This article explores the shift in the financial industry towards a crypto-native system, driven by digital currencies and blockchain technology. A hybrid financial system may emerge in the future, combining the best of both the legacy and the crypto-native system.
Over the past decade, new technologies and digital currencies have emerged as key actors in the financial business, causing widespread change in the sector. We can observe this transition as we go further into today’s financial systems, with the legacy system of the past giving way to the crypto-native system of the future. To understand where we are headed, it is important to first look back at where we came from.
The Legacy Financial System
Traditional banking methods and institutions provide the backbone of the existing financial system, with central banks and major financial institutions managing the monetary supply and distribution. This system was intended to be reliable and safe, but it was sluggish and complicated due to the numerous bureaucratic steps and middlemen required for any given transaction.
There were certainly drawbacks with this system. Issues with exorbitant fees, long wait times for transactions, and a general lack of clarity currently plague the financial infrastructure. As a result, there was a push for an alternative financial system that could solve these problems and give people more say over their finances.
Crypto
A new, more efficient, and more widely available monetary system has evolved with the arrival of digital currencies and blockchain technology. Using blockchain technology, this system adheres to the tenets of decentralization, openness, and reliability.
In essence, it is made to do away with middlemen so that customers have complete command over their own financial affairs. This is made possible by using distributed ledgers and cryptographic currencies like Bitcoin and Ethereum.
Advantages
The usage of blockchain technology, which generates a distributed ledger that records all transactions in a safe and transparent manner, is a crucial aspect of the crypto native system. In addition to reducing costs and the number of middlemen required, this technology also speeds up the process of making a transaction.
The use of cryptocurrencies, like Bitcoin and Ethereum, is another crucial component. These do not depend on any single governing body and can be used for international payments and purchases outside of the purview of conventional banks.
Disadvantages
Unfortunately, there are some difficulties with the new system. The regulatory environment is one of the most significant obstacles at the moment. There is a lot of unpredictability because governments and regulatory agencies around the world are still trying to figure out how to define and regulate cryptocurrencies.
In addition, much invention and experimentation are still happening, as it is still in its infancy in terms of development. This indicates that the market is highly volatile, with prices and values changing rapidly.
Final Thoughts
It is possible that, as time goes on, the two systems will converge, with conventional banks eventually adopting blockchain technology and digital currencies in order to keep up with the financial sector. That way, we can have the best of both worlds in a hybrid financial system that gives people more freedom of choice and control.
The crypto native system is positioned to dominate the future of the financial systems of today, which are in a constant state of upheaval. There are still obstacles to be resolved, but the potential gains from this new infrastructure are substantial, therefore its use and implementation are likely to increase and spread in the years to come.