Will Cryptocurrencies and Blockchain Redefine The Financial Services Industry?
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Despite its intangible nature, cryptocurrencies have become a valuable asset since the release of Bitcoin in 2009. However, most cryptocurrencies aren’t tied to one state or government and don’t have a central issuing authority or regulatory body. Essentially, that means that there isn’t one single organisation deciding when to make more currency, figuring out how much to produce, keeping track of where they are, and investigating any potential fraud.
This has a profound effect on the future of the financial services industry.
The only real, overarching authority is the blockchain technology that cryptocurrency is built on, acting as a form of ledger to record transactions. The beauty of blockchain technology is that it cannot be replicated, and that each block in the chain has a unique, individual tag that changes using mathematical algorithms with each transaction.
So, as we look to a digital future where everything is ultra-connected and better equipped to tackle modern problems, does cryptocurrency offer a unique opportunity to form a truly global economy? If everyone with a mobile or access to the internet can keep their own currency, will there be a revolution across the financial services ecosystem?
How are cryptocurrencies regulated?
The huge, obvious perks of cryptocurrency are:
- It cuts out the middleman
- It isn’t rendered vulnerable by the potential of a single point of failure - it doesn’t sit on one computer which can be hacked and controlled. This also means it’s highly resilient to malicious attacks
- It allows millions around the world to participate in the economy - whether they have a bank account or not - by simply opening a crypto software wallet, such as Safepal (SFP) Wallet, Metamask or Trust Wallet, which are available from Google Play or App Store
However, while this freedom can be seen as an advantage, it is very much a double-edged sword. There is no single regulatory body when it comes to cryptocurrency, meaning each country can create their own fintech rules. What this means is that in some countries, the growth of cryptocurrency is being nurtured and welcomed by governments looking to bolster their financial future, whereas others are failing to find their feet with it, resulting in chaos, confusion, and ambiguity in how it can or should be used.
This is how some countries are approaching the management of cryptocurrency:
|
Country |
Methods |
|---|---|
|
Japan |
Japan took a proactive approach to cryptocurrency, and was the world’s first major economy to recognise it as a legal method of payment. In 2018, the head of Japan’s Financial Services Agency said that there would be support offered to ensure the “growth” of cryptocurrency with appropriate regulation, stating that “excessive regulation” was completely ruled out. Today, Japan has complete regulatory clarity, setting out terms, expectations and providing protection and penalties for fraudulent acts taking place in this specific sphere. It is the world-leader in terms of crypto clarity. |
|
South Korea |
Cryptocurrency exchange regulations in South Korea need to meet stringent requirements, including registering with the government and complying with other measures overseen by the country’s Financial Supervisory Service (FSS). While the requirements are strict, they do provide a good level of clarity. |
|
United Kingdom |
2021 has seen more coherence in cryptocurrency regulations in the UK. The Financial Conduct Authority (FCA) has introduced several measures aimed at eradicating fraud and money-laundering, which have resulted in a ban on cryptocurrency derivatives, and even the largest global cryptocurrency exchange, Binance. For tax purposes, the UK entered into an agreement with Coinbase, which shared details of those with more than £5,000 in cryptocurrencies. Overall, the UK has taken an incredibly competitive, proactive approach which is no doubt leveraging the current chaos in our fiscal rival over the pond. |
|
United States |
There is a distinct lack of regulatory clarity in the US, with many promising startups seeking out other, more established geolocations to base from. A bill on cryptocurrencies and digital assets had made its way through Congress and been signed off by the majority, before being batted back down to square one by one state senator. Investors (40,000) are currently intervening in a case the Securities and Exchange Commission (SEC) has brought against a major Crypto currency, aren’t regulators supposed to protect investors? Altogether, the current outlook here is messy and uncertain and at Hanover Search we are witnessing first hand as talent and innovation is being driven into Europe and Asia for promising new startups that otherwise may have found a home in the U.S. |
|
Switzerland |
There are no tailor-made laws and regulations governing the use and sale of cryptocurrencies. Both the federal government and the Swiss Financial Market Supervisory Authority recognise the potential, and a comprehensive legal report was published in 2018, setting out the legal framework. |
|
Liechtenstein |
The Principality of Liechtenstein has really embraced digital assets and due to the country's regulators proactivity the FMA (Financial Market Authority) is now experiencing a wave of new startups and investment dollars. On October 3, the Liechtenstein Parliament passed the Token and Trusted Technology Service Provider Act (TVTG) - in the past known as the "Blockchain Act." This has provided investors with the security and clarity they have needed and the region now has a prosperous new opportunity with which to work with. |
|
Bermuda |
Similarly to Liechtenstein the BMA (Bermuda Monetary Authority) is another regulator with a foot firmly out of the starting gate. This highly proactive and driven regulator has clear guidelines for business operating in the region. It is also becoming a real haven for US unicorn projects that are simply snagged up by red tape and ambiguity from the SEC. Digital Asset businesses and start ups on the island are expanding rapidly. |
How could crypto redefine financial services?
