We’re entering a new world in the banking sector and, more fundamentally, in currencies.
And big government and big financial institutions are not excited.
Technology has delivered us to a place where more and more new players are getting into the financial sector. “Fintech” has brought in new lenders that use newly developed algorithms to rate customers, rather than simply using the typically flawed credit report scores that all the big banks use.
There’s “robo-investing,” where software helps individual investors set up portfolios by answering questions about their investment objectives. No need for brokers.
We can pay from our mobile phones with various apps available from major tech companies like Google and Apple, not banks.
And this new trend is also showing fiat currencies’ lack of flexibility and fundamental value.
It’s the age of bitcoin and other cryptocurrencies. These currencies allow individuals to buy and sell around the world in complete privacy. They’re universal currencies and can be held outside the traditional financial system.
And that’s precisely why governments say they’re skeptical (what they really mean is scared) of these new currencies: because they can’t track them.
They say that cryptocurrencies are dangerous because groups like ISIS and drug dealers do their business using the currency, or that they’re not as secure as everyone thinks, or that the currencies and businesses that mine new units (you have to solve complex mathematical problems in order to obtain new bitcoins, for example, a process called mining) are run by fly-by-night crooks.
But the point is bitcoin is gaining serious legitimacy and popularity around the world. Anything that people put value on is usable for a bartering currency. So many retailers are now accepting the currency. Better security — the updated blockchain, which is a kind of firewall that keeps hackers at bay far more effectively — has helped make transactions and storage of bitcoins significantly more secure.
Many emerging-market countries are exploring transitioning away from fiat currencies and simply working with bitcoins. This would keep their currencies out of the hands of foreign exchange traders who manipulate their currencies. It also gets central banks out of the mix.
But the big challenge for big corporations and governments is the fact that these new changes are going to tear down the old ways and they are not ready for what is inevitable. And they can’t pierce the veil of privacy with currencies like bitcoin.
While governments may never get to track the users, they can find ways to regulate and tax its use. And that is happening now with governments ruling that bitcoins are a commodity and not a currency (they will do anything they can to keep their monopoly on fiat).
Already, increasing numbers of Nigerians are opting for bitcoin rather than their native currency; and the government is beginning to explore regulating the currency.
It will be a good case study in how well a government can actually control the way the people use currency, and whether the people and not the government will get to chooses how they transact business.
Certainly these are early days for cryptocurrencies and fintech, but now is the time to start thinking about how you want to engage these new realities.
If you’re not ready to invest in bitcoin, certainly start looking into it. It’s one of the few free-market investments left. Aside from bitcoin, gold should be a solid investment since the Federal Reserve raised rates (which will push gold down in the short term).
Avoid currencies in commodity-based countries; and stay away from high-yield, financial and emerging-market funds. The reckoning is not over yet.
–GS Early
The post Banking 2.0: Encryption, privacy and fiat currencies appeared first on Personal Liberty®.
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