Rethinking the Democratisation of FinTech and Cryptocurrencies

FinTech and Crypto-currencies

By Michael E. Lambert, PhD

The volatility of cryptocurrencies in the winter of 2020 – spring of 2021 has highlighted the issue of speculation when it comes to new technologies and blockchain in general. While some might focus on the rationality of investors, willing to bet on stocks as some like to say it is similar to a casino, this does not mean that blockchain technology is not valuable and promising, and the turmoil of Bitcoin caught between the environmental crisis and financial speculation overshadows the potential of blockchain when it comes to empowering citizens and providing them with proper services without having to pay expensive fees or endure central bank policies.

When Satoshi Nakamoto published his paper on what would become bitcoin in 2008, the global economy was in turmoil, not because of speculation in virtual currencies and high-tech companies, but in what was considered a stable market: the housing market. The subprime mortgage crisis showed that investors are not only betting on numbers but also on wood and stone, and houses started to reach record prices in the United States, which is not what acquiring houses is supposed to be, as it should be a safe place to sleep, with a kitchen and a living room to raise your family and bring friends over. Even today, places like Paris, London, Hong Kong, Vancouver, New York City, to name a few, have housing prices that are more speculative than based on people’s real needs, which is why so many properties are sitting empty, waiting for the value to rise.

In short, we must remember that each of us is a gambler. You are gambling when you purchase a flat, hoping that the price will go up or at least not down, or when you receive your salary, hoping that your euros, dollars or rubles will remain strong against another currency when you travel abroad or shop for foreign products.

So what is so special about cryptocurrencies that they are different from betting on the property market or investing in Amazon and Alibaba stocks? The answer goes hand in hand with the development of FinTech, human fears and the lack of trust in state institutions in a globalised world, as this article will aim to demonstrate.

RobinHood is back

Historically, the people responsible for investing cash were professionals working either for the state or in large institutions such as banks, and only a few individuals dared to keep their income, gold and silver under their mattresses in their homes. For decades, people as such have relied on banks to keep money safe, and to invest it to ensure that it will at least equal the rate of inflation, making it valuable to store it instead of spending it immediately. This is not to say that state institutions have always been fair to citizens, and in fact many have or will experience a major economic crisis in their lifetime. The Tulip Mania (1637), the German Economic Crisis (1921-1923), the Great Depression (1932), the Suez Crisis (1956), the International Debt Crisis (1982), the East Asian Economic Crisis of (1997-2001), the Russian Economic Crisis (1992-1997), the Latin American debt crisis in Mexico, Brazil and Argentina (1994-2002), the global economic recession (2007-2009), and the Covid-19 pandemic (2020-2021), to name but a few, are all examples of events that have reshaped the world and challenged our view of the economy.

Despite all the imperfections, citizens had no alternative but to trust banks and states, as they could not easily invest in another currency, if and when allowed, and the global level of education did not provide an understanding of what a banking professional did. This changed in the mid-20th century, when an increasing number of citizens had access to education, and in recent years with the increase in global education and access to information through the Internet. Therefore, everyone is now able to study basic economics and advances from top universities using online platforms such as edX and Coursera, in numerous languages, and this combined with access to open data on financial markets via the web.

As it happens, anyone today is able to know more about a company she/he invests in than financial professionals, thanks to smartphones, instant notifications, the LinkedIn community and media such as Twitter to follow the news minute by minute.

In addition to this first ingredient – knowledge – citizens also gain access to online financial services (FinTech) companies known for offering commission-free or affordable stock and exchange-traded fund trading via a mobile app, the most famous being Robinhood Markets, Inc. (Robinhood).

This second element, the ability to invest in stocks or just about anything without the help of an expert, has started the transition from an economy based on central banks and banks to an economy based on citizens. As a result, people are now able to exchange their monthly salary in dollars for another currency that they feel is more reliable, or to bet on the price of gold, uranium, stocks, etc. to rise. This investment power has led some people to trust some countries more than others, and it is common in insecure countries such as Venezuela and Nigeria to exchange the national currency for dollars, euros or Swiss francs, as it will be more stable than the Venezuelan bolívar and Nigerian naira. In essence, an average citizen is now able to do what the world’s richest people have been doing for centuries, having accounts in different assets.

Bitcoin may lose the battle, but cryptocurrencies will surely win the war

The possibility for citizens to hold different currencies has made them rethink what money is and what gives it value. Ultimately, money is a piece of printer paper, or a series of numbers that have X value at one time and Y value at another time due to inflation, deflation, war, an environmental crisis or some other event. As such, it is essential to have US dollars or Nigerian naira, but these two currencies, as different as they may seem, are quite similar.

Both the US dollar and the Nigerian naira are controlled by governments, which can decide to print more money to increase competitiveness in the global market. So if you had an American salary of $1,000 in 1921, it would be equivalent to a salary of $15,000 today, an inflation rate of about 1,400% in a century. A century may be a long time, but it means that your assets in any US bank will be worth much less than when you invested them. The same is true for all the world’s currencies around the world.

