– Katharine Wooller, Managing Director, Dacxi
In a world in which technology and digitisation strive to make life and business more efficient and cost effective, the eventual dominance and ubiquity of decentralised finance, powered by cryptocurrencies, is inevitable.
The fact is, every day, global businesses (and governments alike) haemorrhage millions of pounds, dollars, euro etc. to foreign exchange premia, adding significantly to eventual cost of sales and increased prices to consumers. These premia are harvested by foreign exchange dealers who have no value add to the sales process. In effect, foreign exchange should be seen as a ‘tax’ on money changing hands. Particularly in underdeveloped economies and the unbanked, this strangles much needed economic stimulus.
With decentralised finance, through cryptocurrencies, these costs can be dramatically reduced. Whilst this means international corporations stand to add significant cash back to their bottom lines, the man and woman on holiday in foreign climes will save money too. Take crypto to its logical extreme and it offers a fairer more democratic way of sharing wealth.
Many government pundits and industry experts’ rail against ‘DeFi’. In doing so they are conveniently ignoring the fact that we already have a great exemplar of decentralised finance in Europe, where initially 12 countries adopted the euro as a cross border currency in 2002. This number has since grown, as has the economic strength of the union. Of course, there are those who hate change, who funnily enough, often have a vested interest in the status quo.
Thus, if we take the euro as an example, we can see that adoption of DeFi takes time. The European Economic Community was established in 1957. Planning and delivery of the single currency took over 10 years. Given the pace of change in the digital world we could expect any adoption and integration of crypto as a global transactional currency to be much quicker, although the scope of the integration is much greater.
Perhaps then what we can expect for the future of crypto is that it will be deployed incrementally through different cross-border commercial communities, rather than by nation states. This may happen on an industry-by-industry supply chain basis for goods that move around the world – for example steel, agricultural produce, fashion goods. Of course the adoption of central bank digitised currency will hasten the intellectual acceptance of crypto technologies as currency.
One major factor here will be the adoption of Web 3.0 – a decentralised digital environment which will greatly enable secure, blockchain formatted, peer-to-peer trading. Based on this premise it’s easy to understand why both governments and the financial services sector are on tenterhooks about crypto. With every increment in blockchain security, they stand to lose another layer of control.
For the man or woman in the street, or more likely the man and woman on holiday in Malaga, the benefits of crypto will accrue more slowly. It seems unlikely that in the major economies, regulators will allow an external crypto such as bitcoin in place of their current currency for everyday use, as for example El Salvador has done. However, given the democratisation of retail on a global e-commerce basis, a digital wallet may make life cheaper for those buying goods online from China or the USA.
In the medium-term expect markets to work towards increasing utility in digital currencies, leading to a general coalescence towards global adoption. In the short-term we should expect cryptocurrencies to remain volatile against fiat-based money due to investor sentiment driven by mixed messages about potential and actual regulation, and speculative traders trying to game the market. As part of this expect to see much needed consolidation in the bloated number of crypto currencies available – over 17,000 – as the market matures.
