Bitcoin just hit the $5,000 mark, and the growth of blockchain is taking various sectors by storm, in particular that of currencies. In this article, Fraedom CIO Simon Raymer identifies five important points to consider when discussing the use of cryptocurrencies.
1 – Gaining a greater understanding
There remain many challenges ahead for the established financial services businesses before they can start to successfully embrace these new technologies, in general there remains today a low level of understanding of the impact, both perceived and real, of new cryptocurrencies.
Most discussions around cryptocurrencies are directed or based on the perception of bitcoin. There is generally a great deal of misunderstanding about bitcoin and blockchain, especially in the media where they are both hot topics.
However, many established financial services organisations have a mixed understanding of the impact both blockchain and cryptocurrencies can and will have on their businesses. The way decentralised transaction mediums and P2P are likely to reshape the way businesses interact with financial services (such as loans, or cross-border financial exchanges) is something of a grey area, as is how it will affect the way businesses pay or receive payment for their goods or services.
Other challenges businesses face in embracing cryptocurrencies include creating expensive innovation centres within existing teams. Moreover, gaining senior support to provide budgetary allowances to obtain subject experts who understand these technologies to educate and champion them within the organisation is a difficult task, as is supporting the technical entrepreneurs to use these technologies to find the right business opportunities to challenge the market with.
2 – The blockchain infrastructure
A Direct transactional P2P model does not typically use blockchain today, but with faster and more cost-effective processing as a by-product, it’s only a matter of time before its use becomes widespread.
That, in turn, will help drive further growth in already burgeoning cryptocurrencies, like bitcoin, ethereum and ripple. Almost every one of these new secure payment mechanisms uses blockchain as its underlying infrastructure, with its success in doing so raising prospects for the cryptocurrencies also.
3 – The chance to innovate
Established businesses who embrace blockchain and/or cryptocurrencies have great opportunities to drive innovation themselves in these areas. They have the chance not only to deliver both existing and new services to the market using new technology but also to bring their own established trusted brands to the table.
While a lot of consumers and businesses are willing to take a risk with a small start-up, many are hesitant to either try or commit at a large scale without the backing of a trusted established brand, and the sense of control, security and maturity that comes with that. This encapsulates the opportunity that established financial services businesses are likely to have by embracing these new technologies – but they must not delay too long. The success achieved already by P2P and cryptocurrencies, together with the growing number of start-ups using traditional financial services, acts as a warning shot to any established financial services business that they cannot ignore these new technologies and start-ups.
4 – The peer-to-peer boom
The use of peer-to-peer (P2P) transactions that bypass the banking channel is gathering pace. We see this especially in developing nations like India, where traditional banking and financial services are not as well established, and consumers and businesses are jumping directly to P2P transactions providers.
The saturation of smartphone devices has also driven growth and this usage is likely to grow further as apps become more widely accepted across the P2P delivery platform. Currently, the strongest growth of P2P is taking place in the B2C space but many new start-ups are embracing the P2P concept and trials are taking place using blockchain and P2P-based approaches
It’s true that the direct transactional P2P model does not typically use blockchain today, but with faster and more cost-effective processing as a by-product, it’s a matter of time before its use becomes widespread.
5 – Welcoming third party expertise
Third party technology providers with knowledge and understanding of how new technologies, not just limited to blockchain and cryptocurrencies, can best be taken advantage of to challenge and disrupt the market in the right way.
Traditional financial services providers need to tap into the experience and expertise of their peer group, the key providers in the marketplace. In addition, they need to tap into those in the industry who can help them to navigate these new technologies successfully, quickly and with less cost, than if they try to do it alone.