It is therefore understandable that people want to make sure that central banks will not be tempted to print banknotes that would lead to a loss in value of the money they have stored in the bank. For a long time people invested in the property market, assuming that it would keep up with inflation and even allow them to make a profit. However, this way of investing is no longer sustainable, and the declining birth rate is slowly but surely leading to housing instability, with some properties in Italy and Japan, two countries with low birth rates, giving away houses for the token price of one dollar, a 99.9% loss for the person who invested in that place a few decades ago. Housing market, is not safe anymore, and people in developped countries are more and more aware about it.

Citizens are increasingly aware of the instability of state currencies, and concerns about an implosion of the Eurozone have become a reality, as has the possibility of an environmental collapse, and this is why crypto-currencies are gaining momentum.

Looking at the technology itself, cryptocurrencies mostly have a limited supply, making it impossible to increase the number of coins in circulation unless it is planned or agreed by the main owners. They are also more secure, as you won’t see fake banknotes, and while banks can be prone to cyber-attacks as in Bangladesh in 2016, blockchain technology makes it more difficult and therefore safer if the cryptocurrency is backed by many users. Finally, cryptocurrencies are anonymous, which is a major concern these days with the digital Yuan, and they can be immediately transferred from one account to another, making life more comfortable for digital nomads, travellers or anyone on the move. During the pandemic, we saw people working for a British company and paid in pounds while doing their home office from Poland, and as such, being paid in crypto-currency would have been more pleasant than receiving pounds and exchanging them (often at an expensive price) for the Polish złoty.

Taking all these aspects into account, and if the world were a pragmatic gathering of states representing the interests of all humans (spoiler alert: it is not), all governments would agree to abandon national currencies and adopt a blockchain-based global one. This would solve just about every problem associated with money in general, from paying during holidays to fluctuating rates on the foreign exchange market (Forex).

When we look at the crypto-currency market, we tend to see the ups and downs, and forget that it is one of the most revolutionary inventions in the economy since the adoption of paper money described by Marco Polo in 1296 during his travels in China. Blockchain is so revolutionary and practical that governments that ban crypto-currency payments (e.g. China and Turkey) are nevertheless drawing inspiration from it to develop similar technology and their own national digital currency (e.g. Digital renminbi – 数字人民币).

The future of Bitcoin is uncertain, and it may even disappear due to environmental concerns, just as currencies such as the Roman currency and the Yugoslav dinar disappeared due to political changes. The same is true for all crypto-currencies, and while some will disappear, others are adapting, like Ethereum (ETH) to become greener.

What is certain is that in the end there will be no winners or losers, only people who trust each other and are free to believe in one or another currency.

Each of us who invests in a crypto-currency has an opinion, with some arguing that Ethereum is the most useful, others that Stellar is the one with the best philosophy, or Dogecoin the one that is perfect for partying and having fun. This debate about which one we like best is similar to those who say they prefer the more stable Swiss franc versus the US dollar is more international. All these ways of looking at money are transposed to crypto-currencies and it is normal to wonder about what is valuable and what is not as we spend time acquiring money to spend it with maximum value. What is certain is that blockchain-based digital currencies are the future of the economy, which is why the US, Eurozone, Nordic countries, China, to name a few nations, are starting to implement digital currencies. While it is not certain whether the speculative price of cryptocurrencies will continue to rise, it is certain that blockchain will be adopted, and that FinTech will give citizens the opportunity to decide what they trust or don’t trust as currency.

Some will trade the digital yuan for the digital US dollar, others will cling to bitcoin until they die, and others will become millionaires with Dogecoin or PancakeSwap, or even with plain old gold. What is certain is that in the end there will be no winners or losers, only people who trust each other and are free to believe in one or another currency. FinTech as such gives people back the ability to believe in one guaranteed national currency or another, one blockchain technology or another, and that is what finance and economics are and should be about, trust, belief and questioning, not a massive amount of numbers that you stockpile. The same applies when you purchase a house in Prague hoping the price will go higher than London, a car you expect to last longer than another one, or a smartphone that has a better battery than another, in doing so you are trying to determine which product is best for you and will provide you with a high return on investment.

The same should apply to traditional currencies and cryptocurrencies, when we store our monthly income in dollars, euros or rubles, we are passively betting on the stability of the bank we put your money in – remember Lehman Brothers? – and the political stability of the central bank that issues the banknotes. The bottom line is that with the development of FinTech, citizens are simply asking questions that many have never dared to ask before: what is money and am I not making a mistake by not asking what it is?

About the Author

Michael E. Lambert, PhD

Michael E. Lambert, PhD., is a political psychologist standing at the intersection of behavioural sciences and politics, broadening the understanding of opportunities arising from the Fourth Industrial Revolution (Industry 4.0) in international affairs (e.g., eHealth solutions in emerging markets).

He graduated from Sorbonne University in collaboration with the Institut Européen d’Administration des Affaires (INSEAD) before undergoing advanced training at Harvard University and the University of Hong Kong.

Recent publications:

  • The American Analysis of Military and Security Development in the Wakhan Corridor (1980-2021). Organization for Security and Co-operation in Europe (OSCE) Academy in Bishkek, Policy Brief 71.
  • A burgeoning e-empire. Estonia’s Blue Ocean Strategy regarding Digitalisation. The World Financial Review
  • Chinese investments in Czechia. Institute for Politics and Society (IPPS)

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.