Roughly three-quarters of all the humans on Earth use banks, but only a tiny proportion of us will ever get to shape the way they work. Even fewer of us have any meaningful control of the systems which power our societies and economies.
When the system is opaque and the perils clear, it’s little wonder that some investors choose to pay financial advisors or other intermediaries to manage their portfolios. Yet whilst this strategy seems sensible, people who rely on others to oversee their finances are doubly disempowering themselves.
Things are changing. Cryptocurrencies have created a new economy that is free of the middlemen and authorities that control the traditional financial system. Instead of relying on central banks to set the rules, crypto investors can plot their own course without waiting for someone else to map out their future. The opportunities for self-direction and financial autonomy inherent offered by blockchain will change investment and, ultimately, change the world. Here’s what this new reality means for the future of finance.
A question of trust
It’s often said that we’re living through a “crisis of trust”, with citizens losing faith in governments and institutions. This is a problem because the economy is totally built around trust. Or at least it used to be.
“Conjoint action is possible just in proportion as human beings can rely on each other,” JS Mill wrote in the 19th century. “There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money.”
Today, most people have some trust in money and therefore believe in the value of the currencies we use to buy, spend or save. Which, frankly, is a bit of a gamble when you look at the history of finance.
Satoshi Nakamoto, the pseudonymous creator of Bitcoin, famously highlighted the weakness of fiat money (government-issued currencies) when he said the “root problem with conventional currency is all the trust that’s required to make it work”.
“The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust,” he continued.
So who can you trust today? To answer this question, you need to stop thinking about “who” you can trust, but “what” you can believe in.
In block we trust
With blockchain-based digital currencies like Bitcoin, it doesn’t matter if you don’t trust the government or even the person you’re doing business with. The basic idea behind blockchain is that the system as a whole can be trusted without trusting any of the participants. The blockchain is a ledger (a record of transactions in a database) that’s distributed to many people in the network, who all have their own copy. Blockchains remove the need for an intermediary like the Federal Reserve, because all players on the network can trust the integrity of the ledger without recourse to a central authority.
With blockchain, we can each become our bank and take our place in a peer-to-peer economy that’s fairer and more inclusive than the systems we currently use. Freed from tightly controlled monolithic systems and structures, the crypto economy affords its members the ability to self-direct their finances.
To many crypto investors, self-direction will mean the ability to manage their own investments. Once people choose a crypto wallet, they can effectively control their own portfolio without needing to pay a financial advisor and the other fees required to purchase traditional investments. The ability to unilaterally control a portfolio offers the benefit of speed as well as independence. If a crypto investor sees the market shift at two in the morning, for instance, they can instantly respond rather than waiting for their expensive stockbroker to open their office several hours later.
The ability to take immediate, decisive action without the involvement of an intermediary is one of the major benefits of taking control of your finances using cryptocurrencies. Another is security. In the old world, a Fort Knox model of security prevailed. Money was best kept securely inside a bank, protected by six-foot thick vault doors and burly security guards. In the digital era, the fearsome security systems surrounding big organisations are something of an invitation to hackers, because once past the perimeter they can access vast riches.
The individualism afforded to crypto investors helps to protect against hackers. Instead of one huge vault door, each crypto investor has their own vault protected by a private key which only they know. Individuals must take personal responsibility for keeping this key safe, but the reward for self-directing their own security is clear: safety.
By taking responsibility for their own security, crypto investors dramatically reduce the risk of being caught up in a data breach. This benefit is amplified when using a non-custodial crypto wallet – which refers to wallets made by companies that do not store their users’ private keys. Custodial wallets – those which store private keys – allow customers to recall this information if it’s forgotten. Yet long lists of keys are obviously huge targets for hackers. Keep your money in a non-custodial wallet and you will probably never be caught up in a breach, although you have to take responsibility for keeping the key safe because no one else will be able to give you access to a wallet if the code is lost.
You could also opt for the ultimate in self-direction by founding a new currency designed to exact specifications. We’ve already seen the creation of various bizarre and highly specific denominations, ranging from Dentacoin, a currency for dentists, to Theresa May Coin, which was once rather unfairly described as “neither strong nor stable” yet has still quadrupled in price this year from a low of 2 pence to a high of 8 pence.
There’s nothing to stop you from forging a new path using cryptocurrencies and the power of self-direction. Will you choose to head in the right direction?