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Cryptocurrencies and blockchain technology: reshaping the future of the financial world

Many technological innovations have been heralded as the ‘future of business’. From fax machines to the iPhone, organisations have been relying on more and more technology to operate with greater efficiency and security. While there will always be mixed opinions over which technology is going to have the next big impact, there’s no denying that blockchain is generating a serious level of buzz.

Simply put, blockchain is a secure, decentralised, and immutable virtual trail of transactions that can be accurately tracked to its source. It has given rise to many benefits such as ‘keyless’ signature systems and the ability to accurately track produce from source to consumer. But arguably, the most disruptive manifestation of blockchain technology are cryptocurrencies.

While the idea of having a digital currency that can be created by anyone, freely sourced and unregulated by a central authority has been around since the 80s, it has failed for one reason or another. These include regulatory crackdowns, the unavailability of a truly secure virtual mode of transaction, or unwilling third parties. So, what’s different this time around and what does it mean for the future of the financial world?

We’ve seen many technological disruptions succeed only when the time was right. Take Uber for example, a Silicon Valley company that has become synonymous with the service it offers. Users no longer take a taxi, they order an Uber. Yet, cars and drivers were around long before Uber even existed, so, what was the magic ingredient that made a service so seemingly simple and ubiquitous, worth more than £53 billion today? It was the advent of the smartphone revolution and the penetration of high-speed internet on mobile devices. Trends such as these reshaped the digital landscape to an extent that made companies like Uber possible. It’s the same with cryptocurrencies today, earlier digital currencies lacked the magic ingredient of blockchain to take them to the next level.

Cryptocurrencies powered by blockchain are encrypted and decentralised digital money. Being decentralised may well be their most important aspect, for that is precisely the advantage they have over traditional currency — they eliminate the middleman. There is no central authority, such as the Financial Conduct Authority (FCA), to govern them. While this lack of regulation has led to wild fluctuations of their value over time, free market economics are sustaining them. And with investors clamouring for their share, cryptocurrencies like bitcoin seem to have taken the financial world by storm.

The question is, how long before these innovations take off and are truly accepted into the mainstream? Some experts like to compare cryptocurrency and blockchain to the internet in the 90s, saying that it may take a decade or so for these innovations to truly change the way we do things. But as they demonstrate growing signs of maturity and disruption, organisations will need to be prepared to deal with the shifts in tide. The secure technology of blockchain and its potential to disrupt financial transactions has also piqued the interest of global tech giants. Recently, Microsoft announced its plans to embrace blockchain and Amazon has also hinted at joining the fray. IBM surprised many by using cryptocurrency for cross-border payments.

It’s just a matter of time before the known world of traditional banking and financial services makes way for the uncharted territory of newer and more advanced financial technologies (fintech). Those technologies that present various risks but also provide unique opportunities for financial firms that are willing to adopt and evolve will drive change. As such, enterprises would do well to spend time evaluating the risks that are ahead of them, so that they thrive in this new environment, rather than being swept away.

With cryptocurrency no longer on the side-lines, prominent governmental, banking and financial institutions are also taking note. For example, in March 2018 – in a speech to the Inaugural Scottish Economics Conference on the future of money – the Bank of England Governor, Mark Carney, cited that “bringing crypto-assets onto a level regulatory playing field could also catalyse private innovation to create a more resilient, effective payments system.” The benefits of blockchain and cryptocurrencies are understood by those in charge.

In the near future, we may see new regulations governing cryptocurrency or existing ones evolve in order to cover them. Yet, to comply with additional regulatory requirements, address growing risks from cryptocurrency, and effectively manage this paradigm shift in business, organisations must begin laying the foundations now. Those that simply react to market forces are already at a disadvantage to others which have been willing to proactively embrace change. Organisations that have robust risk and compliance management policies and processes in place are able to benefit from innovative technologies, providing them with an agility and disruptiveness that can create new opportunities.

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