a Gateway and act as a credit intermediary and liquidity provider in this system.
This system allows Ripple to avoid problems with traditional cryptocurrencies, such as Bitcoin. Cryptocurrency mining is energy-intensive and takes longer to confirm than the gateway transactions used by Ripple. This enables transactions that cost as little as $0.00001.
The big advantage of Ripple is its currency, XRP. It is designed to act as a bridge currency that makes it easier to send and receive currencies. This currency agnostic system makes it safer and faster to exchange money than any traditional banking system, or even other cryptocurrencies.
Ripple has already gained a strong following and more than 1/3rd of the world’s major banks are using the platform. If this trend continues then slow, expensive, cross-border transaction fees could become a thing of the past. This is likely why an analyst predicted that the currency could hit $30 in the next 2-3 years.
Crypto Is Creating More Ways to Make Money Trading
Speculation has been a feature of the cryptocurrency market for as long as it has existed. But a number of fintech platforms have looked to take that a step further. Companies like Robinhood and eToro have worked to attract the interest of people who value cryptocurrency for its trading potential, rather than as a philosophical idea.
Both platforms make it possible to trade crypto, or crypto derivatives, directly through their apps. This has in part made it easier for traders to interact with cryptocurrency and have helped to normalize it as an asset.
Perhaps more interestingly, there are now crypto solutions themselves that are looking to upend traditional fintech operators like Robinhood. Decentralized Exchanges (DEXs) like Uniswap have helped to reduce many of the technical and interface barriers traditionally associated with peer2peer crypto exchanges while cutting out the middlemen like Coinbase or Binance.
These decentralized solutions have proven a hit with crypto traders. In September, Uniswap processed $15.4 billion in transactions. This even surpassed industry giant Coinbase who processed a “mere” $13.6 billion in transactions during the same month.
This is particularly impressive as the decentralized finance craze was slowing down in September, meaning that Uniswap was succeeding on its own merits.
( Also Read: What Is Cryptocurrency And How Does It Work? )
Cryptocurrency and Fintech Make a Powerful Combination
While fintech products are occasionally dismissed as something only for enthusiasts, they can have a tangible impact on our daily lives. The ability to receive money from anywhere in the world at a minimal cost has helped transform the lives of small business owners across the globe. It has also increased access to talent and customers.
Even traditional fintech solutions have made a big positive impact. And crypto solutions could help these platforms go even further. This is particularly true for areas that fintech is still struggling to make inroads to — particularly credit.
Cryptocurrency projects tend to be decentralized in nature and able to move faster than traditional fintech companies, which often find themselves hamstrung by local regulations. This allows these projects to take risks, such as offering decentralized lending, with less fear of falling foul of regulators.
As this happens, fintech companies will be able to adapt the solutions created in the crypto sandbox to a wider audience. In the long term, this creates a symbiosis that will help resolve the remaining friction points that continue to drag on the financial sector.