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Most of the public attention of cryptocurrency is on price trends, regulation, and the activities undertaken 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 evident. Since the early 2000s, a number of innovative fintech companies have sprung up that promise to solve the major friction points of the modern world. While companies like Revolut and TransferWise have already helped solve many problems, cryptocurrency is taking things to the next level.
Let’s take a look at 3 key examples to understand how
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Crypto-Lending is increasing the availability of credit
While things are improving, over 1.7 billion adults still lack access to banks. This problem has a disproportionate impact on low-income populations who could use credit to get out. This is where crypto lending platforms can come into play. Instead of relying on in-depth credit checks, Defi lending platforms typically provide easier access to credit than any other solution.
The way it works is simple. Lenders are encouraged to lock their cryptocurrency into a platform and act as a liquidity provider for borrowers. In return, lenders receive an interest payment that is typically higher than those offered by traditional banks. This encourages liquidity and helps 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-down value. However, there are problems with cryptocurrency lending. In fact, MakerDAO itself recently fell into hot water due to its decision not to compensate victims of a lightning accident in March.
Despite this, the cryptocurrency lending ecosystem appears to be relatively robust and will likely continue to be an important part of the cryptocurrency market in general.
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Ripple alleviates the problems of cross-border transactions
High fees, long delays and problems with intermediary banks – all add up to enormous pain. Numerous fintech startups have been launched in Europe that make it easier to send and receive money, but many challenges still need to be overcome. This is where cryptocurrency giant Ripple comes in.
Unlike many other crypto projects, Ripple is best known for its payment protocol, rather than its currency (XRP). The project operates on an open source decentralized peer-to-peer platform that allows for seamless money transfer regardless of form, be it legal or cryptographic. It does this through RippleNet, a network of institutional payment service providers such as banks and money services companies that use Ripple’s technology.
Rather than relying on a traditional broker to register and transfer funds, Ripple leverages the “Gateway” to act as a link between two parties wishing to transact. Any business can apply to be a gateway and act as a credit broker 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 gateway transactions used by Ripple. This allows for transactions that cost up to $ 0.00001.
Ripple’s big advantage is its currency, XRP. It is designed to act as a bridging currency that makes it easy to send and receive currencies. This currency independent system makes exchanging money safer and faster than any traditional banking system or even other cryptocurrencies.
Ripple has already gained a strong following and more than 1/3 of the world’s leading banks use the platform. If this trend continues, slow and expensive cross-border transaction fees may become a thing of the past. This is probably why one analyst predicted that the currency could hit $ 30 in the next 2-3 years.
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Crypto is creating more ways to make money with trading
Speculation has been a feature of the cryptocurrency market for as long as it has existed. But a number of fintech platforms have tried to go 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 allow you to trade cryptocurrencies or crypto derivatives directly through their apps. This has partly made it easier for traders to interact with the cryptocurrency and helped normalize it as an asset.
Perhaps more interestingly, there are now the same crypto solutions that are trying to overthrow traditional fintech operators like Robinhood. Decentralized exchanges (DEXs) such as Uniswap have helped to reduce many of the technical and interface barriers traditionally associated with peer2peer crypto exchanges, by eliminating intermediaries like Coinbase or Binance.
These decentralized solutions have proven to be a hit among cryptocurrency traders. In September, Uniswap processed transactions worth $ 15.4 billion. This even surpassed industry giant Coinbase which processed “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 Uniswap was successful on its own.
( Read also: What is cryptocurrency and how does it work? )
Cryptocurrency and Fintech create a powerful combination
While fintech products are occasionally dismissed as something just for enthusiasts, they can have a tangible impact on our daily life. The ability to receive money from anywhere in the world at a minimal cost has helped transform the lives of small business owners around the world. It has also increased access to talent and clients.
Traditional fintech solutions have also had a large positive impact. And cryptographic solutions could help these platforms go even further. This is especially true for areas where fintech is still struggling to find its way, especially credit.
Cryptocurrency projects tend to be decentralized in nature and able to move faster than traditional fintech companies, which often find themselves hampered by local regulations. This allows these projects to take risks, such as offering decentralized loans, with less fear of falling foul of regulators.
When that happens, fintech companies will be able to adapt the solutions created in the crypto sandbox to a wider audience. In the long run, this creates a symbiosis that will help resolve the remaining friction points that continue to drag the financial sector.
