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Crypto-Finance will transform financial services!

Virtual currency or virtual money was defined in 2012 by the European Central Bank as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.” Today, hundreds of virtual crypto-currencies are emerging over the world as a medium of exchange using cryptography to secure the transactions and to control the generation of new units.

Recently crypto-finance blockchain technology got recognition from major players in the financial industry. The analysis shows that crypto-finance could allow conventional banks to save up to $80 billion a year on remittances and settlements. Regular banks will lose some revenue, but will gain a huge bonus in savings on costs and could still act as regulatory institutions to identify and serve customers.

Blockchain and bitcoin are the current types and banks and major fintech companies are looking at them, but crypto-finance is not about blockchain technology only. Digital money transfers, digital currencies, e-wallets and many more instruments employ cryptography. For example, Monetas, one developer of the next generation of financial services, is implementing digital wallet pilots in Africa. Africa is the fastest market to adopt new technology as it does not have the traditional and hard infrastructure while instruments like credit cards are 60 years old and an obsolete tool: if you do not have one today, you won’t want it at all.

What is the problem with the regular currencies? First of all, centralized control, which means a lot of regulatory restrictions and poor adaptability, not to mention expensive operation due to high infrastructure investment. Remittances and settlements eat a lot of customers’ money through fees. Huge amounts of manual input are another issue that is improving, but still has a major negative impact. Finally, there are too many security issues and limited infrastructure availability.

While blockchain is gaining traction and popularity, it has a number of limitations that prevent wider adoption. For example, it is very slow: the Bitcoin blockchain can currently handle a maximum of 7 transactions per second globally when a system like VISA handles 47,000 transactions per second. What’s more, Bitcoin is expensive, which is a bit unexpected: the total cost of operating the global Bitcoin network translates to about $10 per transaction. This cost is not paid directly by the user, but by the global network of computers that receive a ‘block reward’ of new bitcoins. The block reward will decrease over time, so fees will likely grow much larger eventually. The next decrease—in a half!—is expected in July 2016.

During the CeBIT 2016, we met a very interesting company called Monetas, which takes the digital notary to the next level, extending the digital contracting model into money, documents, stocks and commodities. The digital notary notarizes entities electronically with a digital signature using a secure public key and validates the act with a digital certificate. The idea is pretty simple, but the implications are far-reaching. Digital contracting applied cryptographically makes it possible to create secure hybrid peer-to peer, client-server mobile applications that can work either offline or with an always-on, globally-accessible web service. It allows instant, irreversible settlements of transactions, and the transfer and exchange of currencies and other assets. It helps connect anyone with a smartphone to financial services. The Monetas mission is to build solutions that give everyone the freedom they need, making the world a freer and more prosperous place.

Crypto-finance is a modern technology with the potential to bring financial services to two billion people who lack access to the most basic ones because of cost and distance. Mobile money has connected more people to financial services in the last decade, than legacy banks in the last 100 years. New crypto-finance technology could have a major impact on humanity and increase life quality through lower fees, mobility, and deep service penetration.


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