Crypto – Not Fintech – Is Innovating the Banking System
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FinTech is not innovating the banking system – it’s crypto that is. Here are some reasons why:
- Many claim that tech companies are disrupting banking. In reality, the two operate their business in exactly the same way. There is no distinction between Alipay or Google Pay and a bank account with your local bank.
- In both cases, the key flaw is that a third party, a custodian, is actually in possession of your funds and they may do what they please with them. You can spend your money only when they allow, and they can leverage those reserves to make profits without sharing those with their customers.
- The key flaw with this system is that the custodian takes risks with other people’s money and gets bailed out when things go wrong. They take the risks, keep the profits, and socialize the losses if things go awry. This is essentially what happened in 2008.
- The big contrast between these payment apps and decentralized crypto assets is that in a system such as Bitcoin, a user stores their funds in a wallet only they control, and literally nobody other than themselves has access to those funds.
- Cryptocurrencies disintermediate the financial system by restoring ownership of money to the people. Tech companies are still stuck in the old system where a third party takes possession of this money on their behalf.
Noting this, it’s important for leaders to understand cryptos’ abilities.