The catalyst technology

As an enthusiast of blockchain and cryptocurrencies, I have been increasingly asked by friends and colleagues about what I thought of the US Security and Exchange Commission’s (SEC) recent crackdown on cryptocurrencies. Last week, SEC Chair Gary Gensler stepped up his attack by suing Coinbase and Binance for securities violations, sending crypto tokens plunging by at least 15 per cent. As one of the most powerful regulatory agencies in the world, most countries often wait to see how the SEC regulates certain industries before implementing their own legislation and regulatory frameworks.

The way I see it, what happened was a classic example of a clash between blockchain technology and the current banking system, with cryptocurrencies posing a significant threat to the hegemonic order of the traditional financial system.

In this piece, I dive into my thoughts on this topic as an enthusiast, as I am not a cryptocurrency expert. Yet, as someone who has invested much time, effort, and funds into crypto, I ought to share my perspective.

Like the internet, blockchain’s entry into the financial landscape was overlooked as a trend. Currently, cryptocurrencies such as bitcoin are a reality that the traditional financial systems must contend with. Blockchain requires decentralised information records called blocks joined together in a list (chain). Multiple random computers validate each new block on the chain on the internet before addition. In the case of bitcoin, these blocks represent transactions. Blockchain’s decentralised nature ensures no one party can control the value stored in bitcoin. Although traditional banking institutions might still exist in 2050, blockchain technology (cryptocurrencies) are likely to be more dominant due to its advantage over banks, including lower transaction costs and length, transaction transparency, and currency issuance and availability.

Firstly, cryptocurrencies are bound to be more cost-effective than traditional banking system currencies, hence more dominant. In most paper money transactions, banks are the intermediaries. They charge significant transaction fees for that role, which can be a long process. These fees are inevitable as they need to cover their running costs and squeeze out some profit. However, there is no need for a middleman in a cryptocurrency transaction. Value is securely transferred directly from one party to another, and the transaction record is stored in the cryptocurrencies’ blockchain. Consequently, owing to their cheaper transactional costs, cryptocurrencies will become the dominant transaction medium as they steadily take over markets dominated by the banking system.

Additionally, blockchain technology is bound to be more widespread as it enables a more transparent trading system than banking institutions, whose transparency is at the transactors’ discretion. When depositors place their money in the bank, transactions with that money are not transparent. All the depositor knows is that the bank will use that money to create profit. If the bank loses too much money, the government bails it out. This scheme creates an imperfect money system that puts bank users at a disadvantage and supports favoured banks.

In conclusion, cryptocurrencies have several advantages over traditional banking systems. The US dollar is the world’s reserve currency, and the status quo is jolted through cryptocurrencies and other global factors. Therefore, to cap the fast momentum of cryptocurrencies, the SEC is waving its regulations gun. Let’s wait and see what the future holds for cryptocurrencies. Will they remain a threat, or will financial institutions and banks start integrating and facilitating their move into the financial system?

• Opinion