Read More. We are on the precipice of a new form of finance that will use a range of technologies to change the way we use and manage one of our most fundamental tools: money. Gone are the days of taking out cash from an ATM, applying for a mortgage by visiting a bank branch, or shopping in a department store. Now, for many, conducting financial transactions of any kind is a purely online experience, escalated over the past two years by the COVID pandemic. Increasingly, the future of money exists in the Ether, via phones and laptops.
But there's a bigger future for money, the early stages of which are now taking place. Cryptocurrencies and faster, more powerful financial technologies are transforming our concept of money and challenging the financial institutions that currently manage it. The year was a transformative year for finance, and is shaping up to bring more change.
ZDNet looks at two categories that are diving into the future of money: blockchain and fintech innovations. See also: What is digital transformation? Everything you need to know about how technology is reshaping business.
Cryptocurrency is a digital token that's secured and transferred cryptographically using blockchain technology. Plenty of people have heard about Bitcoin, but few know how it truly functions. The first thing to remember: Bitcoin and blockchain are not synonymous. Blockchain -- often defined as a shared, immutable ledger that securely links blocks of encrypted data transactions in a network -- is the medium for recording and storing Bitcoin transactions.
Bitcoin operates on its own blockchain network. There are currently more than 16, cryptocurrencies , of which Bitcoin is the biggest, followed by Ether, which operates, along with all cryptocurrencies other than Bitcoin, on the Ethereum blockchain. But already this year, the value of Bitcoin and other cryptocurrencies dropped after the Federal Reserve took a more hawkish stance on its monetary policy, scaling back on the amount of bonds it holds and indicating that it'll raise interest rates.
Cryptocurrencies, which operate outside of central banks and government organizations, certainly aren't impervious to the shocks of the global banking system and marketplace. In addition to their market risk, cryptocurrencies remain highly controversial because critics point out they aren't tied to a regulated central bank or a sovereign institution, which makes them much harder or even impossible to regulate.
That means cryptocurrencies and Bitcoin, in particular, have already been seized on by those who want to use them for money laundering, buying illegal goods or circumventing capital controls. But despite such controversies, crypto's popularity and use are growing rapidly as of late, to the point that it's well on its way to becoming a significant disruptor to the world economy in the next few years. As a result, many corporations, financial institutions and investors -- many with a big case of FOMO -- are trying to calculate the potential financial rewards of getting involved with crypto.
Credit their popularity to the fact that they're stable in value and that they're capable of supporting more transparent and efficient value transfers than legacy payment networks. Avivah Litan, distinguished analyst and VP at Gartner, who also co-authored its report, Predicts Prepare for Blockchain-Based Digital Disruption , told ZDNet that you'll see cryptocurrencies being used for retail payments in about three to five years.
Now and in the next couple of years, you'll see a lot of interest and adoption of cryptocurrency by investors as an investment tool, namely as a hedge against inflation and as an alternative to gold. However, it remains an extremely volatile investment.
Despite this, there's little sign that investors or companies are backing down from the potential reward crypto has to offer. That's not just down to speculating on the price of cryptocurrencies. Some investors and companies are also interested in crypto to get into decentralized finance or DeFi.
Banks have to serve these companies, becoming digital asset custodians, and it's a global phenomenon, not just in the US. Governments throughout the world are also opening up to blockchain and crypto now. See also: Cryptocurrency scams pose largest threat to investors. Clamping down on crypto scams and misuse will be key to gaining mainstream legitimacy. Among the more recent types of scams are so-called 'rug pulls' in which developers build crypto projects that appear legitimate only to then abscond with investors' money, never to be seen again.
But with the dramatic growth of cryptocurrency use in , there is encouraging news: illicit activity is at its all-time low. Only 0. Another benefit blockchain is having with regards to the future of money is in customer loyalty rewards programs. For years, loyalty and rewards programs were met with hostility by customers for being inflexible with customers' needs.
Sign up thinking you can redeem points for a product or a discount on a service, and you're met with conditions and constraints about how and when to spend those points. The frustration and disappointment ultimately lead to loss of revenue and customers. As online shopping becomes the preferred choice for consumers, retail businesses are adopting blockchain technology to help them track and manage transactions in hopes of elevating the user experience by providing more dimension, flexibility, clarity and transparency.
Perhaps the most technically innovative, financially lucrative, and most misunderstood blockchain-based crypto asset is the Non-Fungible Token, or NFT. Like a one-of-a-kind piece of artwork valued for a large amount of money, such as a painting in the analog world, NFTs are their digital counterpart and can be anything -- from a tweet to a video clip to physical property such as real estate. It all comes down to tokenizing the asset in the digital landscape, be it an algorithm or code for a video or JPEG, to the digitized paperwork of the deed to a piece of land.
Whatever it is, it's unique and can be identified as such in the virtual world. The crypto space has a couple trillion dollars tied up in it at this point, but the remarkable thing is just how transitory it all feels. Most existing newsletters or podcasts are from institutional players or retail investors with projects to shill and disclosures to ignore.
Meanwhile, the bulk of tech media critiques seem to be from folks who cover several things and are frankly less incentivized to spend the time tirelessly dissecting a confusing industry. I want Chain Reaction to serve as a place where readers and listeners can dial in and learn alongside me as I talk with stakeholders and skeptics and try to get to the heart of where this all is headed.
All that to say, please subscribe and join me on this journey! My colleague Romain dove into the topic of how Ukraine was spending these funds and found a lot of unanswered questions. The cohort has had access to ample capital in recent quarters, giving them a bubble of venture capital that somewhat protects them from rapid changes in the greater economy. Just how wrong were those SPAC projections? Did they catch a headwind from changing market conditions that previously helped push them forward?
You bet. Hello readers, and welcome back to Week in Review!
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