Blockchain uses distributed ledger technology (DLT) to facilitate secure exchanges between strangers, and this tech doesn’t need a bank to work. This innovative security is likely to be a huge factor for financial institutions who are seeking to stay ahead of the disruption and disintermediation that is unfolding in the market.
While it’s clearly not going to happen overnight, blockchain technology and DLT represent a huge opportunity to disrupt the global banking industry by disrupting and redefining key services currently provided by banks, including:
- Payments
Blockchain technology operates on a decentralised ledger, meaning they can charge lower fees and provide a faster service than banks - real-time transactions, cross border transactions at a fraction of a penny are here. - Fundraising
Initial Coin Offerings (ICOs) are experimenting with revolutionary financing methods that can make access to capital a lot easier. - Securities
Encrypting traditional securities, such as stocks and bonds, means we’ll see global financial markets linked much more efficiently. Tokenization of stocks gives retail investors access to markets and exposure to equities in any global location. - Loans
Blockchain technology removes the middle man, meaning it could become more secure to borrow money and there’s also the potential for lower interest rates on loans than traditional banks can offer. - Fraud prevention & customer data protection
Customer data is totally secure, since it’s stored on decentralised ‘blocks’ in the blockchain. Not only that, but sharing this data between financial institutions is also easier and safer.
Groundbreaking developments from Ripple (XRP)
Not all cryptocurrencies are created equal, and XRP:Ripple stands out from the rest as it’s been designed to meet the needs of the financial services industry. For clarity...
- Ripple: A fintech business that focuses on cross-border payments that uses XRP in some of its products, also piloting cutting-edge NFT solutions.
- XRP Ledger: (Software / Platform) A decentralised, permissionless, public blockchain.
- XRP: The native digital asset (cryptocurrency) of the XRP ledger.
The XRP ledger (the payments software developed by Ripple) is a cutting-edge money transfer network designed to work with the cryptocurrency XRP. It’s a groundbreaking innovation that specialises in payment settlements and currency exchange. It enables you to move money quickly across any currency pair, globally, in seconds, for virtually no fee.
Ethereum - The Future of Finance?
Ethereum is utterly pervasive in the digital asset space with a huge ecosystem of projects, retail through to institutional-grade developing on this cutting edge blockchain. Backed by leading blockchain consultancy Consensys, Ethereum is currently being hardwired through various projects across global banks and defi platforms.
Ethereum has a huge developer and smart contracts that allow deep functionality. If it can migrate successfully from a PoW to a PoS chain this year then it could kick start the next bull market in the space. Whilst there is significant friction between these two projects it is undeniable that once regulation is harmonised both will likely feature in the blockchain ecosystem of the future.
The cryptocurrency opportunity
To my mind, cryptocurrencies and blockchain technology are here to stay. It’s the technology that will potentially transform our world, much like the internet has done, rather than the currencies themselves. What is the real driver of this transformation? People. Sourcing the right fintech talent has become the number one priority. More businesses are turning to executive search firms to help them remain at the forefront of this evolution.
With the right talent engaged, I believe they currently provide opportunities across the financial services sector and beyond. These include:
- Executive talent opportunities - cryptocurrencies are growing fast, and need high-performing talent to help them succeed. Not only that, but roles are also available beyond the financial sector at companies that need crypto expertise, such as at big retailers like Amazon and Walmart, Tesla, and Twitter.
- I am seeing high demand for Software Engineering, Compliance, Software Sales & Partnerships roles.
- Blockchain technology is driving innovation in the market, changing the landscape and enabling traditional financial institutions to up their game and become more competitive.
- Some countries, such as Germany, already offer cryptocurrency ETFs. As more countries get on board (with the US just rolling out a futures-based Bitcoin ETF, and potentially offering dedicated cryptocurrency ETFs in 2022), crypto will become more mainstream.
Find out how Hanover can help your business
Are you interested in having a conversation about hiring a high performing team in this sector or what this opportunity could mean for your business? As a specialist financial services executive search agency, we can help to find and assess leaders who can deliver exceptional results. Whatever your challenge, whether it's finding an interim CFO or achieving a better gender balance, our range of services are designed to flex to your specific business requirements.
Get in touch with us today and one of our fintech executive search consultants will reach out to schedule a call at a time that works for you.
