Modern banks have mostly monopolized all significant financial activities, therefore, that gives them the opportunity to influence the economy directly, even on the international level. Using discreet and not always legal methods. But a regular person has no choice - either to trust the banks and act on unfavorable conditions for himself or to look for alternatives which practically didn't exist.
However, with the advenе of the blockchain system, the situation has changed. A cryptocurrency market has emerged, it was free from external control and censorship, independent of the control of facilitators and guaranteed the legitimacy of transactions automatically, without the legal system, which wasn't always objective.
Blockchain can destroy the traditional economic system by providing a fairly effective alternative. Moreover, it won't only change existing financial instruments but it can also become the basis for creating new instruments, which will be much more effective.
- Security. Decentralized systems are resistant to hacking, and cryptocurrency assets are resistant to copying and stealing. In addition, the absence of intermediaries at all reduces the risk during transactions.
- Transparency. Banks use private registries, without any access. In decentralized systems, all transactions can be tracked and located.
- Privacy. Blockchain helps to keep the owners of digital assets anonymous, and news often talks about classified information with a banking data which became public.
- Confidence. Decentralized network are more trusted because most processes are automated and excluding the human factor.
- Programmability. Blockchain networks already automated or can simplify and standardize processes that banks are still managing manually.
- Performance. Bank transactions are slow because different systems are needed to be synchronized. In the blockchain, this happens much faster, since everything works according to a single protocol.
Speed and cost of transactions
Since banks are monopolists, they can independently determine the cost of transactions. This isn't profitable to the user, but he has no other alternatives. In addition, many transactions require manual confirmation like personal presence, signature, and other ways to ensure security, which negatively affects their speed.
Everything is much more simple in the blockchain network. The high competition allows to keep commissions at a low level, the ability to work remotely allows to conduct transactions 24h. And the absence of intermediaries with cryptographic data protection allows you to effectively protect transfers from external interference.
Attracting large capital during starting or developing business controlled only by external financiers - bankers and investors for a very long time.
They could dictate their terms, required numerous inspections and legally secure their rights by infringing on the other side of the contract. There was no alternative to this, so the business was forced to agree to such conditions.
Now there could be alternatives - the initial coin offering and initial exchange offering. Anyone can announce fundraising within the blockchain network and provide investors with a clear plan of action along with guarantees of possible profit.
Through automated smart contracts, you can even guarantee a refund if something goes wrong. This is a rather effective alternative to the traditional mechanism of banks - the initial public offering of shares.
The main difference is that the commission and securitization of transactions cost fewer with the use of a blockchain network.
Anyway, the initial coin offer has its drawbacks. The simplicity of creating such projects has led to a huge number of scammers which are raising funds by promising a lot of profit but doing nothing except lies. Therefore, some regulation in this area of decentralized financial interaction is still necessary. But unfortunately, it is in the process of creation.
Work with securities requires the coordinated work of banks, exchanges and a bunch of intermediaries. However, to make it all go quickly and accurately is incredibly difficult. You always have to sacrifice something, which almost always leads to a loss of some assets.
However, almost all of these assets can be tokenized. They can be attached to a specific cryptocurrency, which will act as a “certificate of ownership”. Then you can make all exchange operations with this tokens. As experience shows, this can be done not only with securities, but also with rights to real estate, ownership of works of art and various expensive commodities. There is also the opportunity to work with ""partial ownership"", which allows even unexperienced investors to work with expensive and profitable offers.
Banks monopolized the credit system on which the modern economy is based. And due to this, they dictate the conditions and raise interest rates. Alas, without loans, it is extremely difficult to interact with expensive services, goods and projects, so people are forced to agree to the unprofitable partnership that they are being offered.
With the help of the blockchain system, anyone can either take a loan from other network participants or lend it to someone. Timeliness of payments is regulated by consensus algorithms, smart contracts and other automatic mechanisms, so those who want to trick the system will face with great difficulties. Regarding to interest rates and size of payments, all is determined on a competitive basis. Also during work with loans, you can use cryptocurrency, which is completely impossible within traditional banks.
The main difficulty of international trading is the mismatch of numerous rules and regulations, which is offset by a variety of audits and additional controls. This takes time and money, since each stage involves the manual processing of information and confirmation of its reliability.
The completely transparent operation of the blockchain network partially eliminates the need for these audits, and the common protocol allows the financial systems of different countries to interact effectively. Unfortunately, the legal terms for using the blockchain in international trade are practically not spelled out, however, in theory, this system is extremely beneficial for use at all levels.
In the traditional financial system, security is ensured through the manual work of numerous lawyers. In the blockchain, all this is optimized and automated through smart contracts. For example, they open access to the account only after certain conditions are met, which is checked automatically. This reduces the risk of abuse and reduces the need for further litigation.
In addition, network transparency allows you to verify the authenticity of transactions and specified data in real time. Dispite the traditional banking system, in which information is still contained on paper. In addition, blockchain algorithms protect KYC / AML digitized information from external interference, errors and fakes.
Blockchain technology can completely change the usual ways of financial interaction that are familiar to us, by making them more beneficial to users, not intermediaries. In addition, the speed, quality and transparency of transactions will increase, the overall level of security will increase, and many outdated financial processes will be optimized.
Despite the fact that the legal aspects of using the blockchain system at the highest levels are only being developed, its potential is so great that there is no doubt that the future of financial systems can be founded in decentralized ways of interaction.