The Impact of Cryptocurrencies on Finance

The correlation between cryptocurrencies and the finance industry can be no longer be ignored. Cryptocurrencies are disruptive economic innovation that have a direct impact on the financial markets and banks all over the world. Given the promise and peril of such a disruptive technology, many firms in the financial industry, from banks and insurers to audit and professional service firms, are investing in blockchain solutions. Harvard Business Review consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications.

Money, equities, bonds, titles, deeds, contracts, and virtually all other kinds of assets can be moved and stored securely, privately, and from peer to peer, because trust is established not by powerful intermediaries like banks and governments, but by network consensus, cryptography, collaboration, and clever code. For the first time in human history, two or more parties, be they businesses or individuals who may not even know each other, can forge agreements, make transactions, and build value without relying on intermediaries (such as banks, rating agencies, and government bodies such as the U.S. Department of State) to verify their identities, establish trust, or perform the critical business logic — contracting, clearing, settling, and record-keeping tasks that are foundational to all forms of commerce.

Goldman Sachs recently commented that Bitcoin is being accepted as an actual currency. In a report sent to the bank’s clients, Goldman Sachs analyst Zach Pandl wrote that the rapid increase in demand for bitcoin has been triggered by the growing dissatisfaction with regulated monetary systems and the current banking infrastructures. In the long-term, as cryptocurrencies mature and evolve into a major asset class, Pandl noted that digital currencies like bitcoin will pose lower returns but demonstrate a high level of stability, like gold and other safe haven assets.

According to S&P Global; blockchain presents an opportunity for financial institutions to cut costs by streamlining back-office operations; shortening clearing and settlement times; facilitating payments; and even generating new revenue streams. Blockchain can be used for many banking services, including bank payments, trade finance, money transfer and post-trade services.